UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               -------------------

                                    FORM 10-K
                               -------------------

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 1998        Commission File No.:  0-26954


                     CONSOLIDATED DELIVERY & LOGISTICS, INC.
             (Exact name of registrant as specified in its charter)

         Delaware                                                22-3350958
(State or other jurisdiction                                  (I.R.S. Employer
of incorporation or organization)                            Identification No.)

                                380 Allwood Road
                            Clifton, New Jersey 07012
                                 (973) 471-1005
(Address,  including Zip Code,  and telephone  number,  including  area code, of
 principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.001 per share

     Indicate by check mark whether:  the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]

     The  aggregate  market value of voting stock held by  nonaffiliates  of the
registrant was $21,079,156 as of March 12, 1999.

     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of common stock, as of the latest practicable date:

     Outstanding as of March 12, 1999
         Common Stock, $.001 par value                      7,043,702

     Documents  Incorporated by Reference:  The information required by Part III
(other  than  the  required   information   regarding   executive  officers)  is
incorporated  by reference from the  registrant's  definitive  proxy  statement,
which  will be filed  with the  Commission  not  later  than 120 days  following
December 31, 1998.


<PAGE>


                                     PART I

     Statements and information presented within this Annual Report on Form 10-K
for  Consolidated  Delivery & Logistics,  Inc. (the " Company",  "CDL")  include
certain statements that may be deemed to be "forward-looking  statements" within
the meaning of Section 27A of the Securities Act of 1933 (the "Securities  Act")
and Section 21E of the Exchange Act. All  statements,  other than  statements of
historical facts, included in this Annual Report that address activities, events
or developments  that the Company  expects,  believes or anticipates will or may
occur in the future,  including,  but not  limited  to,  such  matters as future
business development, business strategies, expansion and growth of the Company's
operations  and  other  such  matters  are  forward-looking  statements.   These
statements are based on certain  assumptions and analyses made by the Company in
light of its experience and perception of historical trends, current conditions,
expected  future  developments  and other factors it believes are appropriate in
the circumstances. Such statements are subject to a number of assumptions, risks
and uncertainties,  including the risk factors (Item 1 - Risk Factors) discussed
below, general economic and business conditions,  the business opportunities (or
lack  thereof)  that may be presented to and pursued by the Company,  changes in
law or regulations  and other  factors,  many of which are beyond the control of
the Company.  Readers are cautioned that any such  statements are not guarantees
of future  performance  and that  actual  results  or  developments  may  differ
materially  from  those  projected  in  the  forward-looking   statements.   All
subsequent  written  or  oral  forward-looking  statements  attributable  to the
Company  or  persons  acting on its  behalf  are  expressly  qualified  by these
factors.

Item 1.  Business

     Consolidated Delivery & Logistics,  Inc. was founded in June 1994 to create
a national,  full service,  time critical  ground and air delivery and logistics
company.  In November  1995, in  conjunction  with the Company's  initial public
offering  (the "IPO" ,  "Offering")  the Company  acquired  eleven time critical
ground and air delivery businesses in fifty-two cities across the United States.
Subsequent to the IPO and through December 31, 1998, the Company acquired eleven
additional time critical ground and air delivery  businesses in fourteen cities.
See "--Recent Acquisitions."

     The Company is a leading  provider of  customized  time  critical  delivery
services to a wide range of  commercial,  industrial and retail  customers.  The
Company's  ground delivery  operations are concentrated on the East Coast and in
the Midwest  with a strategic  presence on the West  Coast.  The  Company's  air
delivery services are provided  throughout the United States and to major cities
around the world.

     The Company's ground delivery  services are generally  divided between rush
delivery,   dedicated  contract   logistics,   routed  services  and  facilities
management.   Rush   delivery   service   typically   consists   of   delivering
time-sensitive  packages,  such as critical  machine parts or emergency  medical
devices,  point-to-point on an as needed basis.  Routed service  provides,  on a
recurring and often daily basis,  deliveries  from  pharmaceutical  suppliers to
pharmacies, from manufacturers to retailers, and the interbranch distribution of
financial documents in a commingled system. Dedicated contract logistics service
provides a comprehensive  solution to major  corporations that want the control,
flexibility and image of an "in-house"  fleet with all the economic  benefits of
outsourcing.

<PAGE>

     The Company's air delivery  services are generally  divided into customized
heavy freight,  next-flight-out  and international  shipments.  Customized heavy
freight  service  typically  involves the movement of  heavyweight  and oversize
shipments from businesses such as printers and computer distributors who require
extra  handling,  late cut-off times or  time-definite  delivery  windows.  Next
flight  out  service  provides  such  businesses  as  advertising  agencies  and
entertainment  companies the ability to ship their product on the next available
flight  to be  delivered  directly  to  their  customer.  International  service
provides  companies the ability to have  additional  attention,  shorter transit
time or time-definite delivery windows anywhere in the world.

Industry Overview

     The ground and air  delivery  industry  in the  United  States is  composed
largely of companies  providing  same-day,  next-day and two-day  services.  The
Company  primarily  services the same-day,  time critical  delivery  market.  In
contrast,  the  next-day  and two-day  delivery  markets are  dominated by large
national entities,  such as United Parcel Service,  Inc. ("UPS") and FedEx Corp.
("FedEx").

     The  Company  believes  that  the  same-day  delivery  industry,  which  is
currently serviced by a fragmented system of approximately 10,000 companies that
include  only a small  number  of  large  regional  or  national  operators,  is
undergoing  substantial  growth and  consolidation.  The Company  believes  that
several   factors,   including  the  following,   are  driving  the  growth  and
consolidation of the industry:

     Outsourcing and Vendor  Consolidation.  Commercial and industrial concerns,
which are major  consumers  of same-day  delivery  services,  have  continued to
follow the trend of concentrating on their core business by outsourcing non-core
activities. Businesses also are increasingly seeking single-source solutions for
their  regional and national  same-day  delivery  needs rather than  utilizing a
number of smaller local delivery  companies.  At the same time,  larger national
and  international  companies  are  looking  toward  decentralized  distribution
systems.  The Company believes that significant  opportunities  exist for larger
regional or national  carriers that are able to provide a full range of services
to such businesses.

     Heightened   Customer   Expectations.   Increasing   customer   demand  for
specialized  services such as customized  billing,  enhanced tracking,  storage,
inventory management and just-in-time delivery capabilities favor companies with
greater resources to devote to providing such services. The use of facsimile and
the internet have increased the processing of information and transactions  such
that the requirements  for immediate  delivery of a wide range of critical items
has become  commonplace.  This  practice  increases  demand for  same-day,  time
critical delivery services

<PAGE>

     New Market  Opportunities.  The  significant  growth in Internet,  catalog,
at-home  shopping  and  in-home  medical  care  present  substantial   expansion
opportunities  for companies  capable of economically  providing more customized
and reliable services.

Services

     The Company provides a full range of customized,  time-critical  ground and
air delivery service options.

Ground Delivery

     Rush. In providing  rush or service on demand,  CDL  messengers and drivers
respond  to  customer   requests   for   immediate   pick  up  and  delivery  of
time-sensitive  packages.  The Company generally offers one-, two- and four-hour
service,  seven days a week,  twenty-four hours a day. Typical customers include
commercial and  industrial  companies,  hospitals and service  providers such as
accountants,  lawyers,  advertising  and travel  agencies  and public  relations
firms.

     Scheduled.  The  Company's  scheduled  delivery  services are provided on a
recurring  and often daily  basis.  The Company  typically  picks up or receives
large shipments of products, which are then sorted, routed and delivered.  These
deliveries  are made in  accordance  with a customer's  specific  schedule  that
generally provides for deliveries to be made at particular times. Typical routes
may  include  deliveries  from  pharmaceutical  suppliers  to  pharmacies,  from
manufacturers to retailers, the interbranch distribution of financial documents,
payroll data and other time-critical documents for banks, financial institutions
and  insurance  companies.  The Company also  provides  these  services to large
retailers for home delivery,  including large cosmetic  companies,  door-to-door
retailers,  catalog  marketers,  home health care  distributors and other direct
sales companies.

         Facilities   Management.   The  Company  provides  mailroom  management
services,  including the provision and supervision of mailroom  personnel,  mail
and package  sorting,  internal  delivery and outside local messenger  services.
Typical customers include commercial enterprises and professional firms.

         Dedicated Contract  Logistics.  CDL offers efficient and cost effective
dedicated delivery solutions,  including,  but not limited to, fleet replacement
solutions,  dedicated  delivery systems and  transportation  systems  management
services.  These  services  provide  major  pharmaceutical  wholesalers,  office
product companies and financial  institutions with the control,  flexibility and
image of an "in-house fleet" with all of the economic benefits of outsourcing.

Air Services

         The Company provides  next-flight-out  (rush) and scheduled air courier
and airfreight services to its customers, both domestically and internationally.
The services provided include arranging for (i) the transportation of a shipment
from the customer's location to the airport, (ii) air transportation,  and (iii)
the delivery of the shipment to its ultimate  destination.  In order to meet the

<PAGE>

needs of its  customers,  the Company has  established  relationships  with many
major airlines and large airfreight  companies from which the Company  purchases
cargo space on an as-needed basis.

Operations

Overview

         The  Company's  Ground and Air  Divisions  are  currently  managed  and
evaluated   separately.   The  divisions  have  operations  centers  staffed  by
dispatchers,  as well as order entry and other operations personnel.  The Ground
and Air  Divisions  operate  from fifty eight  leased  facilities  in twenty two
states across the country.

Ground Delivery

         Coordination  and  deployment  of delivery  personnel  is  accomplished
either through communications systems linked to the Company's computers, through
pagers, by radio or telephone.  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.  In the case of scheduled
deliveries, routes are designed to minimize the unit costs of the deliveries and
to enhance route density.  The Company is currently  installing new hardware and
software  systems  designed to enhance and centralize the reporting and tracking
of  shipments  through the ground  system as well as to simplify  the process of
designing and scheduling  delivery  routes.  See Year 2000 Compliance in Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations.

Air Services

         The Company's air courier and airfreight service begins with a customer
placing an order,  which is then  dispatched  for pickup.  A tracking  number is
assigned to the shipment and entered into the  Company's  computer  system.  The
shipment is then routed based on delivery specifications, destination and timing
considerations.  At the final destination,  a "proof of delivery" is obtained to
conclude and confirm the delivery, at which time the customer is invoiced.

Sales and Marketing

         The Company believes that a direct sales force most effectively reaches
its customers for same-day,  time critical delivery  services and,  accordingly,
the Company does not  currently  engage in mass media  advertising.  The Company
markets  directly to individual  customers by designing and offering  customized
service  packages  after   determining  a  customer's   specific   delivery  and
distribution  requirements.  The Company is  implementing  a coordinated  "major
account"  strategy by building on  established  relationships  with regional and
national  customers.  The Company also employs certain direct response marketing
techniques.

<PAGE>

         Many of the  services  provided  by the  Company,  such  as  facilities
management,  dedicated  contract  logistics and routed  delivery  services,  are
determined on the basis of competitive bids. However,  the Company believes that
quality and service  capabilities  are also important  competitive  factors.  In
certain  instances,  the  Company has  obtained  business by offering a superior
level  of  service,  even  though  it was not the low  bidder  for a  particular
contract.  The  Company  derives a  substantial  portion  of its  revenues  from
customers  with whom it has entered  into  contracts.  Virtually  all  scheduled
dedicated  vehicle and facilities  management  services are provided pursuant to
contracts.  Most  of  these  contracts  may be  terminated  by the  customer  on
relatively short notice without penalty.

Competition

         The market for the Company's  delivery  service is highly  competitive.
The Company  believes that the principal  competitive  factors in the markets in
which it competes are  reliability,  quality,  breadth of service and price. CDL
competes  on  all  such  factors.  Most  of  the  Company's  competitors  in the
time-critical  ground and air delivery  market are privately held companies that
operate in only one location or in a limited service area.
However, there is a growing trend toward consolidation in the industry.

         In addition to the  time-critical  delivery  services  provided by CDL,
customers also utilize next-day and second-day services. The market for next-day
and second-day services is dominated by nationwide network providers, which have
built large,  capital-intensive distribution channels that allow them to process
a high volume of materials.  These companies  typically have fixed deadlines for
next-day or second-day delivery services.  In contrast,  the Company specializes
in on-demand, next-flight-out deliveries or services which, by their nature, are
not governed by rigid time schedules.  If a customer is unable to meet a network
provider's established deadline, the Company can pick up the shipment, put it on
the next  available  flight and deliver  it, in some  cases,  before the network
provider's  scheduled  delivery  time.  The  Company's  services  are  available
twenty-four hours a day, seven days a week.

         The Company  obtains space on scheduled  airline flights to provide its
air services and  accordingly  does not have to acquire or maintain an expensive
fleet of  airplanes.  As a result,  the  Company  can  provide a more  flexible,
specialized  service to its customers  without incurring the high fixed overhead
that the larger network providers must incur.

Acquisitions and Divestitures

         In November 1995 the Company commenced  operations  simultaneously with
the acquisition of eleven companies  providing  same-day  delivery and logistics
services.  The  aggregate  consideration  paid by the Company was  approximately
$29.6 million in cash and 2,935,702  shares of Common Stock, par value $.001 per
share (the  "Common  Stock"),  for an  aggregate  value of  approximately  $67.8

<PAGE>

million.  In addition to the acquisition of the eleven  companies,  CDL acquired
certain  additional  assets from two companies in transactions  accounted for as
purchases.  The assets acquired in those transactions were not material to CDL.

         In 1996, the Company  acquired five additional  businesses  aggregating
approximately  $15.6 million in annual  revenues.  The aggregate  purchase price
paid by the  Company  for  these  businesses  was  approximately  $3.3  million,
consisting of a combination of cash,  seller-financed  debt and shares of Common
Stock. The purchase price was subsequently reduced by approximately $616,000 due
to actual revenue not reaching  projected  revenue as stipulated in the purchase
agreements. Each of the transactions has been accounted for as a purchase.

         In 1997, the Company did not make any  acquisitions and instead focused
on internal  growth.  Consistent with the change in strategic  focus, in January
1997, the Company sold its contract  logistics  subsidiary to David Mathia,  its
founder and president,  in exchange for 137,239  shares of the Company's  common
stock. In connection with the sale, the Company recorded a gain of approximately
$816,000  before the effect of Federal and state income taxes.  During  December
1997,  the Company sold its direct mail business for $850,000 in cash and notes.
In  connection  with the sale,  the  Company  recorded  a gain of  approximately
$23,000  net of  Federal  and  state  income  taxes  of  approximately  $15,000.
Accordingly,  the direct mail business  (which  reflected  income of $171,000 in
1996 and a loss of $1.2 million in 1997) has been  reclassified  as discontinued
operations in the accompanying consolidated financial statements.

         In 1998 the Company  acquired four additional  same-day,  time critical
delivery  businesses  with  aggregate  annual  revenues of  approximately  $25.1
million.  The  aggregate  purchase  price  paid for these  businesses  was $14.5
million  consisting  of a  combination  of cash,  shares  of Common  Stock,  and
seller-financed  debt.  Each of the  transactions  has been  accounted  for as a
purchase.  - See Item 7. -  Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations.

         In February  1999 CDL  acquired  an air  delivery  company  with annual
revenues of approximately $14.9 million.  The acquisition was accounted for as a
purchase.  The price  paid for this  business  was  approximately  $5.9  million
consisting of a combination of cash,  shares of Common Stock and seller financed
debt. Under the terms of the agreement there is the potential for up to $520,000
to be  paid  upon  the  accomplishment  of  certain  financial  and  operational
objectives.

<PAGE>

Regulation

         The  Company's  delivery  operations  are subject to various  state and
local  regulations  and, in many  instances,  require  permits and licenses from
state  authorities.  To a limited degree,  state and local  authorities have the
power to regulate the  delivery of certain  types of  shipments  and  operations
within  certain  geographic  areas.  Interstate  and  intrastate  motor  carrier
operations  are also  subject to safety  requirements  prescribed  by the United
States  Department of  Transportation  (the "DOT") and by State  Departments  of
Transportation.  The Company's failure to comply with the applicable regulations
could result in substantial  fines or possible  revocation of one or more of the
Company's operating permits.

Safety

         The  Company  seeks to ensure  that all  employee  drivers  meet safety
standards  established by the Company and its insurance  carriers as well as the
DOT. In addition,  where required by the DOT or state or local authorities,  the
Company  requires  independent  owner/operators  utilized by the Company to meet
certain specified safety standards.  The Company reviews  prospective drivers in
an effort to ensure that they meet applicable requirements.

Employees and Independent Contractors

         At December 31, 1998, the Company employed  approximately 3,500 people,
2,400  as  drivers  or  messengers,  600  in  operations,  300 in  clerical  and
administrative positions, 60 in sales and 140 in management.  The Company is not
a party to any collective bargaining agreements, although the Company is subject
to union  organizing  activity from time to time. The Company also had contracts
with approximately 1,400 independent contractor drivers as of December 31, 1998.
The  Company  has not  experienced  any work  stoppages  and  believes  that its
relationship with its employees and independent  contractor drivers is good. See
"Risk Factors - Independent Contractors and Employee Owner/Operators."

Risk Factors

         In  reading  this  report,  you should  consider  the  following  risks
carefully.  The  risks  described  below  are not the  only  ones  that we face.
Additional  risks about which we do not yet know or that we currently  think are
immaterial  may also impair our business  operations.  Our  business,  operating
results or financial condition could be materially  adversely affected by any of
the following  risks. The trading price of our common stock could decline due to
any of these risks. You should also refer to the other  information set forth in
this Report. This Report contains forward-looking  statements.  These statements
relate to future events or our future financial  performance.  In some cases you
can identify  forward-looking  statements by terminology  such as "may," "will,"
"expect," "believe," "intend," "anticipate," "estimate," or similar words. These
statements  are  only   predictions  and  are  based  on  our  current  beliefs,
expectations  and  assumptions  and  are  subject  to  a  number  of  risks  and
uncertainties.  Actual  results  and  events  may  vary  materially  from  those
discussed in the forward looking statements.  We discuss risks and uncertainties
that might cause such a difference below and elsewhere in this Report.

<PAGE>

Limited Combined Operating History

         We conducted no operations and generated no revenue prior to our IPO in
November,  1995.  At that time,  we acquired  eleven  companies  in the same-day
delivery and logistics business. Since then, we have acquired several additional
businesses.  Prior  to  their  acquisition  by us,  the  companies  that we have
acquired were operated as independent  entities.  The process of integrating the
operations  of  these  businesses  into  our  business  may  involve  unforeseen
difficulties  and may require a  significant  amount of our  financial and other
resources,  including management time. We cannot assure you that we will be able
to  integrate  the  operations  of  these  businesses   successfully   into  our
operations. In addition, to manage the combined enterprise on a profitable basis
we must conform all acquired companies into certain necessary common systems and
procedures, including computer and accounting systems. We cannot be certain that
we will  successfully  institute  these common  systems and  procedures  for all
acquired  companies.  Our  inability  to integrate  or  successfully  manage the
companies  we have  acquired  or  acquire  in the  future  could have a material
adverse effect on our business, financial condition and results of operations.

Ability to Manage Growth

         We expect to  expend  significant  time and  effort  in  expanding  our
business and  acquiring  other  businesses.  This growth may place a significant
strain on our resources.  We cannot be certain that our systems,  procedures and
controls will be adequate to support our  operations as they expand.  Any future
growth also will impose significant  additional  responsibilities  on members of
our senior management, including the need to identify, recruit and integrate new
senior level managers and executives.  We cannot be certain that we can identify
and retain such  additional  managers  and  executives.  As a result,  we cannot
assure  you that we will be able to expand  our  business  or manage  any future
growth effectively and profitably.

Risks Related to Our Acquisition Strategy

         In 1997  we  made no  acquisitions.  One of our  strategies  for  1998,
however,  was to increase our revenues and  profitability and expand our markets
through the  acquisition  of selected  companies in the same-day  ground and air
delivery  business.  The Company added 4 such  businesses in 1998 and intends to
continue its  acquisition  activity into 1999.  Consistent  with that plan,  CDL
acquired an air delivery company in February 1999. We may not, however,  be able
to identify,  acquire or manage  profitable  additional  businesses or integrate
successfully any acquired  businesses without substantial costs, delays or other
operational  or  financial  problems.  Acquisitions  involve a number of special
risks, including:

o Possible  adverse  effects on our  operating  results  and the timing of those
results;  o Diversion of  management's  attention;  o Dependence  on  retaining,
hiring and training of key  personnel;  o Risks  associated  with  unanticipated
problems or legal liabilities; and o The realization of intangible assets.

Some or all of these  additional  risks could have a material  adverse affect on
our business,  financial condition and results of operations,  especially in the
fiscal  quarters  immediately  following  the  acquisition.  If we are unable to
acquire  additional  same-day  delivery  companies or integrate those businesses
successfully, our ability to expand our operations and increase our revenues and
profitability could be reduced significantly.

Risks Related to Acquisition Financing

         We  cannot  readily  predict  the  timing,  size  and  success  of  our
acquisition  efforts or the capital we will need for these efforts. We currently
intend to  finance  future  acquisitions  by using a  combination  of our common
stock, notes and cash. If the common stock does not maintain a sufficient market
value,  or if the owners of the  businesses  we wish to acquire are unwilling to
accept  common  stock as part of the purchase  price,  we may be required to use
more of our cash resources,  if available,  to maintain our acquisition program.

<PAGE>

Using cash for acquisitions  limits our financial  flexibility and makes us more
likely to seek additional  capital through borrowing money or selling stock. The
Company completed a $15 million private placement of senior  subordinated  notes
and  warrants in January 1999 to be used  primarily to finance  acquisitions.The
Company  may not be able to  obtain  the  additional  cash we will  need for our
future  acquisition  program on acceptable  terms,  or at all. This could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.  In addition,  our Revolving Credit Facility currently restricts our
ability to make acquisitions.

Risks  Associated  With  the  Same-Day  Delivery   Industry;   General  Economic
Conditions

          Our  revenues and  earnings  are  especially  sensitive to events that
affect the delivery services industry, including:

o        Extreme weather conditions;
o        Equipment failures
o        Economic factors affecting our significant  customers;
o        Increases in fuel prices; and
o        Shortages of or disputes with labor.

Any of these factors could make it more  difficult for us to service our clients
effectively.

          Demand for our services may also be negatively  impacted by down turns
in the level of general economic activity and employment

Dependence on Technology

          Our  business is  dependent  upon several  different  information  and
telecommunications  technologies.  We have entered into a contract with Computer
Associates,  Inc. in March,  1999 to develop new  software to  facilitate  order
processing and tracking.  If we are not able to process transactions  accurately
and quickly, we may lose our customers and our reputation may be diminished.  We
intend to integrate these separate operating systems of our subsidiaries into an
integrated  company-wide system. We may encounter unexpected delays and costs in
integrating  and  converting  these  systems.  We may be unable to complete  our
software  development  plan in a timely or economic  manner.  In  addition,  the
developed  software  may fail to  perform  the  order  processing  and  tracking
services contemplated by our information  technology strategy or customer demand
for the  intended  software  applications  may  decrease or be  insufficient  to
support the technology  related  capital  investment we make.  This could have a
material  adverse  effect on our  business,  financial  condition  or results of
operations.

Independent Contractors and Employee Owners/Operators

          Federal and state  authorities  have from time to time  asserted  that
independent contractors in the transportation industry,  including those used by
the Company, are employees rather than independent contractors.  We believe that
the   independent   contractors   we  use  are  not  employees   under  existing
interpretations  of Federal and state laws.  Federal and state authorities could
challenge  this position and laws,  including tax laws, and  interpretations  of
various laws, may change. If the Company were required to pay for and administer
added  benefits  to   independent   contractors,   our  operating   costs  could
substantially  increase.  In addition,  certain of our employees own and operate
their own  vehicles.  The Company is  presently  undergoing  an  employment  tax
examination by the Internal Revenue Service (the "IRS").  The examination covers
certain payments made during the 1995, 1996 and 1997 tax years to employee owner
operators for all or a portion of the costs of operating  their  vehicles in the
course of their employment.  The Company believes that these arrangements do not
represent additional  compensation to those employees.  However, there can be no
assurance  that  the IRS will  not  seek to  recharacterize  some or all of such
payments as additional compensation.  If such amounts were recharacterized,  the
Company could have to pay additional employment-related taxes on such amounts.

<PAGE>

Claims Exposure

          We use approximately 3,800 independent contractor and employee drivers
in our business.  These drivers are involved in accidents  from time to time. We
currently carry liability  insurance of $1,000,000 for each accident (subject to
applicable  deductibles).  We also carry umbrella coverage up to $25 million and
require our independent  contractors to maintain liability insurance of at least
the minimum amounts  required by state and Federal law. We cannot guarantee that
claims  against  us will not  exceed  the  amount of  coverage.  If there were a
material increase in the frequency or severity of accidents, liability claims or
workers  compensation  claims  against us, or  unfavorable  resolutions of those
claims,   our  operating  results  could  be  materially   adversely   affected.
Significant increases in insurance costs could reduce our profitability.

Shares Eligible For Future Sales

          Sale of a large  number of shares of our  common  stock in the  market
could cause the market price of the common stock to drop.  As of March 12, 1999,
7,043,702  shares of common  stock were  issued and  outstanding.  In  addition,
2,042,833  shares of common stock were  issuable upon the exercise or conversion
of stock options,  convertible  notes or debentures  and the Company's  employee
stock purchase plan,  1,442,439 of which have been  registered for resale by the
holders and are freely  tradable  upon issuance and 600,394 of which are subject
to  registration  rights  pursuant to which the holders can cause the Company to
register those shares for resale.  Sale in the market of substantial  amounts of
common stock, or the perception that sales might occur,  could adversely  affect
the market  price of the common  stock.  If all of these shares were issued they
would represent 29% of the Company's issued and outstanding shares. Any sales of
these shares may make it more difficult for us to sell equity  securities in the
future when and at a price that we deem appropriate.

Reliance on Key Personnel

          Our future  success will depend in part upon the continued  service of
our senior  management and on the senior management of companies that we acquire
in the future. If any of these people decide not to continue in their employment
with us, or if we are unable to attract and retain other skilled employees,  our
business could be adversely affected.

Competition

          We believe that the markets for the  same-day  ground and air delivery
services we provide are highly competitive.  Price competition is often intense,
especially in the market for basic  delivery  services.  We compete with a large
number of other air  delivery  and ground  courier  service  entities.  While we
believe  that we  compete  effectively  with  these  other  entities,  we cannot
guarantee  that we will be able to  maintain  our  competitive  position  in our
principal markets.

Permits and Licensing

          Our  delivery  operations  are  subject  to various  state,  local and
Federal  regulations  that in many instances  require permits and licenses.  Our
failure to  maintain  required  permits or licenses or to comply with these laws
and  regulations  could  subject  us to  substantial  fines or could lead to the
revocation of our authority to conduct certain of our operations.

No Future Dividends

          We do not  anticipate  paying cash  dividends  on our shares of common
stock in the foreseeable future. We intend to retain any future earnings for use
in our  business.  Our  Revolving  Credit  Facility  limits  our  ability to pay
dividends on our common stock.

Effect of Certain Charter Provisions

          Certain provisions of our Certificate of Incorporation and By-Laws, as
currently  in  effect,  as well as  Delaware  law,  could  discourage  potential
acquisition  proposals,  delay or prevent a change in control of the  Company or
limit the price that certain  investors  may be willing to pay in the future for
our  common  stock.  Our  Certificate  of  Incorporation  permits  our  Board of

<PAGE>

Directors to issue shares of preferred stock without further stockholder action.
The  existence  of this  preferred  stock  could  discourage  a third party from
attempting to obtain  control of the Company and may also cause the market price
of the  common  stock to drop.  We have no  current  plans  to issue  shares  of
preferred stock. In addition,  Section 203 of the Delaware  General  Corporation
law restricts  certain persons from engaging in business  combinations  with us.
Our current By-Laws provide for a staggered board of directors, which means that
only  one-third  of the  board  will  be  elected  at  each  annual  meeting  of
stockholders


Item 2. Properties -

          As of December 31, 1998, the Company operated from fifty-eight  leased
facilities  (excluding six authorized sales agent  locations).  These facilities
are principally used for operations,  general and  administrative  functions and
training.  In addition,  several  facilities  also contain storage and warehouse
space.  The  table  below  summarizes  the  location  of the  Company's  current
facilities (excluding the sales agent locations):

State                                                     Number of Facilities
-----                                                     --------------------
New York..........................................                16
Florida...........................................                 8
New Jersey........................................                 6
North Carolina....................................                 4
Massachusetts.....................................                 3
California........................................                 2
Illinois..........................................                 2
Louisiana.........................................                 2
Ohio..............................................                 2
Alabama...........................................                 1
Arizona...........................................                 1
Connecticut.......................................                 1
Georgia...........................................                 1
Indiana...........................................                 1
Maine.............................................                 1
Maryland..........................................                 1
Missouri..........................................                 1
New Hampshire.....................................                 1
South Carolina....................................                 1
Tennessee.........................................                 1
Virginia..........................................                 1
Washington........................................                 1

<PAGE>

          The  Company's  corporate  headquarters  are located in  Clifton,  New
Jersey.  The Company believes that its properties are generally well maintained,
in good condition and adequate for its present needs.  Furthermore,  the Company
believes that suitable  additional or  replacement  space will be available when
required.

          As of December 31, 1998, the Company owned or leased  approximately 75
cars and 550 trucks of various  types,  which are primarily  operated by drivers
employed by the Company. In addition,  certain of the Company's employee drivers
own or lease their own vehicles. The Company also hires independent  contractors
who typically  provide their own vehicles and are required to carry at least the
minimum amount of insurance required by state law.

          The Company's aggregate rental expense for the year ended December 31,
1998 was approximately $12.7 million. See Note 13 to the Company's  Consolidated
Financial Statements.


<PAGE>

Item 3.  Legal Proceedings

          On March 19,  1997,  a purported  class  action  complaint,  captioned
Gapszewicz v.  Consolidated  Delivery & Logistics,  Inc., et al. (97 Civ. 1939),
was filed in the United States  District Court for the Southern  District of New
York (the "Court")  against the Company,  certain of the  Company's  present and
former  executive  officers,  and the co-managing  underwriters of the Company's
IPO. The gravamen of the complaint is that the Company's  registration statement
for the Offering  contained  misstatements  and  omissions  of material  fact in
violation  of the  Federal  securities  laws and that  the  Company's  Financial
statements included in the registration  statement were false and misleading and
did not fairly  reflect the Company's true  financial  condition.  The complaint
seeks the  certification  of a class  consisting  of purchasers of the Company's
Common Stock from November 21, 1995 through February 27, 1997, rescission of the
Offering,  attorneys'  fees  and  other  damages.  In  April  1997,  five  other
complaints  containing  allegations  identical to the Gapszewicz  complaint were
filed in the same Federal court against the Company.  On May 27, 1997, these six
complaints were  consolidated  into a single action entitled "In re Consolidated
Delivery & Logistics, Inc. Securities Litigation." On July 16, 1997, the Company
and the  underwriter  defendants  filed a motion to dismiss  the  complaint.  In
response,  the  plaintiffs  filed an amended  complaint  on October 20,  1997. A
motion  to  dismiss  the  amended  complaint  was filed by the  Company  and the
underwriter  defendants  on December 15, 1997.  The motion was denied on May 11,
1998.  On  October  7, 1998 a  Stipulation  and  Agreement  of  Settlement  (the
"Settlement  Agreement")  was  entered  into  by  the  parties  providing  for a
Settlement Fund of $1.5 million.  The Court issued a preliminary order approving
the terms of the settlement on October 19, 1998.  Mailing of Notice and Proof of
Claims  to class  members  under  the  terms  of the  Settlement  Agreement  was
completed  by October 23, 1998.  The Court  issued an Order and Final  Judgement
formally  approving the settlement on February 11, 1999. The Plaintiff's time to
appeal the Order and Judgement  expired on March 15, 1999 and this matter is now
concluded.  The full  amount  of the  settlement  is  covered  by the  Company's
applicable  insurance;  accordingly  the  settlement  will not  have a  material
adverse effect on the Company's financial position or results of operations.

          In February 1996,  Liberty Mutual Insurance Company ("Liberty Mutual")
filed  an  action  against  Securities  Courier  Corporation  ("Securities"),  a
subsidiary  of the Company,  Mr.  Vincent Brana and certain other parties in the
United States  District  Court for the Southern  District of New York  alleging,
among  other  things,  that  Securities  had  fraudulently  obtained  automobile
liability  insurance  from  Liberty  Mutual in the late 1980s and early 1990s at
below  market  rates.  This suit,  which  claims  common  law fraud,  fraudulent
inducement,  unjust  enrichment  and  violations of the civil  provisions of the
Federal  RICO  statute,  among  other  things,  seeks an  unspecified  amount of
compensatory  and punitive  damages from the  defendants,  as well as attorneys'
fees and other expenses.  Under the terms of its acquisition of Securities,  the
Company has certain rights to indemnification from Mr. Brana. In connection with
the  indemnification,  Mr.  Brana has entered into a  Settlement  Agreement  and
executed a  Promissory  Note in the  amount of up to  $500,000  or such  greater
amount as may be due together with interest  calculated at a rate  equivalent to
the rate  charged the Company by its senior  lender and due on December 1, 2000.
The  Promissory  Note is further  secured by 100,000 shares of CDL Common Stock.
Discovery is  currently  pending and as a result the Company is unable to make a
determination  as to the merits of the claim.  The Company does not believe that
an adverse  determination  in this  matter  would  result in a material  adverse
effect on the  consolidated  financial  position or results of operations of the
Company.


<PAGE>

          The Company is, from time to time,  a party to  litigation  arising in
the normal course of its business,  most of which  involves  claims for personal
injury and property  damage  incurred in connection with its same-day ground and
air  delivery  operations.  Management  believes  that  none of  these  actions,
including the actions  described  above,  will have a material adverse effect on
the consolidated financial position or results of operations of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

         Not applicable.


<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

          Through  February 19, 1999 the Company's Common Stock was included for
quotation  on the Nasdaq  National  Market  under the symbol  "CDLI."  Effective
February 23, 1999 the Company's Common Stock began trading on the American Stock
Exchange under the symbol "CDV". The following table sets forth the high and low
sales prices for the Common Stock for 1997 and 1998:

                                     1997               Low               High
         First Quarter                                 $1.88             $5.00
         Second Quarter                                $1.63             $4.00
         Third Quarter                                 $2.13             $3.63
         Fourth Quarter                                $2.19             $4.00

                                     1998               Low               High
         First Quarter                                 $2.63             $5.00
         Second Quarter                                $4.25             $5.50
         Third Quarter                                 $3.00             $5.50
         Fourth Quarter                                $2.75             $3.75

          On March 12, 1999,  the last  reported  sale price of the Common Stock
was  $3.50 per  share.  As of March  12,  1999,  there  were  approximately  140
shareholders of record of Common Stock and, based on security position listings,
the Company believes there were  approximately  1,600 beneficial  holders of the
Common Stock.

         On December  8, 1998,  the Company  issued  206,185  shares of stock in
connection with the acquisition of certain assets of Manteca  Enterprises,  Inc.
and related  companies.  The issuance was exempt from registration under Section
4(2) of the Securities Act.

          On February  16, 1999,  the Company  issued  200,000  shares of common
stock in connection  with the  acquisition  of certain  assets of the Gold Wings
Trust and related  companies.  The issuance was exempt from  registration  under
Section 4(2) of the Securities Act.

Dividends

          The  Company  has not  declared  or paid any  dividends  on its Common
Stock.  The Company  currently  intends to retain earnings to support its growth
strategy and does not anticipate  paying  dividends in the  foreseeable  future.
Payment of future dividends,  if any, will be at the discretion of the Company's
Board of Directors  after taking into account  various  factors,  including  the
Company's financial  condition,  results of operations,  current and anticipated
cash needs and plans for expansion.  The Company's ability to pay cash dividends
on the  Common  Stock  is also  limited  by the  terms of its  Revolving  Credit

<PAGE>

Facility.  See Item 1. Business - Risk Factors - No Future Dividends and Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations - Liquidity and Capital Resources.


<PAGE>


Item 6.  Selected Financial Data

                             SELECTED FINANCIAL DATA
                    (In thousands, except per share amounts)

          Consolidated  Delivery & Logistics,  Inc. was founded in June 1994. In
November  1995,  simultaneously  with  the  closing  of  the  Company'sOffering,
separate wholly owned subsidiaries of CDL merged (the "Merger") with each of the
eleven acquired  businesses (the "Founding  Companies").  Consideration  for the
acquisition  of these  businesses  consisted of a combination of cash and common
stock of CDL. The assets and liabilities of the acquired businesses at September
30, 1995, were recorded by CDL at their historical amounts.

          The  statement  of  operations  data  shown  below for the year  ended
December 31, 1994 and for the nine month period ended September 30, 1995 and the
balance  sheet data as of December  31, 1994 are that of the  Combined  Founding
Companies  prior  to  the  Merger  (the  "Combined  Founding  Companies")  on  a
historical basis. During the periods presented,  the Combined Founding Companies
were not under common control or management and some were not taxable  entities.
Therefore  the  data  presented  may  not  be  comparable  to or  indicative  of
post-Merger results.

          The selected financial data with respect to the Company's consolidated
statement of operations for the years ended December 31, 1996, 1997 and 1998 and
with respect to the Company's consolidated balance sheet as of December 31, 1997
and 1998 have been derived from the Company's  consolidated financial statements
that appear elsewhere  herein.  The financial data provided below should be read
in conjunction with these  accompanying  consolidated  financial  statements and
notes  thereto  as well as "Item 7.  Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations."


<PAGE>




<TABLE>
<CAPTION>



                                             SELECTED FINANCIAL DATA (Continued)
                                           (In thousands, except per share amounts)

Statement of Operations Data:

                              Combined Founding
                                Companies (4)                  Consolidated Delivery & Logistics, Inc. and Subsidiaries
                          ---------------------------    ---------------------------------------------------------------------


                            For The       For The
                              Year      Nine Months                     For the Pro
                             Ended         Ended         For The Year  Forma Period
                            December     September           Ended         Ended                For The Years Ended
                              31,           30,          December 31,  December 31,     
                                                                                             December 31,
                                                                                       ---------------------------------------
                             1994           1995          1995 (3)      1995 (1)(2)       1996         1997          1998
                          ------------  -------------    ------------  --------------  ------------ ------------ -------------
<S>                        <C>           <C>               <C>          <C>             <C>          <C>          <C>     
Revenue                    $136,555      $109,168          $37,322      $146,490        $163,090     $171,502     $185,739
Gross profit                 42,315        33,162           11,337        44,499          41,010       41,654       43,677
Operating income (loss)       2,107         3,971              578         4,549          (1,468)       2,702        4,847
Income (loss) from
  C continuing                  867         2,112              (26)        2,086            (854)       1,657        2,311
operations (5)
Net income (loss)              $721        $2,182            ($195)       $1,987           ($683)        $459       $2,311
Basic income (loss) per
  share:
  Continuing operations                                      ($.02)         $.32           ($.13)        $.25         $.35
  -Net income (loss)                                         ($.10)         $.30           ($.10)        $.07         $.35
                                                         ============  ==============  ============ ============ =============
Diluted income (loss) per
  Share
  -Continuing operations                                      ($.02)        $.31           ($.13)        $.25         $.34
  -Net income (loss)                                          ($.10)        $.29           ($.10)        $.07         $.34
                                                         ============  ==============  ============ ============ =============
</TABLE>

<TABLE>
<CAPTION>

Balance Sheet Data:
                                  Combined
                                  Founding
                                 Companies               Consolidated Delivery & Logistics, Inc. and Subsidiaries
                                                     ------------------------------------------------------------------
                                December 31,                                   December 31,
                                                     ------------------------------------------------------------------
                                    1994                 1995             1996             1997             1998
                               ---------------      ----------------  --------------   --------------  ----------------

<S>                                <C>                   <C>               <C>             <C>            <C>     
Working capital (deficit)          $3,668                $7,948            $5,472          $2,519         ($4,196)
Equipment and leasehold
   Improvements, net                3,023                 3,582             3,857           5,667           6,630
Total assets                       23,642                31,856            35,001          36,159          52,088
Long-term debt, net of
current  maturities                 1,164                 3,027             3,415           2,240           6,383
Stockholders' equity                5,568                 8,311             8,730           8,614          11,407

</TABLE>

(1)  Reflects the results of operations of the Combined  Founding  Companies for
     the  period  from  January  1 to  September  30,  1995 and the  results  of
     operations of Consolidated Delivery & Logistics,  Inc. and Subsidiaries for
     the year ended December 31, 1995.
(2)  The  computation  of pro forma basic  earnings per share for the year ended
     December  31, 1995 is based upon (i) 493,869  shares of Common Stock issued
     prior to the Mergers,  (ii) 2,935,700  shares issued to the stockholders of
     the Founding  Companies in connection  with the Mergers and (iii) 3,200,000
     shares sold in the Offering.  The computation of pro forma diluted earnings
     per share for the year ended  December 31, 1995 is based upon the preceding
     shares  and  the  dilution   attributable  to  the  debentures   which  are
     convertible  into 180,995  shares of Common  Stock.  The  conversion of the
     stock  options  outstanding  at December  31,  1995 is not  included in the
     computation as the effect would be antidilutive.
(3)  The Company  selected  October 1, 1995 as the effective date of the Merger.
     The assets and liabilities of the Founding  Companies at September 30, 1995
     were  recorded  by CD&L at  their  historical  amounts.  The  statement  of
     operations  includes the results of  operations  of the Founding  Companies
     from October 1, 1995 through  December 31, 1995.  The results of operations
     for  Consolidated  Delivery & Logistics,  Inc. prior to the Mergers are not
     significant.
(4)  Pro Forma income tax  provisions  have been  provided for certain  Founding
     Companies. 
(5)  During 1997, the  Company  disposed of  its  fulfillment  and  direct  mail
     operation. Accordingly, the operating  results and gain on  disposition of 
     the  fulfillment  and  direct  mail business  have  been   reclassified  as
      discontinued  operations for the periods presented.


<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Disclosure Regarding Forward-Looking Statements

          The Company is provided a "safe harbor" for forward-looking statements
contained  in this report by the  Private  Securities  Litigation  Reform Act of
1995. The Company may discuss forward-looking information in this Report such as
its  expectations  for future  performance,  growth and acquisition  strategies,
liquidity and capital  needs and its future  prospects.  Actual  results may not
necessarily  develop as the Company  anticipates due to many factors  including,
but not  limited  to the  timing of certain  transactions,  unexpected  expenses
encountered,  inability to conclude  acquisitions  on  satisfactory  terms,  the
effect of economic  and market  conditions,  the impact of  competition  and the
Company's   actual  results  varying   materially  from   management's   current
expectations.

Overview

          The  consolidated  financial  statements of the Company  including all
related  notes  which  appear  elsewhere  in  this  report  should  be  read  in
conjunction with this discussion of the Company's  results of operations and its
liquidity and capital  resources.  During 1997 the Company made no  acquisitions
and instead concentrated on improving operating  efficiencies.  During 1998, the
Company  refocused its  acquisition  efforts and acquired  four same-day  ground
delivery  businesses.  See  "Business-Recent   Acquisitions."   Each  of  these
acquisitions has been accounted for using the purchase method of accounting.  On
December 31, 1997,  the Company sold certain assets of its direct mail business.
Accordingly, the financial position, results of operations and cash flows of the
Company's direct mail business have been reclassified as discontinued operations
in the accompanying consolidated financial statements.  The Company's results in
1997 were also impacted by the sale of its contract  logistics  subsidiary which
accounted  for $4.6  million in revenue for 1996 and $400,000 to the date of its
sale in January 1997. The Company's historical results of operations reflect the
results of the acquired businesses and the  reclassification  referred to above;
therefore,  the  historical  operating  results of the  Company  for the periods
presented are not necessarily comparable.

Results of Operations 1998 Compared with 1997

          Revenue for the year ended December  31,1998  increased $14.2 million,
or 8.3%, to $185.7  million from $171.5  million for the year ended December 31,
1997  including $7.3 million  contributed by the businesses  acquired in 1998 as
well as increased sales from the Company's existing operations.

          Ground delivery revenue increased $15.2 million, or 13.2%,  consisting
of the $7.3 million  from  acquired  businesses  previously  mentioned  with the
balance of the increase resulting from the addition of new contract distribution
routes  as well as the  expansion  of  existing  routes.  Air  delivery  revenue
decreased  by $1.0  million,  or 1.8%,  due to the  elimination  during  1998 of
certain unprofitable business.

<PAGE>

          Cost of revenue consists of, among other things,  payments to employee
drivers and independent contractors,  agents, airlines, other direct pick up and
delivery costs and the costs of dispatching drivers and messengers.  These costs
increased $12.3 million, or 9.5%, from $129.8 million for 1997 to $142.1 million
in 1998.  Stated as a percentage of revenue,  these costs increased to 76.5% for
1998 from 75.7% for 1997,  or 0.8% year over year.  This  increase  reflects the
generally lower gross profit associated with contract distribution  services. As
a result of the revenue increase discussed above, gross profit increased by $2.0
million or ,4.8%, from $41.7 million in 1997 to $43.7 million in 1998.

          Selling general and  administration  expenses  ("SG&A")  include costs
incurred at the terminal level related to taking orders and administrative costs
related to such  functions.  Also  included  are costs to support the  Company's
marketing and sales effort and the expense of maintaining  information  systems,
human  resources,  financial,  legal and other  administrative  functions.  SG&A
decreased by $1.0 million,  or 2.7%, from $36.7 million in 1997 to $35.7 million
in 1998. SG&A decreased by $2.2 million before  consideration  of the additional
$1.2  million of SG&A due to the  companies  acquired  in 1998,  reflecting  the
Company's  continuing  consolidation  efforts.  Primarily  due to the  Company's
investment  in  computer  systems and  support,  depreciation  and  amortization
increased by $800,000,  or 34.8%, from $2.3 million for 1997 to $3.1 million for
1998.

          As a result of the above,  operating income increased $2.1 million, or
77.8%,  from $2.7  million for the year ended  December 31, 1997 to $4.8 million
for the year  ended  December  31,  1998.  Stated as a  percentage  of  revenue,
operating income increased from 1.6% for 1997 to 2.6% for 1998.

          Income  from  continuing   operations  included  a  gain  of  $816,000
resulting  from the  sale of the  Company's  contract  logistics  subsidiary  in
January  1997 with no  similar  gain for 1998.  Interest  expense  increased  by
$100,000,  or 9.1%,  from $1.1 million in 1997 to $1.2 million in 1998.  The net
increase results from borrowings necessary to acquire four businesses in 1998.

          Net income  increased by $1.8  million  from  $459,000 in 1997 to $2.3
million in 1998. A loss from discontinued operations of $1.2 million reduced net
income  in  1997.  If  the  effects  of the  discontinued  operations  were  not
considered,  income from continuing operations would have increased $600,000, or
35.3%, from $1.7 million in 1997 to $2.3 million for the year ended December 31,
1998.

Results of Operations 1997 Compared with 1996

          Revenue  increased $8.4 million,  or 5.2%, from $163.1 million in 1996
to $171.5 million for the year ended December 31, 1997.

<PAGE>

          Air  courier  revenue  increased  $4.6  million,  or 8.8%,  and ground
delivery  revenue  increased  $3.9 million,  or 3.5%, for the year 1997 over the
year 1996. Air courier revenue  benefited from the expansion and internal growth
of existing accounts as well as the full-year  contribution of acquisitions made
by the Company during 1996.  Ground delivery  revenue  increased by $3.9 million
from the addition of time service and facilities  management revenue as a result
of previously  disclosed  acquisitions  and the addition of several new contract
distribution routes in the pharmaceutical, electronic repair and office products
industries. The increases in ground delivery revenue discussed above were offset
by a decrease of $1.7 million in the Company's banking division due to continued
industry  consolidation.  Two of the Company's largest banking customers merged,
decreasing their branch network and the number of stops required.

          Cost of revenue  includes,  among  other  things,  payment to employee
drivers,  owner  operators  and  independent  contractors  as  well  as  agents,
airfreight carriers,  commercial airlines,  and pick-up and delivery cost. These
costs increased by $7.7 million,  or 6.3%, from $122.1 million for the year 1996
to $129.8  million for the year ended December 31, 1997. The increase in cost of
revenue is due to several  factors that include  significant  start-up  costs in
connection  with new contracts added in the  pharmaceutical  and office products
distribution  industries as well as an increase in costs  necessary to support a
growing revenue base in ground delivery.  The Company was impacted early in 1997
by airline fuel surcharges as well as a change in the general  business mix that
reduced certain consolidation  opportunities in selected airfreight shipments in
the Company's major markets.

          As a result of the above, gross profit increased by $644,000, or 1.6%,
from $41.0  million for 1996 to $41.7  million for the year ended  December  31,
1997. If the gross profit of the Company's  contract  logistics  subsidiary were
not considered, gross profit would have increased by $1.4 million, or 3.5%, from
$40.2 million for 1996 to $41.6 million for 1997.

          SG&A include  salaries,  sales  commissions  and travel to support the
Company's  marketing  and  sales  effort.  Also  included  are the  expenses  of
maintaining  the Company's  information  systems,  human  resources,  financial,
legal,  procurement and other administrative  functions.  SG&A decreased by $4.2
million, or 10.3%, from $40.9 million in 1996 to $36.7 million in 1997. The sale
of the Company's contract logistics subsidiary accounted for $1.4 million of the
decrease.  In the fourth quarter of 1996, the Company  recorded a special charge
of $1.4 million that included  contract and salary  settlements,  abandonment of
operating leases and other costs associated with management  headcount reduction
and other consolidation  issues. The 1996 restructuring  charge included in SG&A
resulted in a net reduction of SG&A costs of approximately $700,000 in 1997. The
balance of the reduction is  principally  the result of reduced  salaries at the
operating regions due to internal  consolidation.  Depreciation and amortization
expense increased  $700,00,  or 43.8%, from $1.6 million in 1996 to $2.3 million
in 1997  primarily  due to the  replacement  of a  number  of  vehicles  and the
Company's investment in computer system and related equipment.

<PAGE>

          As a result of the  above,  operating  income  increased  for the year
ended  December  31, 1997 by $4.2 million from a loss of $1.5 million in 1996 to
an operating  profit of $2.7 million in 1997.  When excluding the results of the
Company's contract logistics  subsidiary that was sold in early 1997,  operating
income would have increased $3.5 million.  The gain recognized by the Company on
the  aforementioned  sale of its contract  logistics  subsidiary in January 1997
amounted to $816,000 before applicable taxes.

          Interest  expense  increased by $339,000 from $805,000 in 1996 to $1.1
million for the year ended  December 31, 1997.  The increase is primarily due to
an  overall  increase  in the level of  borrowing  by the  Company  during  1997
compared to 1996. To a lesser  extent,  the Company was also subject to interest
rate increases  during the first quarter of 1997 with its previous lenders prior
to the establishment of its current Revolving Credit Facility (See Note 9 to the
accompanying consolidated financial statements).

Liquidity and Capital Resources

          Working  capital  decreased  by $6.7  million  from  $2.5  million  at
December  31,  1997 to a deficit  of $4.2  million at  December  31,  1998.  The
decrease is due primarily to the use of the Company's  line of credit to finance
the businesses  acquired during 1998. This results in a working capital decrease
because  the  Company  is using  short-term  borrowing  (its line of  credit) to
finance the additions of non-current assets (primarily intangibles).

          Cash and cash  equivalents  decreased  $1.5  million  to  $295,000  at
December 31, 1998 from $1.8 million at December 31, 1997.  Cash in the amount of
$5.0  million  was  provided  by  operations  and $2.9  million  from  financing
activities  which was used primarily to acquire four businesses for $7.2 million
and for the purchase of property and equipment (net of proceeds on  disposition)
in the amount of $2.1 million.

          Capital expenditures  amounted to $2.2 million,  $1.2 million and $1.3
million for the years ended  December  31,  1998,  1997 and 1996,  respectively.
These  expenditures  primarily  upgraded and expanded computer system capability
and to  expand  and  maintain  Company  facilities  in the  ordinary  course  of
business.  In addition,  CDL incurred a capital lease obligation of $2.5 million
during 1997 in connection with an agreement to lease 175 vehicles.

          Under the terms of its agreement  with its lenders,  CDL is prohibited
from the payment of dividends without obtaining prior consent.

          The  Company  completed  a $15  million  private  placement  of senior
subordinated  notes and  warrants on January  29,  1999.  Proceeds  will be used
primarily  to  finance   acquisitions  and  to  reduce  outstanding   short-term
borrowings.  The notes  mature in 2006 and bear  interest at the rate of 12% per
annum.  The notes were  issued  with  detachable  warrants  subject to a Warrant
Agreement dated January 29, 1999.

<PAGE>

          Management believes that cash flows from operations, together with its
borrowing  capacity  (see  Note 9 of  the  accompanying  consolidated  financial
statement) and the senior  subordinated  notes described above are sufficient to
support the  Company's  operations  and general  business and capital  liquidity
requirements for the foreseeable future.

Recently Issued Accounting Pronouncements

          In March 1998, the  Accounting  Standards  Executive  Committee of the
American  Institute of Certified Public Accountants issued Statement of Position
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use." The statement is intended to eliminate the diversity in practice
in accounting for internal-use  software costs and improve financial  reporting.
The statement is effective for fiscal years  beginning  after December 15, 1998.
The Company has  determined  that the effect of this  statement on the Company's
consolidated financial position and results of operations is immaterial.

Year 2000 Compliance

          The Company is currently in the process of evaluating its  information
technology  infrastructure  for the Year 2000  compliance.  The Company does not
expect that the cost to modify its information  technology  infrastructure to be
Year 2000  compliant  will be material to its  financial  position or results of
operations.  The Company  does not  anticipate  any material  disruption  in its
operations  as a result of any failure by the Company to be in  compliance.  The
Company is in the  process of  obtaining  information  concerning  the Year 2000
compliance  status of its suppliers and customers.  In the event that any of the
Company's  significant  suppliers or customers does not  successfully and timely
achieve Year 2000  compliance,  the Company's  business or  operations  could be
adversely affected.

          The Company  continues to implement its Year 2000 compliance  program.
The following table provides a summary of the Company's  progress in each of the
phases,  estimated  percentage  complete and the anticipated  completion date of
each phase:

<TABLE>
<CAPTION>

         Phase           Definition                                                  Estimated %     Estimated
                                                                                      Complete     Complete Date

<S>                      <C>                                                              <C> 
Awareness                Generate awareness of the Y2K issue throughout the 100%
                         organization and establish compliance program.

Inventory                Analyze all relevant hardware/application software/operating     100%
                         systems and networks for compliance

Inventory compliance     Assess inventory and  rectify all non-compliant components of
activity                 the inventory

Assessment,              Prioritize hardware and software issues, initiate changes        80%            8/31/99
Conversion               necessary to achieve compliance and test changes made for
Testing and              actual compliance.
Implementation

Imbedded Technology      Determine whether equipment with imbedded technology, such as    90%            8/31/99
                         PBX switches, elevators, alarm systems, etc. are Y2K
                         compliant. Analysis to date has identified limited exposure in
                         this area. Analysis of recent acquisitions continues.

Third-Party Interfaces   Determine whether electronic interfaces with third parties are   70%            9/30/99
                         compliant. There are only a few such interfaces that will be
                         fully tested later in the year. If necessary, contingency
                         arrangements will be readily available, as the interfaces are
                         not "real-time".

Third-Party              Determine whether third parties that provide material            70%            7/30/99
Relationships            services/supplies are compliant. Feedback to date indicates
                         that companies with whom we have a material relationship are
                         well advanced in bringing their internal systems into
                         compliance. Less well defined is whether their Third Parties
                         are in compliance.

                         We will continue to cooperate in the exchange of information     50%            9/30/99
                         with material third parties in an effort to ensure their
                         compliance and/or assess the impact of their non-compliance.
                         Where the risk of  non-compliance  is  serious  we will
                         select alternate vendors.


</TABLE>

<PAGE>

          The Company  estimates that the cost of compliance will not exceed the
initial amount budgeted of $250,000.

          Where practical the Company will develop  contingency plans during the
coming months in an effort to ensure minimal  disruption to our clients. A pilot
project in this regard is currently in development with a major client.

Inflation

          Inflation has not had a material  impact on the  Company's  results of
operations for the past three years.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

          CDL's major "market risk" exposure is the effect of changing  interest
rates.  CDL manages its interest  exposures by using a combination  of fixed and
variable  rate debt.  At December  31, 1998,  the  Company's  debt  consisted of
approximately  $9.6 million of fixed rate debt with a weighted  average interest
rate of 7.6% and $13.6  million of  variable  rate debt with a weighted  average
interest  rate of 7.5% The amount of variable  rate debt  fluctuates  during the
year based on CDL's cash requirements.  Maximum borrowings of variable rate debt
at any quarter end were $13.6  million.  If interest rates on such variable rate
debt were to increase by 75 basis points  (one-tenth of the rate at December 31,
1998), the impact,  net of income taxes, to the Company's  results of operations
and cash flows would be a decrease of approximately $100,000.


<PAGE>


Item 8.  Financial Statements and Supplementary Data.


                          INDEX TO FINANCIAL STATEMENTS


                                                                           Page

Report of Independent Public Accountants...................................21

Consolidated Balance Sheets as of December 31, 1998 and 1997...............22

Consolidated Statements of Operations For The Years 
  Ended December 31, 1998, 1997  and 1996..................................23

Consolidated Statements of Changes in Stockholders' 
  Equity For The Years Ended December 31, 1998, 1997 and 1996..............24

Consolidated Statements of Cash Flows For The 
  Years Ended December 31, 1998, 1997 and 1996.............................25

Notes to Consolidated Financial Statements.................................26


<PAGE>




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Consolidated Delivery & Logistics, Inc.:


We have audited the  accompanying  consolidated  balance sheets of  Consolidated
Delivery &  Logistics,  Inc. (a Delaware  corporation)  and  subsidiaries  as of
December  31,  1998  and  1997,  and  the  related  consolidated  statements  of
operations,  stockholders'  equity and cash flows for each of the three years in
the period ended December 31, 1998. These consolidated  financial statements and
the  schedule  referred  to  below  are  the  responsibility  of  the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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  financial  position  of  Consolidated
Delivery & Logistics,  Inc. and  subsidiaries  as of December 31, 1998 and 1997,
and the results of their  operations  and their cash flows for each of the three
years in the period ended  December  31,  1998,  in  conformity  with  generally
accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index to
financial statement schedules is the responsibility of the Company's  management
and is  presented  for purposes of complying  with the  Securities  and Exchange
Commission's  rules  and is not part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedures applied in the audits of
the  basic  financial  statements  and,  in our  opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.


                               ARTHUR ANDERSEN LLP


Roseland, New Jersey
February 24, 1999



<PAGE>

<TABLE>
<CAPTION>

            CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands except share data)


                                                       ASSETS
                                                                                             December 31,
                                                                                 -------------------------------------
                                                                                          1998                1997
                                                                                ------------------  ------------------
CURRENT ASSETS:
<S>                                    <C>     <C>                                   <C>                    <C>
  Cash and cash equivalents, including $73 and $64 of restricted cash
     in 1998 and 1997, respectively (Note 2)                                               $295              $1,812
  Accounts receivable, less allowance for doubtful accounts of $1,865
     and $1,433 in 1998 and 1997, respectively (Note 9)                                  24,491              21,275
  Deferred income taxes (Notes 2 and 11)                                                  1,456               1,207
  Prepaid expenses and other current assets (Note 5)                                      1,104               1,785
                                                                                ------------------  ------------------

     Total current assets                                                                27,346              26,079

EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net (Notes 2 and 6)
                                                                                          6,630               5,667
INTANGIBLE ASSETS, net (Notes 2, 3 and 7)                                                16,491               3,098
SECURITY DEPOSITS AND OTHER ASSETS (Notes 4 and 16)                                       1,621               1,305
NONCURRENT ASSETS OF DISCONTINUED OPERATIONS (Note 4)                                         -                  10
                                                                                ------------------  ------------------

           Total assets                                                                 $52,088             $36,159
                                                                                ==================  ==================




                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Short-term borrowings (Note 9)                                                        $13,577              $7,360
  Current maturities of long-term debt (Note 9)                                           3,181               3,280
  Accounts payable                                                                        6,281               6,515
  Accrued expenses and other current liabilities (Notes 8 and 18)                         7,271               6,141
  Income taxes payable (Notes 2 and 11)                                                   1,232                 141
  Deferred revenue (Note 2)                                                                   -                  71
  Net liabilities of discontinued operations (Note 4)                                         -                  52
                                                                                ------------------  -------------------

     Total current liabilities                                                           31,542              23,560
                                                                                ------------------  -------------------

LONG-TERM DEBT, net of current maturities (Note 9)                                        6,383               2,240
                                                                                ------------------  -------------------

DEFERRED INCOME TAXES PAYABLE (Notes 2 and 11)                                            1,717               1,050
                                                                                ------------------  -------------------

OTHER LONG-TERM LIABILITIES (Note 18)                                                     1,039                 695
                                                                                ------------------  -------------------

COMMITMENTS AND CONTINGENCIES (Notes 13, 14 and 15)


<PAGE>

STOCKHOLDERS' EQUITY (Notes 14 and 15):
  Preferred stock, $.001 par value; 2,000,000 shares authorized; no
     shares issued and outstanding                                                            -                   -
  Common stock, $.001 par value; 30,000,000 shares authorized,
     6,843,702 and 6,666,884 shares issued and outstanding in
     1998 and 1997, respectively                                                              7                   7
  Additional paid-in capital                                                              9,670               9,026
  Treasury stock, 29,367 shares at cost                                                    (162)                  -
  Retained earnings (Accumulated deficit)                                                 1,892                (419)
                                                                                ------------------  -------------------

      Total stockholders' equity                                                         11,407               8,614
                                                                                ------------------  -------------------

            Total liabilities and stockholders' equity                                  $52,088             $36,159
                                                                                ==================  ===================

</TABLE>

          The  accompanying  notes to consolidated  financial  statements are an
integral part of these balance sheets.


<PAGE>

<TABLE>
<CAPTION>

                             CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                         (in thousands except share data)



                                                                           For the Years Ended December 31,


                                                               ----------------------------------------------------------------
                                                               ----------------------------------------------------------------
                                                                      1998                   1997                   1996
                                                               --------------------  ---------------------  -------------------

<S>                <C>                                               <C>                      <C>                     <C>     
     Revenue (Note 2)                                                $185,739                 $171,502                $163,090
     Cost of revenue                                                  142,062                  129,848                 122,080
                                                              ---------------------    ----------------------  ----------------

       Gross profit                                                    43,677                   41,654                  41,010

     Selling, general and administrative expenses                      35,709                   36,681                  40,919
     Depreciation and amortization                                      3,121                    2,271                   1,559
                                                              ---------------------    ----------------------  ----------------

       Operating income (loss)                                          4,847                    2,702                  (1,468)

     Other (income) expense
       Gain on sale of subsidiary, net (Note 17)                            -                     (816)                      -
       Interest expense                                                 1,246                    1,144                     805
       Other income, net                                                 (126)                    (171)                   (461)
                                                              ---------------------    ----------------------  ----------------
                                                              ---------------------    ----------------------  ----------------
     Other expense, net                                                 1,120                      157                     344
                                                              ---------------------    ----------------------  ----------------

     Income (loss) from continuing operations before
       provision for (benefit from) income taxes                        3,727                    2,545                  (1,812)

     Provision for (benefit from) income taxes
      (Notes 2 and 11)                                                  1,416                      888                    (958)
                                                              ---------------------    ----------------------  ---------------------

     Income (loss) from continuing operations                           2,311                    1,657                    (854)
                                                              ---------------------    ----------------------  ---------------------

     Discontinued operations (Note 4)
       Income (loss) from discontinued operations, net of
       income taxes                                                         -                   (1,221)                    171
       Gain on disposal of assets, net of provision for
       income taxes                                                         -                       23                       -
                                                              ---------------------    ----------------------  ---------------------
     Income (loss) from discontinued operations                             -                   (1,198)                    171
                                                                                       ----------------------  ---------------------
                                                              =====================
        Net income (loss)                                              $2,311                     $459                   ($683)
                                                              =====================    ======================  =====================
                                                                                       ======================  =====================
<PAGE>

     Basic income (loss) per share:
       Continuing operations                                            $.35                     $.25                  ($.13)
       Discontinued operations                                             -                     (.18)                   .03
                                                              =====================    ======================  =====================
       Net income (loss) per share                                      $.35                     $.07                  ($.10)
                                                              =====================    ======================  =====================

     Diluted income (loss) per share:
       Continuing operations                                            $.34                     $.25                  ($.13)
       Discontinued operations                                             -                     (.18)                   .03
                                                              ---------------------    ----------------------  ---------------------
       Net income (loss) per share                                      $.34                     $.07                  ($.10)
                                                              =====================    ======================  =====================
     Basic weighted average common
       Shares outstanding                                               6,662                    6,672                   6,678
                                                              =====================    ======================  =====================
     Diluted weighted average common
        Shares outstanding                                              6,839                    6,675                   6,678
                                                              =====================    ======================  =====================
</TABLE>

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


<PAGE>

<TABLE>
<CAPTION>

                             CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                               FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                         (in thousands except share data)

                                                                                               Retained
                                                                  Additional                   Earnings           Total
                                             Common Stock           Paid-in     Treasury     (Accumulated     Stockholders'
                                      ---------------------------
                                         Shares        Amount       Capital       Stock        Deficit)           Equity
                                      ----------------------------------------------------------------------------------------

<S>                                          <C>           <C>       <C>           <C>             <C>             <C>
BALANCE AT DECEMBER 31, 1995              6,629,569        $7        $8,499         $-            $(195)           $8,311
Shares issued in connection with
       acquisitions of businesses           166,221         -         1,102          -               -              1,102
Net loss                                       -            -             -          -             (683)             (683)
                                      ----------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996              6,795,790         7         9,601          -             (878)            8,730
Retirement of common stock
       pursuant to sale of
       subsidiary                          (137,239)        -          (600)         -               -               (600)
Shares issued in connection with                                                                              
         acquisition of a business            8,333         -            25          -               -                 25
Net income                                        -         -             -          -              459               459
                                      ----------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31,1997               6,666,884         7         9,026          -             (419)            8,614
Treasury shares acquired
        pursuant to adjustment in
        price of acquired company           (29,367)        -             -       (162)              -               (162)
Shares issued in connection with                                                                              
         acquisition of a business          206,185         -           644          -               -                644
Net income                                     -            -             -          -             2,311            2,311
                                      ----------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998              6,843,702        $7        $9,670      $(162)           $1,892          $11,407
                                      ========================================================================================

</TABLE>

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




<PAGE>

<TABLE>
<CAPTION>



                                                 CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
                                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                      (in thousands)


                                                                                          For The Years Ended December 31,
                                                                                 --------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:                                                1998               1997           1996
                                                                                 ----------------- ---------------  ---------------
<S>                                                                                 <C>                 <C>           <C>   
  Net income (loss)                                                                 $2,311              $459          ($683)
  Adjustments to reconcile net income (loss) to net cash provided by (used in)
    Operating activities -
  (Gain) loss on disposal of equipment and leasehold improvements                      (21)              (22)            29
  Gain on sale of subsidiary                                                             -              (816)             -
  (Income) loss from discontinued operations                                             -             1,221           (171)
  Gain on disposal of assets of discontinued operations                                  -               (23)             -
  Depreciation and amortization                                                      3,121             2,271          1,559
  Provision for doubtful accounts                                                    1,151             1,117          1,315
  Deferred income tax provision (benefit)                                              300               (35)          (752)
  Changes in operating assets and liabilities
    (Increase) decrease in -
       Accounts receivable                                                          (2,100)           (2,005)        (4,235)
       Prepaid expenses and other current assets                                       630              (415)          (477)
       Other assets                                                                   (298)             (303)           513
     Increase (decrease) in -
       Accounts payable, accrued liabilities and income taxes payable                  227             1,359         (1,518)
       Other long-term liabilities                                                    (343)             (236)           736
                                                                                  ----------------- ---------------  ---------------
          Net cash provided by (used in) operating activities of
          continuing operations                                                      4,978             2,572         (3,684)
                                                                                  ----------------- ---------------  ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to equipment and leasehold improvements                                 (2,245)          (1,191)         (1,279)
  Proceeds from sales of equipment and leasehold improvements                          144              112              66
  Proceeds from sale of assets of discontinued operations                               -               125               -
  Purchases of businesses, net of cash acquired                                     (7,233)              -           (1,176)
                                                                                  ----------------- --------------- ---------------
           Net cash used in investing activities                                    (9,334)            (954)         (2,389)
                                                                                  ----------------- ---------------  ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Short-term borrowings, net                                                        6,217               160          4,397
   Proceeds from long-term debt                                                        150                 -            113
   Repayments of long-term debt                                                     (3,450)           (1,393)        (3,077)
   Deferred financing costs                                                            (36)             (125)          (152)
                                                                                  ----------------- ---------------  ---------------
           Net cash provided by (used in) financing activities                       2,881            (1,358)         1,281
                                                                                  ----------------- ---------------  ---------------

CASH USED BY DISCONTINUED OPERATIONS                                                  (42)              (205)          (611)
                                                                                  ----------------- ---------------  ---------------
            Net (decrease)increase  in cash and cash equivalents                   (1,517)                55         (5,403)
CASH AND CASH EQUIVALENTS, beginning of year                                        1,812              1,757          7,160
                                                                                  ================= ===============  ===============
CASH AND CASH EQUIVALENTS, end of year                                               $295             $1,812         $1,757
                                                                                  ================= ===============  ===============


 The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>

<PAGE>


            CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (1)     ORGANIZATION AND BUSINESS:

Consolidated  Delivery & Logistics,  Inc. was founded in June 1994.  In November
1995,  simultaneously  with the closing of the it's initial public offering (the
"Offering")  separate  wholly  owned  subsidiaries  of  Consolidated  Delivery &
Logistics,  Inc.  merged  (the  "Merger")  with  each  of  the  eleven  acquired
businesses. Consideration for the acquisition of these businesses consisted of a
combination of cash and common stock of Consolidated Delivery & Logistics, Inc.,
par  value  $0.001  per  share.  The  assets  and  liabilities  of the  acquired
businesses at September 30, 1995 were recorded at their historical amounts.

Consolidated  Delivery & Logistics,  Inc.  and  Subsidiaries  (the  "Company" or
"CDL")  provides  an  extensive  network of  same-day  ground  and air  delivery
services to a wide range of  commercial,  industrial and retail  customers.  CDL
ground delivery operations  currently are concentrated on the East Coast, with a
strategic  presence  in the  Midwest  and on the West  Coast.  CDL air  delivery
services are provided  throughout  the United  States and to major cities around
the world.

(2)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation -

The accompanying  consolidated  financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.

Use of Estimates in Preparation of the Financial Statements -

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  consolidated  financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents -

CDL considers all highly liquid  investments  with original  maturities of three
months or less to be cash  equivalents.  Cash  equivalents  are carried at cost,
which approximates  market value.  Included in cash and cash equivalents is cash
restricted  for a national  marketing  and  advertising  program for CDL's sales
agency agreements (see Note 13).

Equipment and Leasehold Improvements -

Equipment  and  leasehold  improvements  are recorded at cost.  Depreciation  is
computed using the  straight-line  method over the estimated useful lives of the
assets.  Leasehold  improvements  and  assets  subject  to  capital  leases  are
amortized over the shorter of the terms of the leases or lives of the assets.

Deferred Financing Costs -

The costs  incurred for  obtaining  financing,  including  all related legal and
accounting  fees are included in other assets in the  accompanying  consolidated
balance sheets and are amortized over the life of the related financing from two
to four years.


<PAGE>


Intangible Assets -

Intangible   assets  consist  of  goodwill,   customer  lists,  and  non-compete
agreements.  Goodwill  represents the excess of the purchase price over the fair
value of assets of businesses acquired and is amortized on a straight-line basis
over twenty-five years to forty years. Customer lists and non-compete agreements
are amortized over the estimated period to be benefited, generally from three to
five years.

Revenue Recognition -

Revenue is  recognized  when the  shipment is  completed,  or when  services are
rendered  to  customers,  and  expenses  are  recognized  as  incurred.  Certain
customers pay in advance, giving rise to deferred revenue.

Income Taxes -

CDL accounts for income taxes utilizing the liability approach.  Deferred income
taxes are provided for  differences in the recognition of assets and liabilities
for tax and financial reporting purposes. Temporary differences result primarily
from  accelerated  depreciation  and  amortization  for  tax  purposes,  various
accruals and reserves  being  deductible  for tax purposes in future periods and
certain acquired businesses  reporting on the cash basis for income tax purposes
prior to the Merger.

Long-Lived Assets -

CDL reviews its long-lived assets and certain related intangibles for impairment
whenever changes in circumstances  indicate that the carrying amount of an asset
may not be  fully  recoverable.  The  measurement  of  impairment  losses  to be
recognized is based on the  difference  between the fair values and the carrying
amounts of the assets.  Impairment would be recognized in operating results if a
diminution in value occurred. The Company does not believe that any such changes
have occurred.

Fair Value of Financial Instruments -

Due to the  short  maturities  of CDL's  cash,  receivables  and  payables,  the
carrying value of these financial  instruments  approximates  their fair values.
The fair value of CDL's debt is estimated  based on the current rates offered to
CDL for debt with similar remaining  maturities.  CDL believes that the carrying
value of its debt estimates the fair value of such debt instruments.

Stock Based Compensation -

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation"  ("SFAS 123")  requires that an entity  account for employee stock
compensation under a fair value based method.  However,  SFAS 123 also allows an
entity  to  continue  to  measure  compensation  cost for  employee  stock-based
compensation  plans  using  the  intrinsic  value  based  method  of  accounting
prescribed by APB Opinion No. 25,  "Accounting  for Stock Issued to  Employees,"
("Opinion 25"). CDL has elected to continue to account for employee  stock-based
compensation  under Opinion 25 and provide the required pro forma disclosures as
if the fair value based  method of  accounting  under SFAS 123 had been  applied
(see Note 14).


<PAGE>

Income (Loss) Per Share -

CDL follows Statement of Financial  Accounting  Standards No. 128, "Earnings Per
Share" to calculate  its earnings per share  ("EPS").  Basic  earnings per share
represents net income (loss) divided by the weighted average shares outstanding.
Diluted  earnings per share  represents  net income  (loss)  divided by weighted
average shares outstanding adjusted for the incremental dilution of common stock
equivalents.

A  reconciliation  of weighted  average  common shares  outstanding  to weighted
average common shares outstanding assuming dilution follows:

<TABLE>
<CAPTION>

                                                      1998                1997                 1996
                                                  --------------      -------------        -------------
<S>                                                 <C>                 <C>                 <C>
Basic weighted average common
  shares outstanding                                 6,662,258          6,672,284            6,677,546
Effect of dilutive securities:
  Stock options                                        175,249              2,656                -
  Employee stock purchase plan                           1,496                  -                -
                                                  --------------      -------------        -------------
Diluted weighted average common
  shares outstanding                                 6,839,003          6,674,940            6,677,546
                                                  ==============      =============        =============

</TABLE>

The following  common stock  equivalents  were excluded from the  computation of
diluted EPS  because  the  exercise  or  conversion  price was greater  than the
average market price of common shares:

<TABLE>
<CAPTION>
                                                         1998            1997             1996
                                                       ----------      ---------        ---------
<S>                                                     <C>            <C>              <C>    
Stock options                                           573,684        685,038          562,568
Subordinated convertible debentures                     161,818        180,995          180,995
Seller financed convertible notes                       685,470            -              -
                                                       ==========      =========        =========

</TABLE>

Recent Accounting Pronouncements-

In March 1998,  the  Accounting  Standards  Executive  Committee of the American
Institute of Certified  Public  Accountants  issued  Statement of Position 98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal  Use." The statement is intended to eliminate the diversity in practice
in accounting for internal-use  software costs and improve financial  reporting.
The statement is effective for fiscal years  beginning  after December 15, 1998.
The Company has  determined  that the effect of this  statement on the Company's
consolidated financial position and results of operations is immaterial.

<PAGE>

Reclassifications -

Certain  reclassifications  have  been  made to the  prior  years'  consolidated
financial statements in order to conform to the 1998 presentation.

(3)      BUSINESS COMBINATIONS:

In July 1998, the Company acquired all of the assets and certain  liabilities of
Metro Courier Network, Inc. ("Metro"), a provider of ground delivery services in
Massachusetts,  Maine and New Hampshire.  The purchase  price was  approximately
$4.4 million,  consisting of $2.6 million in cash and a $1.8 million convertible
note (the "Note") plus certain  contingent  payments.  The excess purchase price
over fair  value of the  underlying  assets of $4.4  million  was  allocated  to
goodwill and other intangible  assets. The Note bears interest at the rate of 7%
per annum, with interest payable quarterly,  is due July 2001 and is subordinate
to all  indebtedness  due or that may become due to the Company's senior lender,
First Union Commercial Corporation or its affiliates. The Note is convertible in
its  entirety at the option of the holder at any time  through July 1, 2001 into
fully paid shares of the Company's  common stock at a conversion price of $7 per
share over a  ninety-day  period.  In  addition,  the  purchase  agreement  also
provided for a contingent  earn-out of up to $1.5 million which has been amended
by  an  agreement  dated  January  7,  1999,  which  cancelled  this  contingent
obligation. The agreement required a purchase price adjustment of $180,000 which
will result in an adjustment to increase the excess of purchase  price over fair
value of the net assets for this amount.

In August  1998,  the  Company  acquired  all of the  outstanding  shares of the
capital  stock of KBD  Services,  Inc.  ("KBD"),  a provider of ground  delivery
services in North and South Carolina.  The purchase price was approximately $4.1
million  consisting  of $2.1  million in cash,  a $1.5  million 7%  subordinated
convertible  note (the "KBD Note") and a $500,000,  7%  contingent  subordinated
convertible  note (the "Contingent  Note").  The excess purchase price over fair
value of the  underlying  assets of $3.5 million was allocated to goodwill.  The
KBD Note is due  August 5,  2003  with  interest  payable  quarterly  commencing
October 1, 1998 and is  convertible  in its entirety at the option of the holder
at any time through July 1, 2003 into fully paid shares of the Company's  common
stock if the  market  price  equals or  exceeds  $6 per share  over a thirty day
period.  The  Contingent  Note is subject to  reduction  or  discharge  if KBD's
earnings  before  interest and taxes are less than  $700,000 for the year ending
July 31, 1999 and is due with  interest on the finally  determined  principal on
November 1, 1999. The holder or the Company may convert the  Contingent  Note in
its  entirety  into  fully  paid  shares  of the  Company's  common  stock  at a
conversion  price of $6 per share after  September 16, 1999 and through  October
20,  1999.  The  KBD  Note  and  the  Contingent  Note  are  subordinate  to all
indebtedness  due or that may become due to the Company's  senior lender,  First
Union Commercial Corporation or its affiliates.

In September  1998,  the Company  acquired  certain  assets and assumed  certain
liabilities  of  Eveready  Express  Corp.  ("Eveready"),  a  provider  of ground
delivery services in the New York City market. The purchase price for the assets
and certain  non-compete  agreements  was $975,000,  with $415,000 in cash and a
$560,000  subordinated  contingent note (the "Eveready  Contingent  Note").  The
entire purchase price was allocated to goodwill and other intangible assets. The
Eveready  Contingent  Note  bears  interest  at the rate of 6% per  annum,  with

<PAGE>

semi-annual principal payments of $50,000 plus accrued interest commencing March
1999 and the remaining balance of principal and interest due September 2000. The
final  determination of the purchase price and the Eveready Contingent Note will
be based upon the percentage of collected revenues earned by Eveready during the
one-year  period  following  the  closing.   The  Eveready  Contingent  Note  is
subordinate  to all  indebtedness  due or that may become  due to the  Company's
senior lender, First Union Commercial Corporation or its affiliates.

In December  1998,  the Company  acquired all of the  outstanding  shares of the
capital stock of First Choice Courier and Distribution  Systems,  Inc., Regional
Express II, Inc.,  Regional  Express III,  Inc., and Manteca  Enterprises,  Inc.
(collectively  "First Choice  Companies").  The purchase price was approximately
$5.0 million  consisting of $2.9 million in cash  including  direct  acquisition
costs,  206,185  shares of the Company's  common stock (at $3.438 per share) and
$1.4  million in 7%  subordinated  convertible  notes (the  "Notes).  The excess
purchase  price over fair value of the  underlying  assets of $5.0  million  was
allocated to goodwill.  The Notes are due December 8, 2001 with interest payable
quarterly  commencing  February 28, 1999.  At the option of either the holder or
CDL, under certain  circumstances  50% of the principal  amount of the Notes are
convertible  into fully paid shares of CDL common stock at a conversion price of
$7 per share. The notes are subordinate to all existing or future senior debt of
CDL.  In  addition,  a  contingent  earn-out  in the  aggregate  amount of up to
$800,000 is payable based on the  achievement of certain  financial goals during
the three-year period following the closing.

Any payments of the earnouts discussed above will increase the goodwill recorded
for  the  acquisition  of  the  applicable  company.  The  amortization  of  any
additional  goodwill  and the  conversion  of any of the  convertible  notes and
contingent  convertible  notes payable into common stock will negatively  affect
the Company's future earnings per share.

The above  transactions  have been  accounted  for under the purchase  method of
accounting.  Accordingly,  the allocation of the cost of the acquired assets and
liabilities  has  been  made on the  basis  of the  estimated  fair  value.  The
consolidated financial statements include the operating results of each business
from their respective dates of acquisition.

The  following  summarized   unaudited  pro  forma  financial   information  (in
thousands,  except per share data) assumes that the Metro,  KBD and First Choice
acquisitions  were  consummated on January 1, 1998 and 1997. This information is
not  necessarily  indicative  of the results the Company would have obtained had
these  events  actually  occurred  on such dates or of the  Company's  actual or
future results.

<PAGE>
<TABLE>
<CAPTION>

                                                          For the Year                  For the Year
                                                             Ended                         Ended
                                                       December 31, 1998             December 31, 1997
                                                    -------------------------     -------------------------
                                                          (Unaudited)                   (Unaudited)
<S>                                                        <C>                           <C>     
    Revenue                                                $201,533                      $190,984
    Income from continuing operations                         5,147                         3,733
    Net income                                               $2,321                        $1,040

    Basic net income per share                                 $.34                         $.16
    Diluted net income per share                               $.33                         $.16

</TABLE>


During 1996, the Company acquired certain  businesses in transactions  accounted
for as  purchases.  The  total  consideration  paid  in  these  transactions  is
contingent  upon future  activity and is estimated  to aggregate  $3.3  million,
which consists of $2.2 million in cash,  75,312 shares of Common Stock at $8 per
share and 90,909  shares of Common  Stock at $5.50 per share.  The Company  also
assumed  approximately  $185,000 of debt due to the former  owners of one of the
acquired  businesses and their  relatives.  Of this amount $3.1 million has been
assigned to the excess of purchase price over net assets of businesses  acquired
(goodwill) and other  intangible  assets.  The purchase  price was  subsequently
reduced  by   approximately   $259,000   and  $357,000   during  1998  and 1997,
respectively, due to actual revenue not reaching projected revenue as stipulated
in the purchase agreements.  Accordingly, goodwill and seller-financed debt were
reduced by this amount to reflect the  reduction  in the purchase  price.  Final
determinations  of the individual  acquisition costs will be made by April 2000.
The results of the acquired  businesses have been reflected in the  accompanying
consolidated  statements of operations since their respective acquisition dates.
The results of operations of the acquired businesses prior to their acquisitions
are not material to the Company's consolidated statements of operations.

(4)      DISCONTINUED OPERATIONS:

On December 31, 1997,  the Company  entered into an agreement  providing for the
sale of certain assets of its fulfillment and direct mail business. The purchase
price for the assets was  $850,000 and is comprised of $125,000 in cash with the
remainder in the form of a  promissory  note (the "Note  Receivable").  The Note
Receivable  bears  interest at the rate of 6% per annum,  with  interest only in
monthly  installments  during  1998.   Commencing  February  1,  1999  the  Note
Receivable  will be paid in equal  monthly  installments  of  $14,016  including
principal and interest  through January 1, 2004. The Note Receivable is included
in prepaid expenses and other current assets ($117,000 at December 31, 1998) and
in security  deposits  and other assets  ($608,000  and $725,000 at December 31,
1998 and 1997,  respectively,  in the accompanying  consolidated balance sheets.
The Note Receivable is  collateralized by a security interest in the purchaser's
accounts receivable, equipment and general intangibles. The security interest is
subordinate to the interest of the purchaser's majority shareholder.

Accordingly,  the  financial  position,  operating  results  and the gain on the
disposition of the Company's direct mail business have been

<PAGE>

segregated  from  continuing  operations  and  reclassified  as  a  discontinued
operation in the accompanying consolidated financial statements.

Results  from the  discontinued  fulfillment  and direct mail  business  were as
follows (in thousands) -

<TABLE>
<CAPTION>

                                                              For the Years Ended December 31,
                                                                  1997                1996
                                                              -------------        ------------

<S>                                                              <C>                   <C>   
Revenue                                                          $5,937                $7,959
                                                              =============        ============
Income (loss) from discontinued
  operations, net of income tax provision
  (benefit) of ($811) and $114 in 1997
  and 1996                                                      ($1,221)                 $171
                                                              =============        ============
Gain on disposal of assets, net of
  income tax provision of $15 in 1997                               $23                $    -
                                                              =============        ============

</TABLE>

The net  liabilities of  discontinued  operations are comprised of the following
(in thousands) -
<TABLE>
<CAPTION>

                                                                     December 31,
                                                                        1997
                                                                  ------------------

<S>                                                                        <C>   
Current assets                                                             $3,829
Current liabilities                                                        (3,881)
                                                                  ------------------
  Net current liabilities                                                     (52)
Equipment and leasehold improvements                                           10
                                                                  ==================
Net liabilities of discontinued
  operations                                                                 ($42)
                                                                  ==================

</TABLE>

<PAGE>

(5)      PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Prepaid  expenses  and  other  current  assets  consist  of  the  following  (in
thousands) -

<TABLE>
<CAPTION>

                                                                                        December 31,
                                                                        ---------------------------------------------
                                                                                1998                      1997
                                                                        --------------------      -------------------
<S>                                                                             <C>                       <C> 
  Other receivables                                                             $478                      $580
  Prepaid supplies and equipment deposits                                        146                       564
  Prepaid insurance                                                              151                       227
  Prepaid rent                                                                   119                        75
  Other                                                                          210                       339
                                                                        --------------------      -------------------
                                                                              $1,104                    $1,785
                                                                        ====================      ===================
</TABLE>

(6)      EQUIPMENT AND LEASEHOLD IMPROVEMENTS:

Equipment and leasehold improvements consist of the following (in thousands) -
<TABLE>
<CAPTION>

                                                                                                    December 31,
                                                                                         --------------------------------
                                                                                Useful Lives       1998             1997
                                                                                ------------    -----------   --------------
<S>                                                                             <C>               <C>               <C>   
            Transportation and warehouse equipment                              3-7 years         $7,814            $6,603
            Office equipment                                                    3-7 years          6,203             4,443
            Other equipment                                                     5-7 years          1,018               811
            Leasehold improvements                                             Lease period        1,516             1,180
                                                                                                -----------   --------------
                                                                                                  16,551            13,037
            Less - accumulated depreciation and amortization                                      (9,921)           (7,370)
                                                                                                -----------   --------------
                                                                                                  $6,630            $5,667
                                                                                                ===========   ==============
</TABLE>

Leased  equipment  under  capitalized  leases  (included  above) consists of the
following (in thousands) -
<TABLE>

                                                                       December 31,
                                                             --------------------------------
                                                                     1998             1997
                                                             ----------------  --------------
<S>                                                                 <C>              <C>   
      Equipment                                                     $3,635           $3,521
      Less - accumulated amortization                               (1,835)            (909)
                                                             ----------------  --------------
                                                                    $1,800           $2,612
                                                             ================  ==============

</TABLE>

The Company  incurred  capital lease  obligations of $114,000 in 1998 for office
equipment and $2.5 million during 1997 in connection  with an agreement to lease
175 delivery vehicles.

(7)      INTANGIBLE ASSETS:

Intangible assets (see Note 3) consist of the following (in thousands) -

<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                -------------------------------
                                                                                        1998            1997
                                                                                ---------------  --------------
<S>                                                                                   <C>            <C>   
                     Goodwill                                                         $16,276        $2,992
                     Non Compete agreements                                               536           336
                     Customer lists                                                       550           242
                     Other                                                                161           118
                                                                                ---------------  --------------
                                                                                       17,523         3,688
                     Less - accumulated amortization                                   (1,032)         (590)
                                                                                ---------------  --------------

                                                                                      $16,491        $3,098
                                                                                ===============  ==============
</TABLE>

<PAGE>

(8)   ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

Accrued  expenses and other  current  liabilities  consist of the  following (in
thousands) -
<TABLE>
<CAPTION>

                                                                                                          December 31,
                                                                                                -------------------------------
                                                                                                     1998            1997
                                                                                                ---------------  --------------
<S>                                                                                                 <C>              <C>   
                Payroll and related expenses                                                        $3,822           $3,088
                Third-party delivery costs                                                           1,605            1,525
                Insurance                                                                              561              274
                Professional fees                                                                      393              367
                Interest                                                                               175              175
                Marketing                                                                              101               71
                Rent                                                                                    50              151
                Other                                                                                  564              490
                                                                                                 ---------------  --------------

                                                                                                    $7,271           $6,141
                                                                                                 ===============  ==============

</TABLE>

 (9) SHORT-TERM BORROWINGS AND LONG-TERM DEBT:

Short-term borrowings -

At December  31, 1998 and 1997,  the Company had line of credit  agreements  for
$22.5  million  and  $15  million,   respectively.   The  Company's  outstanding
borrowings on such lines of credit were approximately  $13.6 million at December
31, 1998 and $7.4 million at December 31, 1997.

In November 1998, CDL and First Union  Commercial  Corporation  ("First  Union")
modified an agreement entered into in July 1997, establishing a revolving credit
facility (the "First Union  Agreement").  The First Union Agreement provides for
an increase in the original  credit  facility from $15 million to $22.5 million,
provides  CDL with an  equipment  acquisition  term loan  facility of up to $2.5
million and modifies other terms and conditions. Credit availability is based on
eligible amounts of accounts  receivable,  as defined, up to a maximum amount of
$22.5  million  and is secured by  substantially  all of the  assets,  including
certain cash balances, accounts receivable, equipment and leasehold improvements
and general  intangibles  of the Company and its  subsidiaries.  The First Union
Agreement  provides for both fixed and variable  rate loans.  Interest  rates on
fixed rate borrowings are based on LIBOR (which was 5.07% at December 31, 1998),
plus 1.5% to 2%.  Variable  rate  borrowings  are based on First  Union's  prime
lending  rate (which was 7.75% at December 31,  1998),  minus .25% to plus .25%.
Based on eligible accounts  receivable at December 31, 1998, $2.5 million of the
credit facility and $2.5 million of the equipment acquisition term loan facility
were available for future borrowings.

<PAGE>

Under the  terms of the First  Union  Agreement,  the  Company  is  required  to
maintain certain  financial  ratios and comply with other financial  conditions.
The First Union  Agreement  also  prohibits the Company from  incurring  certain
additional  indebtedness,  limits  certain  investments,  advances  or loans and
restricts  substantial asset sales, capital expenditures and cash dividends.  At
December  31,  1998,  the Company  was in  compliance  with all loan  covenants.
Borrowings under the line of credit facility averaged approximately $7.8 million
with an average  interest  rate of 9.1% for the year ended  December  31,  1998.
Maximum borrowings were $13.6 million for the same period.

Long-Term Debt -

Long-term debt consists of the following (in thousands) -
<TABLE>

                                                                                               December 31,
                                                                                        ---------------------------
                                                                                           1998           1997
                                                                                        ------------  -------------
<S>                                                                                     <C>             <C>   
10% and 8% Subordinated Convertible Debentures (a)                                        $890          $2,000
Capital lease obligations due through August 2001 with interest at rates ranging
  from 5.3% to 15.2% and secured by the related property.                                1,802           2,631
Seller-financed debt on acquisitions is payable in annual and quarterly
  installments through August, 2003.  Interest  is payable at rates ranging
  between 6.0% and 7.0% and one of the notes requires monthly payments based on
  collected revenues through September 2000 with interest imputed at the rate of         5,859             611
  9.0%.
Various  equipment  and  vehicle  notes  payable  to banks  and  finance
  companies due through March 2003 with interest  ranging from 8.0% to            
  12.5% and secured by various assets of certain subsidiaries                              818             133
Debt due to former owners, their relatives, and employees of businesses acquired
  with weekly and quarterly principal and interest payments through September
  2001 together with interest at rates ranging from 8.0% to 10.0%.                         195             145
                                                                                       ------------  -------------
                                                                                         9,564           5,520
        Less - Current maturities                                                       (3,181)         (3,280)
                                                                                       ============  =============
                                                                                        $6,383          $2,240
                                                                                       ============  =============
</TABLE>

<PAGE>
(a) In September 1995, the Company issued $2 million in the aggregate  principal
amount of its 8% Subordinated  Convertible Debentures (the "8% Debentures").  On
April  1,  1998 the  Company  converted  $740,000  of the $2  million  of the 8%
Debentures to 10% Subordinated Convertible Debentures (the "10% Debentures") and
issued  $150,000 of additional  10%  Debentures.  The  remaining 8%  Debentures,
totaling  $1,260,000  were  repaid  in  August  1998.  The  10%  Debentures  are
convertible  into common stock of the Company at a conversion price of $5.50 per
share,  accrue interest at 10% per annum which is payable  quarterly,  mature on
August 21,  2000 and extend the initial  repayment  date by one year from August
1998 to August 1999. The 10% Debentures are redeemable by the Company,  in whole
or in part,  without premium or penalty at any time on or after August 18, 1999,
at their face amount plus  accrued and unpaid  interest,  if any, to the date of
redemption.  The 10% Debentures  are redeemable at the option of the holder,  in
whole but not in part, without premium or penalty,  at any time after August 21,
1999. As a result, the 10% Debentures,  totaling $890,000,  have been classified
as current maturities of long-term debt.

The  aggregate  annual  principal  maturities of debt  (excluding  capital lease
obligations) as of December 31, 1998 are as follows (in thousands) -

       1999                                                  $2,158
       2000                                                     883
       2001                                                   3,242
       2002                                                      18
       2003                                                   1,461
                                                          -----------------
      Total                                                  $7,762
                                                          =================

The Company leases certain  transportation  and office  equipment  under capital
lease  agreements  that expire at various dates.  At December 31, 1998,  minimum
annual payments under capital  leases,  including  interest,  are as follows (in
thousands) -

       1999                                                        $1,141
       2000                                                           773
       2001                                                            18
                                                                 ---------------
         Total minimum payments                                     1,932
       Less - Amounts representing interest                          (130)
                                                                 ---------------
         Net minimum payments                                       1,802
       Less - Current portion of obligations under capital leases  (1,023)
                                                                 ---------------
         Long-term portion of obligations under capital leases       $779
                                                                 ===============


(10)     EMPLOYEE BENEFIT PLANS:

The Company  adopted a 401(k)  retirement plan during 1996 and merged all of the
existing  subsidiary  plans  into the  newly  adopted  plan.  Substantially  all
employees  are  eligible  to  participate  in the  plan  and  are  permitted  to
contribute  between 1% and 20% of their annual salary. The Company has the right
to make  discretionary  contributions  that will be allocated  to each  eligible

<PAGE>

participant.  The Company did not make discretionary contributions for the years
ended December 31, 1998, 1997 and 1996.

(11)     INCOME TAXES:

Federal and state income tax provision  (benefit)  for the years ended  December
31, 1998, 1997 and 1996 are as follows (in thousands) -

<TABLE>
<CAPTION>

                                              1998                1997               1996
                                          ---------------     ---------------   ----------
  Federal-
<S>                                          <C>                  <C>               <C>  
    Current                                  $797                 $723              ($60)
    Deferred                                  300                  (35)             (752)
  State                                       319                  200              (146)
                                         ---------------     ---------------   ----------
                                           $1,416                 $888             ($958)
                                        ===============      ===============   ==========

</TABLE>

The  differences in Federal income taxes provided and the amounts  determined by
applying the Federal  statutory tax rate (34%) to income (loss) from  continuing
operations  before income taxes for the years ended December 31, 1998,  1997 and
1996, result from the following (in thousands) -

<TABLE>
<CAPTION>

                                              1998                1997            1996
                                          -------------       -------------   -----------
 
<S>                                           <C>                  <C>           <C>   
  Tax at statutory rate                       $1,267               $865          ($616)
  Add (deduct) the effect of - 
    State income taxes                           211                132            (96)
    Nondeductible expenses and other, net        (62)              (109)            65
    Reduction of estimated taxes provided 
           in the prior Year                     -                   -            (311)
                                           -------------     --------------   -----------
                                             $1,416                $888          ($958)
                                           =============     ==============  ============

</TABLE>

The  acquired  businesses  filed  "short-period"  Federal  tax  returns  through
November 30, 1995. In connection with such filings the Company provided $400,000
during 1995 to cover any potential  exposures related to the filings,  which was
subsequently reduced by $311,000 in 1996.

<PAGE>

The components of deferred  income tax assets and liabilities are as follows (in
thousands) -

                                                               December 31,
                                                       -------------------------
                                                          1998           1997
                                                      -----------    -----------
        Deferred income tax assets -
           Allowance for doubtful accounts                $753           $633
           Reserves and other, net                         903            712
                                                    ============    ============
               Total deferred income tax assets         $1,656         $1,345
                                                    ============    ============

        Deferred income tax liabilities -
           Trade receivables discount                   $(507)         $  -
           Accumulated depreciation and amortization     (391)         (320)
           Cash to accrual differences                   (288)         (176)
           Other                                         (731)         (692)
                                                   -------------     -----------
               Total deferred income tax liabilities  ($1,917)      ($1,188)
                                                   =============    ============
                Net deferred tax (liability) asset      $(261)         $157
                                                   =============    ============

(12)     REPORTABLE SEGMENTS:

Effective December 31, 1998, CDL implemented  Statement of Financial  Accounting
Standards No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information", ("SFAS 131"). SFAS 131  requires a company to disclose  reportable
segments based on the way management organizes its segments for making operating
decisions and assessing  performance.  CDL has two reportable segments:  Air and
Ground.  Separate  management of each segment is required  because each business
unit is subject to different cost and delivery  parameters.  Segment information
for 1998, 1997 and 1996 is as follows (in thousands).

<TABLE>

                                                              Air           Ground           Total
  Revenue from external customers
<S>    <C>                                                 <C>            <C>             <C>     
       1998                                                $55,547        $130,192        $185,739
       1997                                                 56,545         114,957         171,502
       1996                                                 51,972         111,118         163,090
  Intersegment revenue
       1998                                                     71           1,568           1,639
       1997                                                    226           2,006           2,232
       1996                                                    294           2,358           2,652
  Interest expense
       1998                                                    373             873           1,246
       1997                                                    377             767           1,144
       1996                                                    257             548             805
  Depreciation and amortization
       1998                                                    556           2,565           3,121
       1997                                                    415           1,856           2,271
       1996                                                    249           1,310           1,559
  Segment profit (loss)
       1998                                                    497           1,814           2,311
       1997                                                     71           1,586           1,657
       1996                                                      5           (859)            (854)
  Segment assets
       1998                                                 11,489          40,599          52,088
       1997                                                 15,041          21,118          36,159
       1996                                                 14,434          20,567          35,001
  Expenditures for segment assets
       1998                                                    637           1,608           2,245
       1997                                                    281             910           1,191
       1996                                                    304             975           1,279

</TABLE>

<PAGE>

The CDL Air Division  derives its revenue from the provision of customized heavy
freight, next flight out and international shipments whereby package movement is
by air generally on scheduled airline flights.  CDL ground delivery services are
provided to customers by a CDL driver in a vehicle  either on a rush basis or on
a regularly  scheduled route basis. Air revenue is generally measured by package
while  ground  delivery  revenue is  generally  measured  by the number of stops
involved.

Intersegment  revenue  results  from the  provision  of ground  service  for the
pick-up or  delivery of packages  for  delivery to airports or from  airports to
customers.  The Air  Division  also  provides  delivery by air of  time-critical
material for ultimate distribution by ground-based drivers.

Management  evaluates  the  performance  of each  segment  based on its  overall
contribution  to the Company's net income after  factoring in the  allocation of
interest  as  well  as  an  intersegment   charge  for  Corporate   general  and
administrative expenses.


(13)     COMMITMENTS AND CONTINGENCIES:

 Operating Leases -

The Company  leases its office and  warehouse  facilities  under  noncancellable
operating  leases,  which expire at various  times  through  January  2007.  The

<PAGE>

approximate minimum rental commitments of the Company, under existing agreements
as of December 31, 1998, are as follows (in thousands) -

          1999                                                    $4,274
          2000                                                     3,323
          2001                                                     2,427
          2002                                                     1,357
          2003                                                       955
          Thereafter                                               1,488



Rent  expense  related to  operating  leases  amounted  to  approximately  $12.7
million,  $13.1 million and $13.7 million for the years ended December 31, 1998,
1997 and 1996, respectively.

Litigation -

In February 1996,  Liberty Mutual Insurance Company ("Liberty  Mutual") filed an
action against Securities Courier  Corporation  ("Securities"),  a subsidiary of
the Company,  Mr.  Vincent  Brana and certain other parties in the United States
District  Court for the  Southern  District  of New York  alleging,  among other
things, that Securities Courier had fraudulently  obtained automobile  liability
insurance  from Liberty Mutual in the late 1980s and early 1990s at below market
rates. This suit, which claims common law fraud,  fraudulent inducement,  unjust
enrichment and  violations of the civil  provisions of the Federal RICO statute,
among other things,  seeks an unspecified  amount of  compensatory  and punitive
damages from the  defendants,  as well as  attorneys'  fees and other  expenses.
Under the terms of its acquisition of Securities, the Company has certain rights
to indemnification from Mr. Brana. In connection with the  indemnification,  Mr.
Brana has entered into a Settlement  Agreement and executed a Promissory Note in
the amount of up to $500,000 or such greater  amount as may be due together with
interest  calculated at a rate equivalent to the rate charged the Company by its
senior  lender and due on  December  1,  2000.  The  Promissory  Note is further
secured by 100,000  shares of CDL common stock.  Discovery is currently  pending
and as a result the Company is unable to make a  determination  as to the merits
of the claim. The Company does not believe that an adverse determination in this
matter would result in a material adverse effect on the  consolidated  financial
position or results of operations of the Company.

The Company and its  subsidiaries  are from time to time,  parties to litigation
arising in the normal course of their  business,  most of which involves  claims
for  personal  injury and  property  damage  incurred in  connection  with their
operations.  Management believes that none of these actions, including the above
action, will have a material adverse effect on the financial position or results
of operations of the Company and its subsidiaries.

Sales Agency Agreements -

The  Company  has  entered  into  sales  agency   agreements  with   independent
contractors  with  varying  terms to perform  courier  services on behalf of the
Company.  The independent  contractors  provide marketing and sales services and

<PAGE>

the Company  provides the resources to perform courier  services.  In connection
with these  transactions the Company retains from the independent  contractors a
fee for services rendered of approximately 10% of revenues.  The profit on these
sales  net of the  Company's  fees  for its  services  is  remitted  back to the
independent  contractors as payment for marketing and sales  services  rendered.
Sales  agency  charges  totaled $4.2  million,  $4.7 million and $3.8 million in
1998, 1997 and 1996, respectively.

Earn-Outs -

Certain  of the  companies  acquired  by CDL are  eligible  to  earn  additional
amounts,  consisting of a combination of cash and notes payable,  as adjustments
to the purchase  prices paid for those  companies.  At December  31,  1998,  the
Company  recorded  an accrual  for the  estimated  earn-outs  for KBD  ($500,000
contingent note payable),  Everready ($560,000 contingent note payable), and the
First  Choice  Companies  ($687,000  payable  in  cash  and  included  in  other
liabilities in the accompanying financial statements).

(14)     STOCK OPTION PLANS:

The Company has two stock option  plans under which  employees  and  independent
directors may be granted  options to purchase  shares of Company Common Stock at
or above the fair market value at the date of grant.  Options  generally vest in
one to four years and expire in 10 years.

Employee Stock compensation Program -

In September 1995, the Board of Directors  adopted,  and the stockholders of the
Company  approved  the  Company's  Employee  Stock  Compensation   Program  (the
"Employee Stock Compensation Program").  The Employee Stock Compensation Program
authorizes the granting of incentive stock options,  non-qualified supplementary
options, stock appreciation rights, performance shares and stock bonus awards to
key employees of the Company,  including those employees  serving as officers or
directors of the Company.  The Company  initially  reserved  1,400,000 shares of
Common Stock for issuance in  connection  with the Employee  Stock  Compensation
Program.  In June 1998, the Board of Directors  adopted and the  stockholders of
the  Company  approved  an  additional  500,000  shares for  issuance  under the
Employee Stock Compensation  Program. The Employee Stock Compensation Program is
administered  by a committee  of the Board of Directors  (the  "Administrators")
made up of directors who are disinterested  persons.  Options and awards granted
under the Employee Stock  Compensation  Program will have an exercise or payment
price as established by the  Administrators  provided that the exercise price of
incentive  stock  options  may not be less  than  the fair  market  value of the

<PAGE>

underlying  shares  on the date of  grant.  Unless  otherwise  specified  by the
Administrators,  options and awards will vest in four equal  installments on the
first, second, third and fourth anniversaries of the date of grant.

1995 Stock Option Plan for Independent Directors -

In September 1995, the Board of Directors  adopted,  and the stockholders of the
Company approved, the Company's 1995 Stock Option Plan for Independent Directors
(the   "Director   Plan").   The  Director  Plan   authorizes  the  granting  of
non-qualified  stock  options to  non-employee  directors  of the  Company.  The
Company has reserved  100,000  shares of Common Stock for issuance in connection
with the Director Plan. The Director Plan is  administered by a committee of the
Board  of  Directors  (the  "Committee"),  none of  whom  will  be  eligible  to
participate  in the Director  Plan.  The Director  Plan  provided for an initial
grant of an option to purchase  1,500 shares of Common Stock upon  election as a
director of the  Company,  a second  option to purchase  1,000  shares of Common
Stock upon the one-year  anniversary of such director's  election and subsequent
annual options for 500 shares of Common Stock upon the  anniversary of each year
of service as a director. In June 1998, the stockholders of the Company approved
amendments to the Director Plan. The amendments replaced the annual stock option
grants of the  original  plan  with  quarterly  grants of 1,250  shares of stock
options on the first trading day of each fiscal quarter commencing on October 1,
1997.  In  August  1998  and  February  1999,  the  committee  approved  further
amendments to the Plan. These amendments, subject to shareholder approval at the
annual  meeting,  replaced the time period to exercise  vested  options  after a
participating  director  has  served  as  a  director  for  a  period  of  three
consecutive  years or more. The Director Plan was amended to provide that in the
event any  holder,  who has served as a director  for three or more  consecutive
years,  shall cease to be a director for any reason,  including  removal with or
without cause or death or disability,  all options (to the extent exercisable at
the  termination  of the  director's  service)  shall remain  exercisable by the
holder or his lawful heirs,  executors or administrators until the expiration of
the ten-year period following the date such options were granted.


Information regarding the Company's stock option plans is summarized below:


                                                                        Weighted
                                                             Number     Average
                                                              of        Exercise
                                                            Shares       Price
                                                         ----------    ---------
   Shares under option:
     Outstanding at December 31, 1995                      395,000       $13.00

       Granted                                             219,706 (1)    $8.86
       Exercised                                               -            -
       Canceled                                            (52,138)      $13.00
                                                           --------     

     Outstanding at  December 31, 1996                     562,568       $11.36

       Granted                                             444,928        $3.85
       Exercised                                             -             -
       Canceled                                            (99,373)      $10.15
                                                         ----------     

     Outstanding at  December 31, 1997                     908,123        $7.80

       Granted                                             302,203        $2.85
       Exercised                                             -             -
       Canceled                                            (56,011)      $11.81
                                                         -----------    

     Outstanding at December 31, 1998                    1,154,315        $6.34
                                                        ============    

   Options exercisable at:
     December 31, 1996                                     131,037       $11.94
                                                        ============    ========
     December 31, 1997                                     576,592        $7.33
                                                        ============   =========
     December 31, 1998                                     915,378        $6.35
                                                        ============   =========

(1)  Includes 100,179 grants approved by the Compensation Committee of the Board
     of Directors  in January 1996 that were priced  effective as of the date of
     the Mergers (November 27, 1995).

At December  31, 1998,  options  available  for grant under the  Employee  Stock
Compensation Plan and the Director Plan total 780,685 and 65,000, respectively.

The  following  summarizes  information  about  option  groups  outstanding  and
exercisable at December 31, 1998:

<TABLE>
<CAPTION>

                                       Outstanding Options                                Exercisable Options
                      -------------------------------------------------------     ------------------------------------
                           Number                                                      Number
                         Outstanding           Weighted           Weighted           Exercisable           Weighted
    Range of                as of               Average           Average               as of              Average
    Exercise            December 31,           Remaining          Exercise          December 31,           Exercise
     Prices                 1998                 Life              Price                1998                Price
------------------    ------------------    ----------------    -------------     ------------------     -------------
<S>                        <C>                  <C>               <C>               <C>                    <C>
     $2.31 -
     $4.75                 662,695              8.65               $2.95             502,674               $2.93
     $4.88 -
     $7.88                 152,433              8.23               $6.24             151,433               $6.25
    $13.00                 339,187              6.69              $13.00             261,271              $13.00
------------------    ------------------    ----------------    -------------     ------------------     -------------
</TABLE>

<PAGE>

The  Company  adopted the  provisions  of SFAS 123 and has chosen to continue to
account  for  stock-based   compensation   using  the  intrinsic  value  method.
Accordingly,  no  compensation  expense has been  recognized for its stock-based
compensation  plans.  Pro forma  information  regarding  net  income  (loss) and
earnings  (loss) per share is required and has been determined as if the Company
had accounted for its stock options under the fair value method.  The fair value
for these  options was  estimated  at the date of grant using the  Black-Scholes
option pricing model with the following assumptions for 1998, 1997 and 1996 -

<TABLE>

                                                                            1998                1997               1996
                                                                       ---------------     ---------------   -------------
<S>                                                                         <C>                <C>               <C>  
          Weighted average fair value                                       $2.25              $1.50             $3.06
          Risk-free interest rate                                            5.10%              5.60%             6.50%
          Volatility factor                                                   99%                55%                37%
          Expected life                                                     5.5 years           5 years        7 years

          Dividend yield                                                     None                 None              None
                                                                       --------------       --------------   -------------
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options  that have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
changes in the subjective input assumptions can materially affect the fair value
estimate,  in  management's  opinion,  the  existing  models do not  necessarily
provide a reliable single measure of the fair value of its stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma net  income  (loss)  and  income  (loss)  per share  were as  follows  (in
thousands except per share data):

<TABLE>
<CAPTION>

                                                                            1998                1997               1996
                                                                       ---------------     ---------------   -----------------
<S>                                                                       <C>                  <C>                <C>   
          Net income (loss) - as reported                                 $2,311               $459               ($683)
          Net income (loss) - pro forma                                    1,812               (295)             (1,399)
          Basic income (loss) per share -
             As reported                                                     .35                .07                (.10)
             Pro forma                                                       .27               (.04)               (.21)
          Diluted income (loss) per share -
             As reported                                                     .34                .07                (.10)
             Pro forma                                                       .26               (.04)               (.21)

</TABLE>

(15)     EMPLOYEE STOCK PURCHASE PLAN

Effective  April 1, 1998,  CDL  adopted an  Employee  Stock  Purchase  Plan (the
"Employee Purchase Plan"). The Employee Purchase Plan permits eligible employees
to purchase CDL common stock at 85% of the closing  market price on the last day
prior to the  commencement of the purchase  period.  The Employee  Purchase Plan
provides for the  purchase of up to 500,000  shares of common  stock.  No shares
were issued under the Employee Purchase Plan in 1998.

<PAGE>

(16)     RELATED PARTY TRANSACTIONS:

Leasing Transactions -

Certain  subsidiaries of the Company paid approximately  $530,000,  $905,000 and
$851,000 for the years ended December 31, 1998, 1997 and 1996, respectively,  in
rent to certain  directors,  stockholders  or companies  owned and controlled by
directors or  stockholders  of the Company.  Rent is paid for office,  warehouse
facilities and transportation equipment.

Receivable from Shareholder -

In  connection  with  his  indemnification  to CDL  under  the  terms  of  CDL's
acquisition of Securities Courier Corporation ("Securities"),  Mr. Vincent Brana
has entered into a settlement  agreement  and executed a promissory  note in the
amount of $500,000  or such  greater  amount as may be due under the  settlement
agreement.  The Company has agreed to advance  certain  legal fees and  expenses
related  to  certain  litigation  involving  Securities,  which  Mr.  Brana  has
indemnified CDL (see Note 13). At December 31, 1998 the Company had a receivable
due from Mr. Brana totalling $599,000,  which is included in other assets in the
accompanying  consolidated  financial statements.  Mr. Brana has agreed to repay
the Company on December 1, 2000, together with interest calculated at a rate per
annum equal to the rate  charged the Company by its senior  lender.  The Company
holds 100,000 shares of common stock as security for the Note.

Administrative Fees and Other -

The Company  incurred sales  commissions  and consulting fees of $1.9 million in
1998,  $1.3  million in 1997 and $1.1  million in 1996 to  companies  affiliated
through common  ownership with  directors or  stockholders  of the Company or to
former employees of the Company or its subsidiaries. As of December 31, 1998 and
1997,  accrued  expenses and other current  liabilities  included  approximately
$168,000 and $274,000, respectively, of accrued sales commissions due to related
parties. See Note 18 for restructuring charges that pertain to related parties.

In connection with the Merger discussed in Note 1,  stockholders of the acquired
businesses entered into five-year  covenants-not-to-compete  agreements with the
Company.   Additionally,   certain  of  the  stockholders   received  employment
contracts.

(17)     SALE OF SUBSIDIARY:

On  January  31,  1997 the  Company  sold the  stock of  Distribution  Solutions
International,  Inc.  (DSI),  a  subsidiary  that  provided  contract  logistics
services,  to its former owner and  president in exchange for 137,239  shares of
the Company's common stock, valued at approximately $4.38 per share (the closing

<PAGE>

price of the Company's  common stock on the sale date.) In  connection  with the
sale, the Company  recorded a gain of approximately  $816,000 before  applicable
Federal  and  state  income  taxes.   Revenue   included  in  the   accompanying
consolidated  financial statements from the operation was approximately $400,000
and $4.6 million for the month of January  1997 and the year ended  December 31,
1996 respectively.  Operating losses were approximately $20,000 and $650,000 for
the month of January 1997 and the year ended December 31, 1996, respectively.

(18)   RESTRUCTURING CHARGE:

During the fourth quarter of 1996, the Company  recognized the impact of several
non-recurring  charges totaling $1.4 million . The restructuring charge included
salary and contract settlements, abandonment of operating leases and other costs
associated with management  headcount reduction and other consolidation  issues.
At December 31, 1998,  $275,000 was included in accrued expenses and $69,000 was
included  in  other  liabilities  and  are  payable  to a  former  director  and
stockholder of the Company or its subsidiaries.  At December 31, 1997,  $339,000
was included in accrued expenses and $344,000 was included in other liabilities,
of which $275,000 and $344,000,  respectively, were payable to a former director
and stockholder of the Company or its subsidiaries.

(19)   SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest  and income taxes for the years ended  December 31, 1998,
1997 and 1996 was as follows (in thousands) -


<TABLE>
<CAPTION>


                                                               1998              1997               1996
                                                            ----------------   --------------  --------------
<S>                                                            <C>               <C>               <C> 
            Interest                                           $1,246            $1,024            $831
            Income taxes                                          778               245             878
                                                           -----------------   --------------  --------------
</TABLE>


Supplemental  schedule  of  noncash  financing  activities  for the years  ended
December 31, 1998, 1997 and 1996 was as follows (in thousands) -
<TABLE>
<CAPTION>

                                                                                    1998               1997            1996
                                                                                -----------         ---------      ----------
<S>                                                                                <C>               <C>               <C> 
              Capital lease obligations incurred                                   $114              $2,700            $202
              Seller financed debt related to purchase of businesses              5,670                  50           1,929
              Debt and capital leases assumed in connection with acquisitions
                                                                                  1,699                   -               -
              Issuance of common stock in connection with purchases
                 of businesses                                                      644                  25           1,102
              Adjustment of purchase price for businesses
                 previously acquired                                                259                 357               -
              Note receivable issued in connection with disposal of
                 assets of discontinued operations                                   -                  725               -

</TABLE>

(20)   SUBSEQUENT EVENTS:

Stock Options

On January 4, 1999 CDL granted  200,000 stock  options under its Employee  Stock
Compensation Plan.

Senior Subordinated Notes and Warrants

On January 29, 1999, the Company  completed a $15 million  private  placement of
senior  subordinated notes and warrants with three financial  institutions.  The
notes bear  interest  at 12% per annum and are  subordinate  to all senior  debt
including the Company's credit facility with First Union Commercial Corporation.
Under the terms of the  notes,  the  Company is  required  to  maintain  certain
financial ratios and comply with other financial conditions. The notes mature on
January 29, 2006 and may be prepaid by the Company under certain  circumstances.
The warrants  expire  January 19, 2009 and are  exercisable at any time prior to
expiration  at a price of $.001  per  equivalent  share of  common  stock for an
aggregate  of 506,250  shares of the  Company's  stock,  subject  to  additional
adjustments.  The Company plans to use the proceeds to finance  acquisitions  as
they arise and for general working capital purposes.

Acquisition

On February  16,  1999,  CDL  entered  into and  consummated  an asset and stock
purchase agreement (the "Purchase  Agreement") with its subsidiary,  Sureway Air
Traffic  Corporation  ("Sureway") and Victory Messenger  Service,  Inc., Richard
Gold,  Darobin Freight  Forwarding Co.,  Inc.,("Darobin")  and The Trust Created
Under  Paragraph  Third of the Last  Will and  Testament  of  Charles  Gold (the
"Trust"),  (collectively  "Gold Wings") , whereby  Sureway  purchased all of the
outstanding shares of the capital stock of Darobin and certain of the assets and
liabilities  of  the  other  sellers.   The  purchase  price  was  comprised  of
approximately $3.0 million in cash including estimated direct acquisition costs,
$1,650,000  in a 7%  subordinated  note (the  "Note") and 200,000  shares of CDL
common  stock.  The Note is due April 16, 2001 with interest  payable  quarterly
commencing  April 1, 1999.  The Note is  subordinate  to all  existing or future
senior debt of CDL. In addition,  a contingent earn out in the aggregate  amount
of up to $520,000 is payable based on the achievement of certain financial goals
during the two year period following the closing. The earn out is payable 55% in
cash and 45% in CDL common stock.  CDL financed the  acquisition  using proceeds
from its revolving credit facility with First Union Commercial Corporation.

The following summarized unaudited pro forma financial information (in thousands
except per share data) assumes that the Gold Wings  acquisition was consummated,
the senior  subordinated  notes and  warrants  were issued and the  acquisitions

<PAGE>

discussed  in Note 3 occurred  on  January 1,  1998.  This  information   is not
necessarily  indicative  of the results CDL would have obtained had these events
actually occurred or of CDL's actual or future results.

                                                           For the Year
                                                               Ended
                                                       December 31, 1998
                                                    -------------------------
                                                            (Unaudited)
         Revenue                                           $216,435
         Income from continuing operations                    4,592
         Net income                                          $1,988

         Basic net income per share                           $.26
         Diluted net income per share                         $.26


Exchange Listing -

As of February 23, 1999, shares of the Company's  common stock began  trading on
the American Stock  Exchange under the symbol CDV. The Company's  stock formerly
traded on the Nasdaq National Market under the symbol CDLI.


<PAGE>

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosures

         Not applicable.

                                    PART III


Item 10.  Directors and Executive Officers of the Company

          The  Company   hereby   incorporates   by  reference  the   applicable
information  from its definitive  proxy statement for its 1999 Annual Meeting of
Stockholders, except for certain information relating to the Company's executive
officers which is provided below.

Executive Officers

          The  following  table sets forth certain  information  as of March 12,
1999 concerning each of the Company's executive officers:


       Name                        Age                       Position

  Albert W. Van Ness, Jr.        56      Chairman of the Board, Chief Executive
                                         Officer, Acting Chief Financial Officer
                                         and Director
  William T. Brannan             50      President, Chief Operating Officer and 
                                         Director
  Joseph J. Leonhard             47      Vice President - Controller
  Mark Carlesimo                 45      General Counsel
  Russell J. Reardon             48      Vice President - Treasurer
  Andrew B. Kronick              35      Vice President - Sales and Marketing
  Robin Dennis                   46      Vice President - Information Technology
  Michael Brooks                 44      Southeast Region Manager
  Randy Catlin                   52      Air Division Manager
  Robert Wyatt                   40      Northeast Region Manager

          Albert W. Van Ness, Jr. has served as the Chairman of the Board, Chief
Executive  Officer and  Director  of CDL since  February  1997 and Acting  Chief
Financial  Officer  since  May,  1998.  He  remains a  Managing  Partner of Club
Quarters,  LLC, a hotel development and management company,  since October 1992.
From June 1990 until October  1992,  Mr. Van Ness served as Director of Managing
People  Productivity,  a consulting  firm.  Prior thereto,  from 1982 until June

<PAGE>

1990, Mr. Van Ness held various  executive  offices with Cunard Line Limited,  a
passenger ship and luxury hotel company,  including Executive Vice President and
Chief Operating Officer of the Cunard Leisure Division and Managing Director and
President of the Hotels and Resorts Division. Prior thereto, Mr. Van Ness served
as the  President  of  Seatrain  Intermodal  Services,  Inc.,  a cargo  shipping
company.

          William T.  Brannan has served as the  President  and Chief  Operating
Officer of CDL since  November  1994.  From January 1991 until October 1994, Mr.
Brannan served as President,  Americas  Region - US Operations,  for TNT Express
Worldwide,  a major  European-based  overnight  express  delivery  company.  Mr.
Brannan has twenty three years of experience in the transportation and logistics
industry.

          Joseph J. Leonhard has been the  Controller of CDL since June 1995 and
was appointed to the position of Vice-President in May 1996. Prior thereto, from
June 1987 until June 1995, Mr.  Leonhard was the Controller and Chief  Financial
Officer of Scientific Devices East, Inc.

          Mark Carlesimo has been General  Counsel of CDL since  September 1997.
From July 1983 until September 1997, Mr.  Carlesimo  served as Vice President of
Legal Affairs of Cunard Line Limited.

          Russell J. Reardon was appointed  Vice President - Treasurer of CDL in
January 1999. Prior thereto,  from September 1998 until January 1999 Mr. Reardon
was Chief  Financial  Officer,  Secretary  and Vice  President - Finance of Able
Energy, Inc. From April 1996 until February 1998 Mr. Reardon was Chief Financial
Officer, Secretary and Vice President - Finance of Logimetrics, Inc.

          Andrew B. Kronick was appointed  Vice  President - Sales and Marketing
of CDL in January 1999.  Prior thereto Mr. Kronick served as General Manager and
Vice  President-Business  Development for the Company's Northeast Region.   From
August,  1991 until its merger into the Company,  Mr. Kronick was Vice President
of Click Courier Systems.

          Robin Dennis was appointed Vice President - Information  Technology of
CDL in  January  1999.  Mr.  Dennis  was  an  independent  consultant  providing
information  technology advice to a wide range of companies.  Prior thereto, Mr.
Dennis  served as Vice  President  -  Information  Technology  for  Cunard  Line
Limited from October 1988 until February 1997.

          Michael  Brooks has served as Director of the Company  since  December
1995, as Southeast  Region  Manager since August 1996 and as President of Silver
Star Express,  Inc., a subsidiary of the Company,  since November 1995. Prior to
the  merger of Silver  Star  Express,  Inc.  into the  Company,  Mr.  Brooks was
President of Silver Star Express,  Inc.  since 1988.  Mr. Brooks has twenty four
years of  experience  in the same-day  ground and  distribution  industries.  In
addition,   Mr.  Brooks  is  currently  a  Director  of  the  Express   Carriers
Association,  an  associate  member  of  the  National  Small  Shipment  Traffic
Conference and an affiliate of the American Transportation Association.

          Randy Catlin has served as Air Division  Manager of the Company and as
Chief Executive Officer of SureWay Worldwide, a subsidiary of the Company, since
March  1997.  From 1984 until  1997,  Mr.  Catlin was  Vice-Chairman  of SureWay
Worldwide,  formerly  known as Sureway Air Traffic  Corporation.  Mr. Catlin has
thirty one years of experience  in the air courier  industry.  In addition,  Mr.

<PAGE>

Catlin  is  currently  Chairman  of the  annual  conference  of the Air  Courier
Conference  of America,  and has served  previously as President and Director of
the organization.

          Robert Wyatt has been the  Northeast  Region  Manager  since  November
1997,  Manhattan  Region  Manager  since  August 1996 and  President  of Olympic
Courier  Systems,  Inc. a subsidiary of the Company since  November  1995.  From
December 1995 until  November 1997, Mr. Wyatt served as Director of the Company.
Prior  thereto,  Mr.  Wyatt was  co-founder  and  President  of  certain  of the
companies  comprising   Orbit/Lightspeed   Courier  Systems,  Inc.  ,  a  former
subsidiary  of the Company  which has been merged into  Olympic.  Mr.  Wyatt has
fourteen  years of experience in the same-day  delivery  industry.  He currently
serves on the Board of Directors of the  Messenger  Courier  Association  of the
Americas.  Mr.  Wyatt has also  served as the  President  of the New York  State
Messenger and Courier Association.

Item 11.  Executive Compensation

          The  Company   hereby   incorporates   by  reference  the   applicable
information  from its definitive  proxy statement for its 1999 Annual Meeting of
Stockholders.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

          The  Company   hereby   incorporates   by  reference  the   applicable
information  from its definitive  proxy statement for its 1999 Annual Meeting of
Stockholders.

Item 13.  Certain Relationships and Related Transactions

          The  Company   hereby   incorporates   by  reference  the   applicable
information  from its definitive  proxy statement for its 1999 Annual Meeting of
Stockholders.


<PAGE>

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K


(a)(1)  Financial Statements

        See Item 8. Financial Statements and Supplementary Data.

(a)(2)  Financial Statement Schedules

                     INDEX TO FINANCIAL STATEMENT SCHEDULES

                                                                          Page
CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES:
   Schedule II - Consolidated Valuation and Qualifying Accounts -
    For the years ended December 31, 1998, 1997 and 1996..................S-1

          All other  schedules  called for by  Regulation  S-X are not submitted
because  either they are not  applicable or not required or because the required
information is not material or is included in the financial  statements or notes
thereto.


(a)(3)  Exhibits

         The Exhibits listed in (c) below are filed herewith.


(b)  Reports on Form 8-K

         Report on Form 8-K/A filed on October 19, 1998 concerning the Company's
         acquisition of all of the capital stock of KBD Services, Inc. 

         Report on Form 8/K filed on December  11, 1998 concerning the amendment
         of the Company'scredit facility with First Union Commercial Corporation
         increasing credit availability from $15 million to $25 million.  

         Report on Form 8/K filed on  December 22, 1998 concerning the Company's
         acquisition  of all of the capital  stock of First  Choice  Courier and
         Distribution  Systems,  Inc. and related companies.  

         Report on Form 8-K filed on February 26, 1999 concerning the Company's 
         purchase of certain assets and stock by Sureway Air Traffic Corporation
         of the Gold Wings Companies (including a Trust). 

         Report on Form 8-K filed on February 26, 1999  concerning the Company's
         completion  of  $15  million  private placement of senior subordinated 
         notes and warrants.

<PAGE>

(c)  Exhibits

       Exhibit                                                  Description
       Number

        3.1     Second Restated Certificate of Incorporation
                of Consolidated  Delivery & Logistics,  Inc.
                (filed  as  Exhibit  3.1  to  the  Company's
                Registration Statement on Form S-1 (File No.
                33-97008)   and   incorporated   herein   by
                reference).

        3.2     Amended and Restated By-laws of Consolidated
                Delivery & Logistics, Inc. (filed as Exhibit
                3.2 to the Company's  Registration Statement
                on  Form  S-1   (File  No.   33-97008)   and
                incorporated herein by reference).

        4.1     Form of certificate  evidencing ownership of
                Common  Stock  of  Consolidated  Delivery  &
                Logistics, Inc. (filed as Exhibit 4.1 to the
                Company's Registration Statement on Form S-1
                (File No. 33-97008) and incorporated  herein
                by reference).

        4.2     Instruments  defining  the rights of holders
                of the Company's  long-term  debt (not filed
                pursuant    to    Regulation     S-K    Item
                601((b)(4)(iii);  to  be  furnished  to  the
                Commission upon request).

        10.1    Consolidated  Delivery  &  Logistics,   Inc.
                Employee Stock  Compensation  Program (filed
                as   Exhibit    10.1   to   the    Company's
                Registration Statement on Form S-1 (File No.
                33-97008)   and   incorporated   herein   by
                reference).

        10.2    Consolidated Delivery & Logistics, Inc. 1995
                Stock Option Plan for Independent  Directors
                (filed  as  Exhibit  10. 2 to the  Company's
                Registration Statement on Form S-1 (File No.
                33-97008)   and   incorporated   herein   by
                reference).

        10.3    Employment  Agreement,  dated as of February
                5, 1997, with Albert W. Van Ness, Jr.

        10.4    Loan and Security Agreement,  dated July 14,
                1997 By and Between  First Union  Commercial
                Corporation  and  Consolidated   Delivery  &
                Logistics,  Inc. and Subsidiaries  (filed as
                Exhibit  10.1  to  the  Company's  Quarterly
                Report on Form 10-Q for the  fiscal  quarter
                ended June 30, 1997 and incorporated  herein
                by reference).

        10.5    Amendment,   dated   April  11,   1996,   to
                Employment   Agreement,   with  John  Mattei
                (filed  as  Exhibit  10.5  to the  Company's
                Quarterly Report on Form 10-Q for the fiscal
                quarter  ended  March  31,  1996  (File  No.
                0-26954)   and   incorporated    herein   by
                reference).

        10.6    Employment Agreement,  dated as of September
                8, 1995,  with William T. Brannan  (filed as
                Exhibit 10.6 to the  Company's  Registration
                Statement  on Form S-1 (File  No.  33-97008)
                and incorporated herein by reference).

        10.7    Employment Agreement,  dated as of September
                8,  1995,  with  Joseph G.  Wojak  (filed as
                Exhibit 10.7 to the  Company's  Registration
                Statement  on Form S-1 (File  No.  33-97008)
                and incorporated herein by reference).

        10.8    Employment Agreement,  dated as of September
                15, 1995,  with William T. Beaury  (filed as
                Exhibit 10.9 to the  Company's  Registration
                Statement  on Form S-1 (File  No.  33-97008)
                and incorporated herein by reference).

        10.9    Amendment  to Loan and  Security  Agreement,
                dated  September  30,  1997  By and  Between
                First  Union   Commercial   Corporation  and
                Consolidated Delivery & Logistics,  Inc. and
                Subsidiaries  (filed as Exhibit  10.1 to the
                Company's  Quarterly Report on Form 10-Q for
                the fiscal quarter ended  September 30, 1997
                and incorporated herein by reference).

        10.10   Employment Agreement,  dated as of September
                15,  1995,  with  Michael  Brooks  (filed as
                Exhibit 10.12 to the Company's  Registration

<PAGE>

                Statement  on Form S-1 (File  No.  33-97008)
                and incorporated herein by reference).

        10.11   Asset Purchase  Agreement dated December 31,
                1997 by and among  Consolidated  Delivery  &
                Logistics,  Inc.,  Mimatar  Corporation  and
                Sureway  Logistics   Corporation  (filed  as
                Exhibit 10.1 to the Company's Report on Form
                8-K   filed   on   January   15,   1998  and
                incorporated herein by reference).

        10.12   Promissory  Note dated  December 31, 1997 by
                and between Mimatar  Corporation and Sureway
                Logistics Corporation (filed as Exhibit 10.2
                to the Company's Report on Form 8-K filed on
                January 15, 1998 and incorporated  herein by
                reference).

        10.13   Consulting  Agreement,  dated July 27, 1997,
                by  and  between   Clayton/National  Courier
                Systems, Inc., and Labe Leibowitz.

        10.14   Amendment,   dated  December  23,  1997,  to
                Employment Agreement, with Al Van Ness, Jr.

        10.15   Employment Agreement,  dated as of September
                15,  1995,   with  Robert  Wyatt  (filed  as
                Exhibit 10.35 to the Company's  Registration
                Statement  on Form S-1 (File  No.  33-97008)
                and incorporated herein by reference).

        11.1    Statement   Regarding   Computation  of  Net
                Income (Loss) Per Share.

        21.1    List   of   subsidiaries   of   Consolidated
                Delivery & Logistics, Inc.

        23.1    Consent of Independent Public Accountants

        25.1    Power of Attorney

        27.1    Financial  Data  Schedule  (for   electronic
                submission only)

<PAGE>


                         SIGNATURES

          Pursuant to the  requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934,  the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 29, 1999.

                               CONSOLIDATED DELIVERY & LOGISTICS, INC.



                                By:    /s/ Albert W. Van Ness, Jr.
                                       Albert W. Van Ness, Jr.,
                                       Chairman of the Board, Chief Executive 
                                         and Acting Chief Financial Officer


          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated on March 27, 1998.


           Signature                                      Capacity


    /s/ Albert W. Van Ness, Jr.          Chairman of the Board, Chief Executive 
        Albert W. Van Ness, Jr.          and  Acting  Chief  Financial  Officer 
                                         (Principal  Executive,  Financial   and
                                         Accounting Officer) and Director

    /s/ William T. Brannan               President, Chief Operating Officer and 
        William T. Brannan               Director


    /s/ Michael Brooks                   Director
        Michael Brooks


    /s/ Randall Catlin                   Director
        Randall Catlin


    /s/ Jon F. Hanson                    Director
        Jon F. Hanson

<PAGE>

    /s/ Labe Leibowitz                   Director
        Labe Leibowitz


    /s/ Marilu Marshall                  Director
        Marilu Marshall


    /s/ Kenneth W. Tunnell               Director
        Kenneth W. Tunnell


    /s/ John S. Wehrle                   Director
        John S. Wehrle


*By: ___/s/ Albert W. Van Ness, Jr.
         Albert W. Van Ness, Jr.,
         Attorney-in-Fact


<PAGE>

<TABLE>
<CAPTION>

                                                                   Schedule II

            CONSOLIDATED DELIVERY & LOGISTICS, INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)



                                    Balance          Charged                                               Balance
                                       at           To Costs      Write-offs                               at End
                                   Beginning           and        Net of                                     of
          Description              of Period        Expenses      Recoveries           Other (a)           Period
          -----------              ---------        --------      ----------           ---------           --------
<S>                              <C>              <C>            <C>               <C>                 <C>    
For the year ended
   December 31, 1998 -
   Allowance for doubtful
   Accounts                          $1,433          $1,151          $(873)              $154             $1,865
                                 =============    ===========    ==============    ==============      ==============

For the year ended
   December 31, 1997 -
   Allowance for doubtful
   Accounts                          $1,598          $1,117         ($1,282)               -              $1,433
                                 =============    ===========    ==============    ==============      ==============

For the year ended
   December 31, 1996 -
   Allowance for doubtful
   Accounts                          $1,249          $1,315           ($966)               $ -             $1,598
                                 =============    ===========    ==============    ==============      ==============

</TABLE>

(a) Represents allowance for doubtful accounts of acquired companies.

          The  accompanying  notes to consolidated  financial  statements are an
integral part of this schedule.


<PAGE>


                                INDEX TO EXHIBITS

   Exhibits                                                         Page

        10.13   Consulting  Agreement,  dated July 27, 1997,
                by  and  between   Clayton/National  Courier
                Systems, Inc., and Labe Leibowitz.                    2

        10.14   Amendment,   dated  December  23,  1997,  to
                Employment Agreement,  with Al Van Ness, Jr.          6

        11.1    Statement   Regarding   Computation  of  Net
                Income (Loss) Per Share                               9

        21.1    List   of   Subsidiaries   of   Consolidated
                Delivery & Logistics, Inc.                            10

        23.1    Consent of Independent Public Accountants             11

        25.1    Power of Attorney                                     12

        27.1    Financial  Data  Schedule  (for   electronic
                submission only)                                      13