<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549
                                    FORM 10-Q


(Mark One)

|X|      Quarterly report pursuant to Section 13 or 15 (d) of the Securities
         Exchange Act of 1934 for the quarterly period ended June 30, 2006 or

|_|      Transition report pursuant to Section 13 or 15 (d) of the Securities
         Exchange Act of 1934 for the transition period
         from_______________to____________

Commission File Number:    0-26954

                                   CD&L, INC.
             (Exact name of Registrant as specified in its charter)

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

80 WESLEY STREET                                             07606
SOUTH HACKENSACK, NEW JERSEY                               (Zip Code)
(Address of principal executive offices)

                                 (201) 487-7740
              (Registrant's telephone number, including area code)

         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 whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. (as defined in Rule
12b-2 of the Securities Exchange Act of 1934)

Large accelerated filer  |_|  Accelerated filer  |_|  Non-accelerated filer  |X|

         Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |_| No |X|

         The number of shares of common stock of the Registrant, par value $.001
per share, outstanding as of August 16, 2006 was 18,397,572.




                                       1
<PAGE>


                                   CD&L, INC.
                  FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2006

                                      INDEX
<TABLE>
<CAPTION>

                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
PART I - Financial Information

  ITEM 1 - Financial Statements

       CD&L, Inc. and Subsidiaries
           Condensed Consolidated Balance Sheets as of June 30, 2006 (unaudited)
                    and December 31, 2005                                                 3
           Condensed Consolidated Statements of Operations for the Three and Six
                    Months Ended June 30, 2006 and 2005 (unaudited)                       4
           Condensed Consolidated Statements of Cash Flows for the Six
                    Months Ended June 30, 2006 and 2005 (unaudited)                       5
           Notes to Condensed Consolidated Financial Statements                           6

  ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
                        of Operations                                                     16

  ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk                     24

  ITEM 4 - Controls and Procedures                                                        24

PART II - Other Information

  ITEM 1A - Risk Factors                                                                  25

  ITEM 4 - Submission of Matters to a Vote of Security Holders                            25

  ITEM 6 - Exhibits                                                                       26

SIGNATURE                                                                                 27

CERTIFICATIONS                                                                            28
</TABLE>


                                       2
<PAGE>


                           CD&L, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
             (IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)

<TABLE>
<CAPTION>

                                                                           June 30,           December 31,
                                                                             2006                 2005
                                                                           -----------        ------------
                                                                           (Unaudited)        (Note 1)
<S>                                                                          <C>                <C>
                             ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                  $    543           $    837
  Accounts receivable, net                                                     28,745             26,376
  Prepaid expenses and other current assets                                     3,495              4,048
                                                                             --------           --------
    Total current assets                                                       32,783             31,261

EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net                                       3,575              3,438
GOODWILL, net                                                                  11,531             11,531
OTHER INTANGIBLE ASSETS AND DEFERRED FINANCING COSTS, net
                                                                                1,083              1,185
OTHER ASSETS                                                                      741                932
                                                                             --------           --------
    Total assets                                                             $ 49,713           $ 48,347
                                                                             ========           ========

              LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-term borrowings                                                      $  9,371           $  8,921
  Current maturities of long-term debt                                            542                552
  Accounts payable, accrued liabilities and bank overdrafts
                                                                               17,089             15,423
                                                                             --------           --------
    Total current liabilities                                                  27,002             24,896

LONG-TERM DEBT, net of current maturities                                       5,015              5,292
OTHER LONG-TERM LIABILITIES                                                     1,771              1,775
                                                                             --------           --------
    Total liabilities                                                          33,788             31,963
                                                                             --------           --------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
 Preferred stock, $.001 par value; 2,000,000 shares
   authorized; 393,701 shares issued at June 30, 2006
   and December 31, 2005                                                        4,000              4,000
 Common stock, $.001 par value; 30,000,000 shares
   authorized; 10,046,846 and 10,041,846 shares issued at June
   30, 2006 and December 31, 2005, respectively                                    10                 10
 Additional paid-in capital                                                    15,745             15,592
 Treasury stock, 29,367 shares of common stock at cost                           (162)              (162)
 Accumulated deficit                                                           (3,668)            (3,056)
                                                                             --------           --------
    Total stockholders' equity                                                 15,925             16,384
                                                                             --------           --------
    Total liabilities and stockholders' equity                               $ 49,713           $ 48,347
                                                                             ========           ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.




                                       3
<PAGE>


                           CD&L, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                               For the Three Months              For the Six Months
                                                                     Ended                              Ended
                                                                    June 30,                          June 30,
                                                           --------------------------        --------------------------
                                                              2006             2005             2006            2005
                                                           ---------        ---------        ---------        ---------
<S>                                                        <C>              <C>              <C>              <C>
Revenue                                                    $  61,911        $  54,207        $ 122,350        $ 106,562

Cost of revenue                                               50,220           43,367           99,453           85,414
                                                           ---------        ---------        ---------        ---------

  Gross profit                                                11,691           10,840           22,897           21,148
                                                           ---------        ---------        ---------        ---------
Costs and Expenses:

Selling, general and
   administrative expenses                                    12,541            9,088           22,733           17,968
Depreciation and amortization                                    333              277              651              550
Other (income) expense, net                                        -               (9)             (16)              (9)
Interest expense                                                 401              366              757              756
                                                           ---------        ---------        ---------        ---------

Total Costs and expenses                                      13,275            9,722           24,125           19,265
                                                           ---------        ---------        ---------        ---------
(Loss) income before provision for
  income taxes                                                (1,584)           1,118           (1,228)           1,883

(Benefit) provision for income taxes                            (783)             492             (616)             829

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

  Net (loss) income                                            ($801)       $     626            ($612)       $   1,054
                                                           =========        =========        =========        =========
Net (loss) income per share:
  Basic                                                        ($.08)       $     .07            ($.06)       $     .11
                                                           =========        =========        =========        =========
  Diluted                                                      ($.08)       $     .04            ($.06)       $     .06
                                                           =========        =========        =========        =========
Basic weighted average common
   shares outstanding                                         10,017            9,356           10,016            9,356
                                                           =========        =========        =========        =========
Diluted weighted average common
   shares outstanding                                         10,017           20,248           10,016           20,251
                                                           =========        =========        =========        =========

</TABLE>

     See accompanying notes to condensed consolidated financial statements.



                                       4
<PAGE>

                           CD&L, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                      For the Six Months Ended
                                                                                              June 30,
                                                                                      ------------------------
                                                                                        2006           2005
                                                                                      --------        --------
<S>                                                                                    <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                                                                        ($612)       $ 1,054
Adjustments to reconcile net (loss) income to net cash provided by
    operating activities -
    Gain on disposal of equipment and leasehold improvements                                (4)            (5)
    Depreciation and amortization, including amortization of deferred
      financing costs                                                                      687            606
    Stock-based compensation expense                                                       151              -
    Changes in operating assets and liabilities
      (Increase) decrease in -
        Accounts receivable, net                                                        (2,369)          (827)
        Prepaid expenses and other current assets                                          553          1,357
        Other assets                                                                       191           (434)
      (Decrease) increase in -
        Accounts payable, accrued liabilities and bank overdrafts                        1,666          1,317
        Other long-term liabilities                                                         (4)           115
                                                                                       -------        -------
          Net cash provided by operating activities                                        259          3,183
                                                                                       -------        -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of equipment and leasehold improvements                                23             22
  Additions to equipment and leasehold improvements                                       (647)          (443)
                                                                                       -------        -------
          Net cash used in investing activities                                           (624)          (421)
                                                                                       -------        -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase (decrease) in short-term borrowings                                         450         (1,315)
  Repayments of long-term debt                                                            (287)          (238)
  Proceeds from issuance of common stock                                                     2              -
  Deferred financing costs                                                                 (94)             -
                                                                                       -------        -------
          Net cash provided by (used in) financing activities                               71         (1,553)
                                                                                       -------        -------

          Net (decrease) increase in cash and cash equivalents                            (294)         1,209

CASH AND CASH EQUIVALENTS, beginning of period                                             837            617
                                                                                       -------        -------

CASH AND CASH EQUIVALENTS, end of period                                               $   543        $ 1,826
                                                                                       =======        =======
</TABLE>

     See accompanying notes to condensed consolidated financial statements.



                                       5
<PAGE>


                           CD&L, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)      BASIS OF PRESENTATION:

         The accompanying unaudited condensed consolidated financial statements
         have been prepared in accordance with accounting principles generally
         accepted in the United States of America for interim financial
         information and with the instructions to Form 10-Q and Article 10 of
         Regulation S-X. Accordingly, they do not include all of the information
         and footnotes required by generally accepted accounting principles for
         complete financial statements. The condensed consolidated balance sheet
         at December 31, 2005 has been derived from the audited financial
         statements at that date. In the opinion of management, all adjustments
         (consisting of normal recurring adjustments) considered necessary for a
         fair presentation have been included. Operating results for the three
         and six months ended June 30, 2006 are not necessarily indicative of
         the results that may be expected for any other interim period or for
         the year ending December 31, 2006. For further information, refer to
         the consolidated financial statements and footnotes thereto included in
         the CD&L, Inc. (the "Company" or "CD&L") Form 10-K/A for the year ended
         December 31, 2005.

(2)      STOCK-BASED COMPENSATION

         As of June 30, 2006, the Company maintains certain stock-based
         compensation plans that are described in Note 12 to the Consolidated
         Financial Statements included in the Company's 2005 Annual Report on
         Form 10-K/A. Under these plans, the Company may grant stock options to
         employees and directors of the Company. The Company may grant up to a
         maximum of 4,000,000 options under the Employee Stock Compensation
         Program (the "ESCP") and up to a maximum of 500,000 options under the
         2002 Stock Option Plan for Independent Directors (the "Director Plan").
         At June 30, 2006, options available for grant under the ESCP and the
         Director Plan total 2,000,000 and 251,000, respectively.

         Prior to January 1, 2006, as permitted under SFAS No. 123, "Accounting
         for Stock-Based Compensation," ("SFAS 123"), compensation cost for
         employee and director stock options was recognized using the intrinsic
         value method described in APB No. 25, "Accounting for Stock Issued to
         Employees" ("APB 25"). Effective January 1, 2006, the Company adopted
         the fair-value recognition provisions of SFAS No. 123(R), "Share-Based
         Payment," ("SFAS 123R") and Securities and Exchange Commission Staff
         Accounting Bulletin No. 107. Under SFAS 123R, the fair value of
         employee and non-employee options granted is amortized over the related
         service period. SFAS 123R was adopted using the modified prospective
         transition method; therefore, prior periods have not been restated.
         Compensation expense recognized in the three and six months ended June
         30, 2006 includes compensation cost for all share-based payments
         granted to employees and directors prior to, but not yet vested as of
         January 1, 2006, based on the grant date fair value estimated in
         accordance with the original provisions of SFAS 123. Compensation cost
         for any share-based payments granted subsequent to January 1, 2006 is
         based on the grant date fair value estimated in accordance with the
         provisions of SFAS 123R.

         Stock options are granted with exercise prices not less than the fair
         market value of the Company's common stock at the time of grant and
         with an exercise term not to exceed 10 years. Generally, stock options
         granted under the ESCP become exercisable in three installments over a
         period of two years. Stock options granted under the Director Plan
         generally become exercisable after one year. Option awards usually
         provide for accelerated vesting upon retirement, death or disability.
         The Company granted 0 and 400,000 options during the three months ended
         June 30, 2006 and 2005, respectively, and 0 and 500,000 options during
         the six months ended June 30, 2006 and 2005, respectively.

         As a result of adopting SFAS 123R, our loss before taxes for the six
         months ended June 30, 2006 is $151,000 higher and our net loss is
         $80,000 higher than if we had continued to account for stock-based
         compensation under APB 25. Compensation expense is recognized in the
         selling, general and administrative expenses line items of the
         accompanying condensed consolidated statements of operations on a
         ratable basis over the vesting periods. These awards have been
         classified as equity instruments, and as such, a corresponding increase
         of $151,000 has been reflected in additional paid-in capital in the
         accompanying condensed consolidated balance sheet as of June 30, 2006.
         There were no capitalized stock-based compensation costs at June 30,
         2006 and 2005. As of June 30, 2006, there was $95,000 of total
         unrecognized compensation cost related to non-vested stock options to
         be recognized over a weighted-average period of 1.32 years.


                                       6
<PAGE>

         The intrinsic values of options exercised during the six months ended
         June 30, 2006 and 2005 were not significant. The total cash received
         from the exercise of stock options was $2,000 and $0 for the six months
         ended June 30, 2006 and 2005, respectively, and is classified as
         financing cash flows in the accompanying condensed consolidated
         statements of cash flows. New shares of the Company's common stock are
         issued upon exercise of the options. Prior to the adoption of SFAS
         123R, any tax benefits of deductions resulting from the exercise of
         stock options would have been presented as operating cash flows in the
         statements of cash flows. SFAS 123R requires that cash flows from tax
         benefits attributable to tax deductions in excess of the compensation
         cost recognized for those options (excess tax benefits) be classified
         as financing cash flows. The Company did not have any significant
         excess tax benefits for the six months ended June 30, 2006.

         Since employee options are granted with exercise prices that are not
         less than market value, the Company did not record any stock-based
         employee compensation in the three and six months ended June 30, 2005.
         The fair value for employee and non-employee options granted used in
         determining pro forma net income below was estimated at the date of
         grant using the Black-Scholes option-pricing model with the following
         assumptions for the three and six months ended June 30, 2005. There
         were no stock options granted during the three or six months ended June
         30, 2006.


<TABLE>
<CAPTION>

                                                    For the Three Months Ended          For the Six Months Ended
                                                          June 30, 2005                      June 30, 2005
                                                   ----------------------------         ------------------------
         <S>                                       <C>                                  <C>
         Risk-free interest rate                                3.8%                            3.5%
         Volatility factor                                       38%                             47%
         Expected life                                        7 years                         7 years
         Dividend yield                                         None                            None

</TABLE>

         The risk-free interest rate is based on reference to United States
         Treasury securities with terms matching the expected term of the
         subject options. The expected life of the 2005 option grants related to
         the above referenced periods was based on historical exercises and
         terminations. Due to the insignificant number of stock option exercises
         during the past several years, the Company has estimated the expected
         life of options granted to be the midpoint between the average vesting
         term and the contractual term. The expected volatility was based on an
         analysis of the volatility of the Company's stock price using
         alternative historical periods of time and alternative statistical
         measures of volatility (exponential weighted moving average and the
         GARCH measure of volatility). The expected dividend yield is zero.



                                       7
<PAGE>


         Changes in outstanding options in the six months ended June 30, 2006
are as follows:

<TABLE>
<CAPTION>

                                                                                  Weighted
                                                                                   Average
                                                                Weighted          Remaining
                                                                 Average         Contractual        Aggregate
                                                                Exercise        Term (years)        Intrinsic
                                                Options           Price                             Value (1)
                                              -------------    ------------     --------------    --------------
<S>                                           <C>              <C>              <C>               <C>
Options outstanding at
   December 31, 2005                           4,249,000             $1.97
      Granted                                          -                 -
      Exercised                                   (5,000)            $0.47
      Canceled                                         -                 -
                                              ----------

Options outstanding at June 30, 2006           4,244,000             $1.97            6.31           $2,071,000
                                              ==========

Options exercisable at June 30, 2006          4,019,342              $1.97            6.15           $2,002,000
                                              =========

Options available for grant at
   June 30, 2006                              2,251,000
                                              =========

</TABLE>

(1)      The aggregate intrinsic value has been calculated based on the
         difference between the exercise price of in-the-money options versus
         the Company's closing stock price as of June 30, 2006.


         The table below presents the pro forma effect on net income and basic
         and diluted net income per share if the Company had applied a fair
         value recognition method instead of the intrinsic value method to
         options granted under the Company's stock option plans for the three
         and six months ended June 30, 2005. For purposes of this pro forma
         disclosure, the value of the options is estimated using the
         Black-Scholes option-pricing model and amortized to expense over the
         options' vesting periods.



                                       8
<PAGE>


         The pro forma information regarding net income and net income per share
         is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                    For the Three Months Ended          For the Six Months Ended
                                                          June 30, 2005                      June 30, 2005
                                                   ------------------------------     -----------------------------
<S>                                                             <C>                             <C>
         Net income, as reported                                $626                            $1,054
         Stock-based employee compensation
           expense determined under fair value
           based method for all awards, net of
           related tax effects
                                                                (146)                             (265)
                                                   ------------------------------     -----------------------------
         Pro forma net income                                   $480                              $789
                                                   ==============================     =============================

         Net income per share:
            Basic, as reported                                  $.07                              $.11
            Diluted, as reported                                $.04                              $.06
            Basic, pro forma                                    $.05                              $.08
            Diluted, pro forma                                  $.03                              $.05

</TABLE>

(3)      SHORT-TERM BORROWINGS:

         Short-term borrowings totaled $9,371,000 and $8,921,000 as of June 30,
         2006 and December 31, 2005, respectively. At December 31, 2005,
         short-term borrowings consisted of a line of credit balance of
         $8,080,000 and $841,000 of outstanding borrowings related to the
         insurance financing arrangements entered into in 2005. There were no
         balances related to the insurance financing arrangements at June 30,
         2006.

         As of June 27, 2002, CD&L and Summit Business Capital Corporation,
         doing business as Fleet Capital - Business Finance Division, entered
         into an agreement establishing a revolving credit facility (the "Fleet
         Facility") of $15,000,000. The Fleet Facility which was due to expire
         on June 27, 2005 but was extended through January 31, 2006, provided
         CD&L with standby letters of credit, prime rate based loans at the
         bank's prime rate, as defined, plus 25 basis points and LIBOR based
         loans at the bank's LIBOR, as defined, plus 225 basis points. Credit
         availability was based on eligible amounts of accounts receivable, as
         defined, up to a maximum amount of $15,000,000 and was collateralized
         by substantially all of the assets, including certain cash balances,
         accounts receivable, equipment, leasehold improvements and general
         intangibles of the Company and its subsidiaries.

         As of January 31, 2006, CD&L and Bank of America, N.A. (successor by
         merger to Fleet Capital Corporation) entered into a new agreement (the
         "Bank of America Facility") which replaced the prior Fleet Facility.
         The Bank of America Facility, which expires on September 30, 2008,
         continues to provide CD&L with standby letters of credit, prime rate
         based loans at the bank's prime rate, as defined (8.25% at June 30,
         2006), and LIBOR based loans at the bank's LIBOR rate, as defined, plus
         200 basis points. Credit availability is based on eligible amounts of
         accounts receivable, as defined, up to a maximum amount of $20,000,000
         and is collateralized by substantially all of the assets, including
         certain cash balances, accounts receivable, equipment, leasehold
         improvements and general intangibles of the Company and its
         subsidiaries. The maximum borrowings outstanding under the Bank of
         America Facility during the six months ended June 30, 2006 were
         $10,872,000. As of June 30, 2006, the Company had total cash on hand
         and borrowing availability of $5,670,000 under the Bank of America
         Facility, after adjusting for restrictions related to outstanding
         standby letters of credit of $4,582,000 and minimum availability
         requirements.

         Under the terms of the Bank of America Facility, the Company is
         required to maintain certain financial ratios and comply with other
         financial conditions. The Bank of America Facility 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 June 30, 2006, the Company
         was in violation of certain of the financial covenants due to the
         reported net loss for the second quarter. On August 11, 2006, the
         Company obtained a waiver from its lender for the covenant violation.
         Bank of America has consented to the merger with Velocity and the
         revolving loan balance will be paid in full and closed on the merger
         date.


                                       9
<PAGE>

         Costs incurred relative to the establishment of the Bank of America
         Facility amounted to approximately $94,000. This has been accounted for
         as deferred financing costs and is being amortized over the term of the
         new financing agreement. As of June 30, 2006, the unamortized portion
         of the deferred financing costs amounted to approximately $77,000.

(4)      LONG-TERM DEBT:

         On January 29, 1999, the Company completed a $15,000,000 private
         placement of the senior subordinated notes (the "Senior Notes") and
         warrants with three financial institutions. The Senior Notes originally
         bore interest at 12.0% per annum and are subordinate to all senior debt
         including the Company's Bank of America Facility. Under the terms of
         the Senior Notes, as amended, the Company was required to maintain
         certain financial ratios and comply with other financial conditions
         contained in the Senior Notes agreement.

         At March 31, 2004, the Company owed $11,000,000 of principal on the
         Senior Notes. On April 14, 2004, an agreement was reached among the
         Company, BNP Paribas ("Paribas"), Exeter Venture Lenders, L.P. ("Exeter
         Venture") and Exeter Capital Partners IV, L.P. ("Exeter Capital") and
         together with Exeter Venture and Paribas (the "Original Note holders")
         and certain members of CD&L management and others ("Investors") as to
         the financial restructuring of the Senior Notes. The Original Note
         holders agreed to convert a portion of the existing debt due from CD&L
         into equity and to modify the terms of the Senior Notes if the
         Investors purchased a portion of the notes and accepted similar
         modifications. The nature of the restructuring was as follows:

                  (a)   The Original Note holders exchanged Senior Notes in the
                        aggregate principal amount of $4,000,000 for shares of
                        the Series A Convertible Redeemable Preferred Stock of
                        the Company, par value $.001 per share ("Preferred
                        Stock"), with a liquidation preference of $4,000,000.
                        The Preferred Stock is convertible into 3,937,010 shares
                        of Common Stock, does not pay dividends (unless
                        dividends are declared and paid on the Common Stock) and
                        is redeemable by the Company for the liquidation value.
                        The conversion price is $1.016 per share which was equal
                        to the average closing price for the Company's common
                        stock for the 5 days prior to the closing. Holders of
                        the Preferred Stock have the right to elect two
                        directors.

                  (b)   The Original Note holders and the Company amended the
                        terms of the remaining $7,000,000 principal balance of
                        the Senior Notes, and then exchanged the amended notes
                        for the new notes, which consist of two series of
                        convertible notes, the Series A Convertible Subordinated
                        Notes (the "Series A Convertible Notes") in the
                        principal amount of $3,000,000 and the Series B
                        Convertible Subordinated Notes ("Series B Convertible
                        Notes") in the principal amount of $4,000,000
                        (collectively, the "Convertible Notes"). The loan
                        agreement that governed the Senior Notes was amended and
                        restated to reflect the terms of the Convertible Notes,
                        including the elimination of most financial covenants.
                        The principal amount of the Convertible Notes is due in
                        a balloon payment at the maturity date of April 14,
                        2011. The Convertible Notes bear interest at a rate of
                        9% for the first two years of the term, 10.5% for the
                        next two years and 12% for the final three years of the
                        term and will be paid quarterly. As the interest on the
                        Convertible Notes increases over the term of the notes,
                        the Company records the associated interest expense on a
                        straight-line basis using a blended rate of 10.71%,
                        giving rise to accrued interest over the early term of
                        the Convertible Notes. The terms of the two series of
                        Convertible Notes are identical except for the
                        conversion price ($1.016 for the Series A Convertible
                        Notes, the average closing price for the Company's
                        common stock for the 5 days prior to the closing and
                        $2.032 for the Series B Convertible Notes). The Series B
                        Convertible Notes were extinguished on October 31, 2005
                        and the Series A Convertible Notes were extinguished on
                        July 11, 2006, as described below.


                                       10
<PAGE>

                  (c)   The Investors purchased the Series A Convertible Notes
                        from the Original Note holders for a price of
                        $3,000,000.

                  (d)   The Company issued an additional $1,000,000 of Series A
                        Convertible Notes to the Investors for an additional
                        payment of $1,000,000, the proceeds of which were used
                        to reduce short-term debt.

                  (e)   The Investors, the Original Note holders and the Company
                        entered into a Registration Rights Agreement pursuant to
                        which the shares of the Company's common stock issuable
                        upon conversion of the Preferred Stock (3,937,010
                        shares) and the Convertible Notes (3,937,008 shares for
                        Series A and 1,968,504 shares for Series B) would be
                        registered for resale with the Securities and Exchange
                        Commission ("SEC"). Subsequently, on August 2, 2005, the
                        Company filed the required registration statement and
                        the registration statement was declared effective on
                        August 11, 2005.

                  The Company cannot be compelled to redeem the Preferred Stock
                  for cash at any time.

                  Costs incurred relative to the aforementioned transactions
                  amounted to approximately $592,000. Of this amount, $420,000
                  has been accounted for as deferred financing costs and is
                  being amortized over the term of the new financing agreements.
                  The remaining $172,000 has been accounted for as a reduction
                  in paid-in capital. These amounts have been allocated based on
                  the proportion of debt to equity raised in the aforementioned
                  transactions. These amounts were subsequently adjusted due to
                  the extinguishment of the Series B Convertible Notes. As of
                  June 30, 2006, remaining costs related to this transaction
                  amounted to approximately $337,000. Of this amount, $225,000
                  continued to be amortized as a deferred financing cost and
                  $112,000 remained as a reduction of additional paid-in capital
                  as of June 30, 2006. These amounts will be adjusted in
                  connection with the extinguishment of the Series A Convertible
                  Notes on July 11, 2006.

                  On October 31, 2005, the Company retired the Series B
                  Convertible Notes that were issued to Paribas, Exeter Capital
                  and Exeter Venture. The principal amount of the Series B
                  Convertible Notes totaled $4,000,000 as of the retirement
                  date. The portion of the Series B Convertible Notes held by
                  Paribas was satisfied by a cash payment of $2,666,667
                  principal and $40,000 of accrued interest through October 31,
                  2005. Exeter Venture and Exeter Capital (collectively
                  "Exeter") held the remaining $1,333,333 of the Series B
                  Convertible Notes. Exeter exercised their right of conversion
                  of their notes and, as such, the Company issued to Exeter a
                  total of 656,168 shares of the Company's Common Stock. In
                  addition, a cash payment of $20,000 was made to Exeter
                  relating to accrued interest through October 31, 2005.

                  On July 11, 2006, the Series A Convertible Notes were
                  converted into 3,937,008 shares of the Company's common stock
                  and the debt was retired. In addition, the 393,701 shares of
                  Preferred Stock were converted into 3,937,010 shares of the
                  Company's common stock. See Note 7 - Subsequent Events for
                  further discussion.

                  The warrants originally issued on January 29, 1999 remain
                  outstanding at June 30, 2006 at an exercise price of $.001 per
                  share (convertible into 506,250 shares of common stock). The
                  warrants were due to expire in January 2009. On July 3, 2006,
                  Velocity Express Corporation ("Velocity") entered into a
                  warrant purchase agreement with the Original Note holders. On
                  July 11, 2006, the warrants were exercised on a cashless basis
                  for an aggregate exercise price of $506.25 so that Velocity
                  received 506,075 shares of the Company's common stock. See
                  Note 7 - Subsequent Events for further discussion.


                                       11
<PAGE>

         Long-term debt consisted of the following (in thousands)   -

<TABLE>
<CAPTION>

                                                                  JUNE 30,           DECEMBER 31,
                                                                    2006                2005
                                                               -------------        -------------
<S>                                                                   <C>                  <C>
Series A Convertible Notes                                            $4,000               $4,000
Capital lease obligation due October 2007 with interest
    at 5.45% and collateralized by the related property.                   3                    7

Seller-financed debt on acquisitions, payable in monthly
    installments through May 2009, convertible into
    134,193 and 155,197 shares of common stock at June
    30, 2006 and December 31, 2005, respectively, at a
    weighted average exercise price of $6.15 per share.
    Interest is payable at rates ranging between 7.0%
    and 9.0%.                                                          1,554                1,837
                                                               -------------        -------------
                                                                       5,557                5,844

Less - Current maturities                                               (542)                (552)
                                                               -------------        -------------

                                                                      $5,015               $5,292
                                                               =============        =============

</TABLE>

(5)      LITIGATION:

         The Company is, from time to time, a party to litigation arising in the
         normal course of its business, including claims for uninsured personal
         injury and property damage incurred in connection with its same-day
         delivery operations.

         Also from time to time, federal and state authorities have sought to
         assert that independent contractors in the transportation industry,
         including those utilized by CD&L, are employees rather than independent
         contractors. The Company believes that the independent contractors that
         it utilizes are not employees under existing interpretations of federal
         and state laws. However, federal and state authorities have and may
         continue to challenge this position. Further, laws and regulations,
         including tax laws, and the interpretations of those laws and
         regulations, may change.

         In connection with the above matters, the Company has recorded reserves
         of $2,133,000 and $555,000 as of June 30, 2006 and December 31, 2005.
         The increases in reserves were due largely to a tentative settlement of
         an employment tax assessment in the State of California, increases in
         certain reserves as a result of continued settlement negotiations for
         existing claims and the establishment of new reserves for recently
         instituted litigation.

         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.

(6)      NET (LOSS) INCOME PER SHARE:

         Basic net (loss) income per share represents net (loss) income divided
         by the weighted average shares outstanding. Diluted net income per
         share represents net income divided by the weighted average shares
         outstanding adjusted for the incremental dilution of potentially
         dilutive common shares.


                                       12
<PAGE>


         A reconciliation of weighted average common shares outstanding to
         weighted average common shares outstanding assuming dilution follows
         (in thousands)-

<TABLE>
<CAPTION>

                                                                        THREE MONTHS                     SIX MONTHS
                                                                            ENDED                          ENDED
                                                                           JUNE 30,                       JUNE 30,
                                                                 ----------------------------    ---------------------------
                                                                     2006            2005            2006            2005
                                                                 ------------    ------------    ------------    -----------
<S>                                                                    <C>           <C>            <C>             <C>
         Basic weighted average
          common shares outstanding                                    10,017        9,356          10,016          9,356
         Effect of dilutive securities:
             Stock options and warrants                                  -           1,049             -            1,052
             Preferred Stock                                             -           3,937             -            3,937
             Convertible Notes                                           -           5,906             -            5,906
                                                                 ------------    ---------       ---------       --------
         Diluted weighted average common shares
           outstanding                                                 10,017       20,248          10,016         20,251
                                                                 ============    =========       =========       ========

</TABLE>

         A reconciliation of net (loss) income as reported to net (loss) income
         as adjusted for the effect of dilutive securities follows (in
         thousands)-

<TABLE>
<CAPTION>

                                                                       THREE MONTHS                    SIX MONTHS
                                                                           ENDED                         ENDED
                                                                          JUNE 30,                      JUNE 30,
                                                                 --------------------------    ---------------------------
                                                                    2006           2005           2006            2005
                                                                 ------------    ----------    ------------    -----------
<S>                                                                     <C>         <C>            <C>            <C>
         Net (loss) income, as reported                                 ($801)      $626           ($612)         $1,054
         Effect of dilutive securities:
             Interest on Convertible Notes                                 -         129               -             257
                                                                 ------------    -------       ---------       ---------
         Net (loss) income, as adjusted for the effect
             of dilutive securities                                     ($801)      $755           ($612)         $1,311
                                                                 ============    =======       =========       =========
</TABLE>

         The following potentially dilutive common shares were excluded from the
         computation of diluted net (loss) income per share because the exercise
         or conversion price was greater than the average market price of common
         shares (in thousands):

<TABLE>
<CAPTION>

                                                          THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                                JUNE 30,                         JUNE 30,
                                                     -------------------------------    -----------------------------
                                                         2006              2005            2006             2005
                                                     --------------     ------------    ------------     ------------
<S>                                                         <C>                <C>             <C>              <C>
         Stock options and warrants                         1,266              1,135           1,409            1,135
         Seller financed convertible notes                    134                175             139              180
         Convertible preferred stock                        3,937                  -           3,937                -
         Subordinated convertible debentures                3,937                  -           3,937                -
</TABLE>



                                       13
<PAGE>


(7)      SUBSEQUENT EVENTS:

         Entry into a Definitive Merger Agreement

         On July 3, 2006, CD&L and Velocity signed a definitive merger agreement
         for Velocity to acquire CD&L in a two-step, all cash transaction for
         $3.00 per share of common stock.

         The merger agreement provides that, upon the terms and subject to the
         conditions contained in it, a wholly-owned subsidiary of Velocity
         ("Sub") will be merged with CD&L, the separate corporate existence of
         Sub will cease, CD&L will be the surviving corporation and continue to
         be governed by the laws of the State of Delaware, and the corporate
         existence of CD&L with all its rights, privileges, immunities, powers,
         and franchises shall continue unaffected by the merger. Sub is also a
         party to the merger agreement.

         At the effective time of the merger, each share of CD&L's common stock
         issued and outstanding immediately before the merger, other than
         dissenting shares, will be canceled and converted into the right to
         receive $3.00 in cash, without interest. The $3.00 amount is subject to
         proportionate adjustment so as to maintain an aggregate merger
         consideration of approximately $33 million in the event that the total
         number of shares of common stock outstanding, or issuable (net of any
         exercise or conversion price) upon exercise or conversion of CD&L stock
         options outstanding, at the effective time of the merger is more or
         less than 11,039,238 shares. No adjustment of the per-share purchase
         price need be made as a result of any change in the number of shares
         unless such adjustment would exceed $0.01. After the merger is
         effective, each holder of a certificate representing shares of our
         common stock, other than dissenting shares, will no longer have any
         rights with respect to those shares, except for the right to receive
         the cash merger consideration. Each share of CD&L's common stock held
         by CD&L, Velocity or its subsidiaries at the time of the merger will be
         canceled without any payment.

         The Company has called for a special meeting on August 17, 2006 to seek
         shareholder approval of the merger agreement. If the merger agreement
         is approved at the special meeting and there is no litigation with
         respect thereto, it is anticipated that the merger will be completed
         immediately after the special meeting. Velocity, through its ownership
         of common stock acquired under the securities purchase agreements
         described below and through its rights under the voting agreement
         described below, has or controls the vote of a majority of the shares
         of the Company's common stock, and has indicated that it will vote to
         approve the merger agreement.

         Series A Preferred Stock, Common Stock and Warrant Purchase Agreements

         On July 3, 2006, Velocity entered into a Series A Preferred Stock and
         Warrant Purchase Agreement with BNP Paribas ("Paribas") and two Series
         A Preferred Stock, Common Stock and Warrant Purchase Agreements with
         Exeter Capital Partners IV, L.P. ("Exeter IV"), one of which related to
         securities purchased on June 30, 2006, by Exeter IV from the United
         States Small Business Administration as receiver for Exeter Venture
         Lenders, L.P. ("Exeter I") and one relating to our securities held by
         Exeter IV prior to that date (collectively, the "preferred purchase
         agreements"). Under the preferred purchase agreements, Velocity
         purchased the 393,701 shares of the Company's Preferred Stock and the
         506,250 warrants from Paribas and Exeter IV and the 656,168 shares of
         the Company's common stock held by Exeter IV.

         Shortly after consummations of such purchases, Velocity provided notice
         of conversion of the Preferred Stock, effective as of July 11, 2006,
         into an aggregate of 3,937,010 shares of the Company's common stock,
         and exercised the 506,250 warrants on a cashless basis for an aggregate
         exercise price of $506.25, so that it received 506,075 shares. As a
         result, under the preferred purchase agreements, Velocity acquired, in
         the aggregate, 5,099,253 shares of the Company's common stock.


                                       14
<PAGE>

         Series A Convertible Subordinated Debenture Purchase Agreement

         On July 3, 2006, Velocity entered into a Series A Convertible
         Subordinated Debenture Purchase Agreement (the "debenture purchase
         agreement") with the 14 individuals who held all of the Company's
         Series A Convertible Notes in the aggregate principal amount of
         $4,000,000, including Albert W. Van Ness, Jr., Chairman and Chief
         Executive Officer of CD&L, William T. Brannan, President and a director
         of CD&L, Michael Brooks, Group Operations President and a director of
         CD&L, Russell Reardon, Chief Financial Officer of CD&L, Mark Carlesimo,
         General Counsel of CD&L, Matthew J. Morahan, a director of CD&L, Peter
         Young, a director of CD&L, five other officers of subsidiaries of the
         Company, a consultant to the Company, and one other individual
         (collectively, the "Series A debenture sellers"). Under the debenture
         purchase agreement, Velocity purchased the Series A Convertible Notes
         for an aggregate price of $12,795,276.

         The Series A debenture sellers had been parties to a shareholders
         agreement with CD&L and the holders of the Preferred Stock under which
         they had a right of first refusal to acquire the Preferred Stock. As a
         condition to Velocity's entry into the debenture purchase agreement,
         the Series A debenture sellers also entered into an agreement whereby
         they waived those rights of first refusal in connection with Velocity's
         purchase of the Preferred Stock.

         Shortly after the consummation of the debenture purchase, Velocity
         converted the Series A debentures into an aggregate of 3,937,008 shares
         of the Company's common stock. As a result of this conversion and the
         preferred purchase agreement, as of July 11, 2006, Velocity will own
         9,036,261 shares of the Company's common stock, representing 49.1% of
         the outstanding shares of common stock.

         Voting Agreement

         As a condition to entering into the merger agreement and the debenture
         purchase agreement, Velocity required that each of Albert Van Ness,
         Jr., William T. Brannan, Michael Brooks, Russell J. Reardon, Matthew J.
         Morahan, Vincent P. Brana (a consultant to the Company and a former
         officer) and Jack McCorkell (an officer of one of our subsidiaries)
         enter into a voting agreement. Under the voting agreement each such
         stockholder agreed to vote in favor of the merger and the merger
         agreement and against any action which would result in a breach of the
         merger agreement or voting agreement. The voting agreement also
         provides that such stockholders will vote against any extraordinary
         corporate transaction, sale or transfer of assets, change to the Board
         of Directors, change in capitalization, charter or bylaws, change to
         the structure or business of CD&L, or any other action which would
         potentially interfere, delay or adversely effect the merger or
         transactions contemplated thereby. The prohibition does not apply to a
         vote for a competing merger offer that the Board determines to be on
         more favorable terms than the Velocity merger agreement, provided that
         the Board recommends the stockholders do not approve the merger
         transaction with Velocity. The voting agreement will terminate upon the
         earlier of the termination of the merger agreement, in accordance with
         its terms, or the effective date of the merger.



                                       15
<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This Form 10-Q contains forward-looking statements made pursuant to the
         safe harbor provisions of the Private Securities Litigation Reform Act
         of 1995. Forward-looking statements typically are identified by use of
         terms such as "may," "will," "should," "plan," "expect," "believe,"
         "anticipate," "estimate" and similar expressions, although some
         forward-looking statements are expressed differently. Forward-looking
         statements represent our management's judgment regarding future events.
         Although we believe that the expectations reflected in such
         forward-looking statements are reasonable, we can give no assurance
         that such expectations will prove to be correct. All statements other
         than statements of historical fact included in this report regarding
         our financial position, business strategy, products, services, markets,
         budgets, plans, or objectives for future operations are forward-looking
         statements. We cannot guarantee the accuracy of the forward-looking
         statements, and you should be aware that our actual results could
         differ materially from those contained in the forward-looking
         statements due to a number of factors, including the statements under
         "Risk Factors" and "Critical Accounting Policies" detailed in our
         annual report on Form 10-K for the year ended December 31, 2005, and
         other reports filed with the Securities and Exchange Commission
         ("SEC").

         Our annual reports on Form 10-K, quarterly reports on Form 10-Q,
         current reports on Form 8-K and all other documents filed by the
         Company or with respect to its securities with the SEC are available
         free of charge through our website at www.cdl.net. Information on our
         website does not constitute a part of this report.

         OVERVIEW

         The Company is one of the leading national full-service providers of
         customized, same-day, time-critical, delivery services to a wide range
         of commercial, industrial and retail customers. These services are
         provided throughout the United States. The Company currently operates
         in a single-business segment and thus additional disclosures under
         Statement of Financial Accounting Standards No. 131, Disclosures About
         Segments of an Enterprise and Related Information, are not required.

         The Company offers the following delivery services:

                  o  Rush delivery services, typically consisting of delivering
                     time-sensitive packages, such as critical parts, emergency
                     medical devices and legal and financial documents from
                     point-to-point on an as-needed basis;

                  o  Distribution services, providing same-day delivery for many
                     pharmaceutical and office supply wholesalers, from
                     manufacturers to retailers and inter-branch distribution of
                     financial documents in a commingled system;

                  o  Facilities management, including providing and supervising
                     mailroom personnel, mail and package sorting, internal
                     delivery and outside local messenger services; and

                  o  Dedicated contract logistics, providing a comprehensive
                     solution to major corporations that want the control,
                     flexibility and image of an in-house fleet with the
                     economic benefits of outsourcing.

         Revenue consists primarily of charges to the Company's customers for
         delivery services. These customers are billed as the services are
         rendered, mostly on a weekly basis. Recurring charges related to
         facilities management or contract logistics services are typically
         billed on a monthly basis. The Company's recent revenue growth has been
         attributable to the expansion of its current customer base into new
         geographical areas. The Company has always had a strong presence in the
         Northeast and Southeast regions of the country. As a result of its
         nationwide business development program, the Company has increased its
         revenue volume on the West coast during the first half of 2006 by 48%
         as compared to the first six months of 2005.


                                       16
<PAGE>

         Cost of revenue consists primarily of independent contractor delivery
         costs, other direct pick-up and delivery costs and the costs of
         dispatching rush demand messengers. The Company has experienced an
         overall increase in cost of revenue as a percent of revenue during the
         first six months of 2006 compared to the first six months of 2005. This
         reduction in gross margin is primarily due to operational
         inefficiencies associated with the high volume of new business on the
         West coast compared to last year's first six months.

         Selling, general and administrative expense ("SG&A") includes the costs
         to support the Company's sales effort and the expense of maintaining
         facilities, information systems, financial, legal and other
         administrative functions. There was a significant increase in SG&A
         during the second quarter of 2006 related to legal costs associated
         with the definitive merger agreement entered into with Velocity as well
         as settlement costs arising out of a tentative settlement of an
         employment tax audit in the State of California. Other factors include
         increased rent charges and higher travel costs as a result of opening
         new facilities to facilitate its recent expansion into new geographical
         locations. In addition, the Company has increased its sales force and
         operating personnel significantly in the West coast to manage the
         recent revenue growth along with the anticipated growth of the region
         going forward.

         The Company continues to invest in its infrastructure and is currently
         in the development stage of implementing a state-of-the-art,
         web-enabled, business information management system. It will provide
         the scalability, availability and security required to manage the
         future growth of driver, route, tracking and reporting components of
         the Company's ground distribution services.

         The condensed 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.

         CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The Company's discussion and analysis of financial condition and
         results of operations are based upon the Company's consolidated
         financial statements, which have been prepared in accordance with
         accounting principles generally accepted in the United States of
         America. The preparation of these financial statements requires the
         Company to make estimates and judgments that affect the reported
         amounts of assets, liabilities, revenues and expenses, and related
         disclosure of contingent assets and liabilities. On an ongoing basis,
         the Company evaluates its estimates, including those related to
         accounts receivable, intangible assets, insurance reserves, income
         taxes and contingencies. The Company bases its estimates on historical
         experience and on various other assumptions that are believed to be
         reasonable under the circumstances, the results of which form the basis
         for making judgments about the carrying values of assets and
         liabilities that are not readily apparent from other sources. Actual
         results may differ from these estimates under different assumptions or
         conditions. For a discussion of the Company's critical accounting
         policies, see the Company's Annual Report on Form 10-K/A for 2005.

         New Accounting Standards and Pronouncements -

         In May 2005, SFAS No. 154, "Accounting Changes and Error Corrections"
         ("SFAS 154") was issued. SFAS 154 replaces APB Opinion No. 20,
         "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
         Interim Financial Statements", and changes the requirements for the
         accounting for and reporting of a change in accounting principle. This
         statement is effective for accounting changes and corrections of errors
         made in fiscal years beginning after December 15, 2005. The Company has
         not had any accounting changes or corrections of errors during 2006.



                                       17
<PAGE>

         In December 2004, SFAS No. 123 (revised 2004), "Share-Based Payment"
         ("SFAS 123(R)") was issued. SFAS 123(R) revises SFAS No. 123,
         "Accounting for Stock-Based Compensation" ("SFAS 123") and supersedes
         APB No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). SFAS
         123, as originally issued in 1995, established as preferable a fair
         value-based method of accounting for share-based payment transactions
         with employees and directors. However, SFAS 123 as amended permitted
         entities the option of continuing to apply the intrinsic value method
         under APB 25 that the Company had been using, as long as the notes to
         the financial statements disclosed what net income would have been had
         the preferable fair value-based method been used. SFAS 123(R) requires
         that the compensation cost relating to all share-based payment
         transactions, including employee and director stock options, be
         recognized in the historical financial statements. That cost is
         measured based on the fair value of the equity or liability instrument
         issued and amortized over the related service period. The Company has
         adopted the guidance in SFAS 123(R) effective January 1, 2006. As such,
         the accompanying condensed consolidated statements of operations for
         the three and six months ended June 30, 2006 includes $151,000 of
         compensation expense in SG&A related to the fair value of options
         granted under the Company's stock-based employee and director
         compensation plans which is being amortized over the service period in
         the financial statements, as required by SFAS 123(R). These awards have
         been classified as equity instruments, and as such, a corresponding
         increase of $151,000 has been reflected in additional paid-in capital
         in the accompanying balance sheet as of June 30, 2006.




                                       18
<PAGE>


         RESULTS OF OPERATIONS

         INCOME AND EXPENSE AS A PERCENTAGE OF REVENUE

<TABLE>
<CAPTION>

                                                   For the Three Months Ended             For the Six Months Ended
                                                              June 30,                              June 30,
                                               ----------------------------------    -------------------------------
                                                    2006               2005              2006             2005
                                               ----------------    --------------    -------------    --------------
<S>                                                 <C>                 <C>              <C>              <C>
         Revenue                                    100.0%              100.0%           100.0%           100.0%

         Gross profit                                18.9%               20.0%            18.7%            19.9%

         Selling, general and
            administrative expenses                  20.3%               16.7%            18.6%            16.9%

         Depreciation and amortization                0.5%                0.5%             0.5%             0.5%

         Other (income) expense, net                  0.0%                0.0%             0.0%             0.0%

         Interest expense                             0.7%                0.7%             0.6%             0.7%

         (Loss) income before provision for
           income taxes                              (2.6%)               2.1%            (1.0%)            1.8%

         (Benefit) provision for income taxes        (1.3%)               0.9%            (0.5%)            0.8%

         Net (loss) income                           (1.3%)               1.2%            (0.5%)            1.0%

</TABLE>

         SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE
         30, 2005

         Revenue for the six months ended June 30, 2006 increased by
         $15,788,000, or 14.8%, to $122,350,000 from $106,562,000 for the six
         months ended June 30, 2005. This increase in revenue includes
         $12,600,000 from existing customers and $6,000,000 from new customers.
         These increases were partially offset by lost business of $2,800,000.

         Cost of revenue increased by $14,039,000, or 16.4%, to $99,453,000 for
         the six months ended June 30, 2006 from $85,414,000 for the six months
         ended June 30, 2005. Cost of revenue for the six months ended June 30,
         2006 represented 81.3% of revenues as compared to 80.1% for the same
         period in 2005. If the gross profit margin had remained the same as
         last year's 19.9%, the $22,897,000 gross profit for the six months
         ended June 30, 2006 would have been approximately $1,450,000 higher.
         The reduced margin was due primarily to new business start-up costs and
         competitive rate pressures. Our pricing to new and existing customers
         has not kept pace with our increased driver costs. The significant
         increase in fuel costs has required us to pay more to attract and
         retain contract drivers.

         SG&A increased by $4,765,000, or 26.5%, to $22,733,000 for the six
         months ended June 30, 2006 from $17,968,000 for the same period in
         2005. Stated as a percentage of revenue, SG&A was 18.6% for the six
         months ended June 30, 2006 as compared to 16.9% for the same period in
         2005. The increase in SG&A was due primarily to the following:

                                                           Increase from 2005
                                                       -------------------------
            Legal fees/reserves                        $1,970,000        400.9%
            Consulting services                           349,000         80.9%
            Premises rent                                 455,000         16.1%
            Compensation, other than stock-based          421,000          5.0%
            Provision for bad debts                       715,000        398.7%
            Travel and entertainment                      249,000         29.0%
            Stock-based compensation                      151,000           (1)

            (1) The Company implemented SFAS 123(R) during the first quarter of
                2006. As such, there was no comparable expense recorded in 2005.


                                       19
<PAGE>

         The increase in legal fees related to costs incurred in connection with
         the definitive merger agreement entered into with Velocity Express
         Corporation. In addition, a $980,000 accrual has been established
         during the second quarter 2006 related to a tentative settlement of an
         employment tax audit in the State of California.

         Of the $349,000 increase in consulting services, $250,000 relates to
         fees incurred in connection with the merger agreement with Velocity.
         The remaining increase in consulting fees relates to modifications made
         to the PeopleSoft financial reporting system during 2006. The provision
         for bad debts for the six months ended June 30, 2006 was $536,000. Of
         this amount, $300,000 related to the write-off of the Global Delivery
         Systems note receivable obtained in connection with the settlement
         agreement in September 2005. During the six months ended June 30, 2005,
         there was a reduction in the provision for doubtful accounts based on
         the historical effectiveness of our receivables management. The
         increases in compensation (other than stock-based), premises rent and
         travel and entertainment all relate primarily to additional facilities
         opened on the West coast and Southeast region as a result of the
         expansion into new geographic locations.

         Depreciation and amortization was $651,000 as of June 30, 2006 as
         compared to $550,000 for the same period in 2005. This increase relates
         to the depreciation of fixed assets purchased in the latter part of
         2005 and the first half of 2006.

         Interest expense remained consistent at $757,000 for the six months
         ended June 30, 2006 as compared to $756,000 for the same period in
         2005.

         As a result of the factors discussed above, income before provision for
         income taxes decreased by $3,111,000 to a loss of $1,228,000 for the
         six months ended June 30, 2006 from income of $1,883,000 for the six
         months ended June 30, 2005.

         Provision for income taxes decreased by $1,445,000 to a benefit of
         $616,000 for the six months ended June 30, 2006 as compared to a
         provision of $829,000 for the same period in 2005. This was due to the
         decrease in income before provision for income taxes discussed above.
         The effective tax rate for the six months ended June 30, 2006 was 50%;
         without the $39,000 of deferred tax benefit related to the SFAS 123(R)
         stock-based compensation cost, the rate would have been 47% as compared
         to 44% as of June 30, 2005.

         Net income decreased by $1,666,000 to a loss of $612,000 for the six
         months ended June 30, 2006 as compared to income of $1,054,000 for the
         same period in 2005. This was due to the factors discussed above.

         THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED
         JUNE 30, 2005

         Revenue for the three months ended June 30, 2006 increased by
         $7,704,000, or 14.2%, to $61,911,000 from $54,207,000 for the three
         months ended June 30, 2005. This increase in revenue includes
         $6,400,000 from existing customers and $3,100,000 from new customers.
         These increases were partially offset by lost business of $1,400,000.

         Cost of revenue increased by $6,853,000, or 15.8%, to $50,220,000 for
         the three months ended June 30, 2006 from $43,367,000 for the three
         months ended June 30, 2005. Cost of revenue for the three months ended
         June 30, 2006 represented 81.1% of revenue as compared to 80.0% for the
         same period in 2005. If the gross profit margin had remained the same
         as last year's 20.0%, the $11,691,000 gross profit for the three months
         ended June 30, 2006 would have been approximately $691,000 higher. The
         reduced margin was due primarily to new business start-up costs and
         competitive rate pressures. Our pricing to new and existing customers
         has not kept pace with our increased driver costs. The significant
         increase in fuel costs has required us to pay more to attract and
         retain contract drivers.


                                       20
<PAGE>

         SG&A increased by $3,453,000, or 38.0%, to $12,541,000 for the three
         months ended June 30, 2006 from $9,088,000 for the same period in 2005.
         Stated as a percentage of revenue, SG&A was 20.3% for the three months
         ended June 30, 2006 as compared to 16.7% for the same period in 2005.
         The increase in SG&A was due primarily to the following:

                                                           Increase from 2005
                                                       ------------------------
             Legal fees/reserves                       $1,693,000        496.5%
             Consulting services                          321,000        134.4%
             Premises rent                                297,000         21.4%
             Compensation, other than stock-based         143,000          3.3%
             Provision for bad debts                      737,000        460.2%
             Travel and entertainment                     102,000         20.7%
             Stock-based compensation                      56,000           (1)

             (1) The Company implemented SFAS 123(R) during the first quarter of
                 2006. As such, there was no comparable expense recorded in
                 2005.

         The increase in legal fees related to costs incurred in connection with
         the definitive merger agreement entered into with Velocity Express
         Corporation. In addition, a $980,000 accrual has been established
         during the second quarter 2006 related to a tentative settlement of an
         employment tax audit in the State of California.

         Of the $321,000 increase in consulting services, $250,000 relates to
         fees incurred in connection with the merger agreement with Velocity.
         The remaining increase in consulting fees relates to modifications made
         to the PeopleSoft financial reporting system during 2006. The provision
         for bad debts for the second quarter of 2006 was $577,000. Of this
         amount, $300,000 related to the write-off of Global Delivery Systems
         note receivable obtained in connection with the settlement agreement in
         September 2005. During the second quarter of 2005, there was a
         reduction in the provision for doubtful accounts based on the
         historical effectiveness of our receivables management. The increases
         in compensation (other than stock-based), premises rent and travel and
         entertainment all relate primarily to additional facilities opened on
         the West coast and Southeast region as a result of the expansion into
         new geographic locations.

         Depreciation and amortization increased by $56,000, or 20.2%, to
         $333,000 for the three months ended June 30, 2006 from $277,000 for the
         same period last year. This increase relates to the depreciation of
         fixed assets purchased in the latter part of 2005 and the first half of
         2006.

         Interest expense increased by $35,000 to $401,000 for the three months
         ended June 30, 2006 as compared to $366,000 for the same period last
         year primarily as a result of increased borrowings on the line of
         credit as compared with last year coupled with the increased prime rate
         during 2006.

         As a result of the factors discussed above, income before provision for
         income taxes decreased by $2,702,000 to a loss of $1,584,000 for the
         three months ended June 30, 2006, as compared to income of $1,118,000
         for the same period in 2005.

         Provision for income taxes decreased by $1,275,000 to a benefit of
         $783,000 for the three months ended June 30, 2006, as compared to a
         provision of $492,000 for the same period in 2005. This was due to the
         decrease in income before provision for income taxes discussed above.
         The effective tax rate for the three months ended June 30, 2006 was
         50%; without the $39,000 of deferred tax credit related to the SFAS
         123(R) stock-based compensation cost, the rate would have been 47% as
         compared to 44% as of June 30, 2005.

         Net income decreased by $1,427,000 to a net loss of $801,000 for the
         three months ended June 30, 2006 as compared to net income of $626,000
         for the same period in 2005. This was due to the factors discussed
         above.


                                       21
<PAGE>


         LIQUIDITY AND CAPITAL RESOURCES

         At March 31, 2004, the Company was indebted to Paribas and Exeter in
         the sum of $11.0 million pursuant to a subordinated note bearing
         interest at 12% per annum (see Senior Notes in Note 4). On April 14,
         2004, an agreement was reached between Paribas, Exeter and the
         Investors as to the financial restructuring of the Senior Notes.
         Paribas agreed to convert a portion of its existing debt due from CD&L
         into equity and to modify the terms of its subordinated note if the
         investors purchased a portion of the note and accepted similar
         modifications. The loan agreement that governed the Senior Notes was
         amended and restated to reflect the terms of the substituted Series A
         Convertible Notes and the Series B Convertible Notes, including the
         elimination of most financial covenants. The principal amount of the
         Convertible Notes was due in a balloon payment at the maturity date of
         April 14, 2011. The Convertible Notes bore interest at a rate of 9% for
         the first two years of the term, 10.5% for the next two years and 12%
         for the final three years of the term. The Series B Convertible Notes
         were extinguished on October 31, 2005 and the Series A Convertible
         Notes were extinguished on July 11, 2006, as described below. At June
         30, 2006 and 2005, long-term debt included $4,000,000 of Series A
         Convertible Notes. At June 30, 2005, long-term debt also included
         $4,000,000 of Series B Convertible Notes.

         On October 31, 2005, the Company retired the Series B Convertible Notes
         that were issued to Paribas, Exeter Capital and Exeter Venture. The
         principal amount of the Series B Convertible Notes totaled $4,000,000
         as of the retirement date. The portion of the Series B Convertible
         Notes held by Paribas was satisfied by a cash payment of $2,666,667
         principal and $40,000 of accrued interest through October 31, 2005.
         Exeter Venture and Exeter Capital (collectively "Exeter") held the
         remaining $1,333,333 of the Series B Convertible Notes. Exeter
         exercised their right of conversion of their notes and, as such, the
         Company issued to Exeter a total of 656,168 shares of the Company's
         common stock. In addition, a cash payment of $20,000 was made to Exeter
         relating to accrued interest through October 31, 2005.

         On July 11, 2006, the Series A Convertible Notes were converted into
         3,937,008 shares of the Company's common stock and the debt was
         retired. In addition, the 393,701 shares of Preferred Stock were
         converted into 3,937,010 shares of the Company's common stock.

         The Company's working capital decreased by $584,000 from $6,365,000 as
         of December 31, 2005 to $5,781,000 as of June 30, 2006. Cash and cash
         equivalents decreased by $294,000 to $543,000 as of June 30, 2006. Cash
         of $259,000 was provided by operations primarily due to a $553,000
         reduction in prepaid expenses relating to the insurance financing
         arrangements. Cash of $624,000 was used in net investing activities for
         capital expenditures discussed below and cash of $71,000 was provided
         by net financing activities from additional short-term net borrowings.
         Capital expenditures amounted to $647,000 and $443,000 for the six
         months ended June 30, 2006 and 2005, respectively. Increased capital
         expenditures in the first half of 2006 related to the purchase of
         scanners and improving the functionality of our internal network.

         As of June 27, 2002, CD&L and Summit Business Capital Corporation,
         doing business as Fleet Capital - Business Finance Division, entered
         into an agreement establishing a revolving credit facility (the "Fleet
         Facility") of $15,000,000. The Fleet Facility which was due to expire
         on June 27, 2005 but was extended through January 31, 2006, provided
         CD&L with standby letters of credit, prime rate based loans at the
         bank's prime rate, as defined, plus 25 basis points and LIBOR based
         loans at the bank's LIBOR, as defined, plus 225 basis points. Credit
         availability was based on eligible amounts of accounts receivable, as
         defined, up to a maximum amount of $15,000,000 and was collateralized
         by substantially all of the assets, including certain cash balances,
         accounts receivable, equipment, leasehold improvements and general
         intangibles of the Company and its subsidiaries.

         As of January 31, 2006, CD&L and Bank of America, N.A. (successor by
         merger to Fleet Capital Corporation) entered into a new agreement (the
         "Bank of America Facility") which replaced the prior Fleet Facility.
         The Bank of America Facility, which expires on September 30, 2008,
         continues to provide CD&L with standby letters of credit, prime rate
         based loans at the bank's prime rate, as defined (8.25% at June 30,
         2006), and LIBOR based loans at the bank's LIBOR rate, as defined, plus
         200 basis points. Credit availability is based on eligible amounts of
         accounts receivable, as defined, up to a maximum amount of $20,000,000
         and is collateralized by substantially all of the assets, including
         certain cash balances, accounts receivable, equipment, leasehold
         improvements and general intangibles of the Company and its
         subsidiaries. The maximum borrowings outstanding under the Bank of
         America Facility during the six months ended June 30, 2006 were
         $10,872,000. As of June 30, 2006, the Company had total cash on hand
         and borrowing availability of $5,670,000 under the Bank of America
         Facility, after adjusting for restrictions related to outstanding
         standby letters of credit of $4,582,000 and minimum availability
         requirements.


                                       22
<PAGE>

         Under the terms of the Bank of America Facility, the Company is
         required to maintain certain financial ratios and comply with other
         financial conditions. The Bank of America Facility 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 June 30, 2006, the Company
         was in violation of certain of the financial covenants due to the
         reported net loss for the second quarter. On August 11, 2006, the
         Company obtained a waiver from its lender for the covenant violation.
         Bank of America has consented to the merger with Velocity and the
         revolving loan balance will be paid in full and closed on the merger
         date.

         Costs incurred relative to the establishment of the Bank of America
         Facility amounted to approximately $94,000. This has been accounted for
         as deferred financing costs and is being amortized over the term of the
         new financing agreement. As of June 30, 2006, the unamortized portion
         of the deferred financing costs amounted to approximately $77,000.

         The Company retains a risk of incurring uninsured losses. There can be
         no assurances that the Company's risk management policies and
         procedures will minimize future uninsured losses or that a material
         increase in frequency or severity of uninsured losses will not occur
         and adversely impact the Company's future consolidated financial
         results.

         The Company had an accumulated deficit of ($3,668,000) as of June 30,
         2006. On numerous occasions, the Company has had to amend and obtain
         waivers of the terms of its credit facilities and senior debt as a
         result of covenant violations or for other reasons. On April 14, 2004,
         the Company restructured its senior debt and related covenants. The
         restructuring included an agreement among the Company, its lenders and
         certain members of CD&L management and others which improved the
         Company's short-term liquidity and reduced interest expense. The
         restructuring eased the financial covenants to which the Company was
         subject. However, if the Company were to fail to meet such covenants in
         the future, there can be no assurances that the Company's lenders would
         agree to waive any future covenant violations, renegotiate and modify
         the terms of their loans, or further extend the maturity date, should
         it become necessary to do so. Further, there can be no assurances that
         the Company will be able to meet its revenue, cost or income
         projections, upon which the debt covenants are based.

         Management believes that cash flows from operations and its borrowing
         capacity are sufficient to support the Company's operations and general
         business and capital requirements through at least June 30, 2007. Such
         conclusions are predicated upon sufficient cash flows from operations
         and the continued availability of a revolving credit facility. The
         risks associated with cash flows from operations are mitigated by the
         Company's low gross profit margin. Unless extraordinary, decreases in
         revenue should be accompanied by corresponding decreases in costs,
         resulting in minimal impact to liquidity. The risks associated with the
         revolving credit facility are as discussed above.

         INFLATION

         While inflation has not had a material impact on the Company's results
         of operations for the periods presented herein, recent fluctuations in
         fuel prices can and do affect the Company's operating costs.



                                       23
<PAGE>

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company is exposed to the effect of changing interest rates. At
         June 30, 2006, the Company's debt consisted of approximately $5,557,000
         of fixed rate debt with a weighted average interest rate of 9.35% and
         $9,371,000 of variable rate debt with a weighted average interest rate
         of 7.72%. The variable rate debt consists of borrowings of revolving
         line of credit debt at the bank's prime rate (8.25% at June 30, 2006).
         If interest rates on variable rate debt were to increase by 83 basis
         points (one-tenth of the weighted average interest rate at June 30,
         2006), the net impact to the Company's results of operations and cash
         flows for the six months ended June 30, 2006 would be a decrease of
         income before provision for income taxes and cash flows from operating
         activities of approximately $36,000. Maximum borrowings of revolving
         line of credit debt during the six months ended June 30, 2006 were
         $10,872,000.

ITEM 4 - CONTROLS AND PROCEDURES

         (a) Disclosure controls and procedures. As of the end of the Company's
             most recently completed fiscal quarter covered by this report, the
             Company carried out an evaluation, with the participation of the
             Company's management, including the Company's Chief Executive
             Officer and Chief Financial Officer, of the effectiveness of the
             Company's disclosure controls and procedures pursuant to Securities
             Exchange Act Rule 13a-15. Based upon that evaluation, the Company's
             Chief Executive Officer and Chief Financial Officer concluded that
             the Company's disclosure controls and procedures are effective in
             ensuring that information required to be disclosed by the Company
             in the reports that it files or submits under the Securities
             Exchange Act is recorded, processed, summarized and reported,
             within the time periods specified in the SEC rules and forms.

         (b) Changes in internal controls over financial reporting. There have
             been no changes in the Company's internal control over financial
             reporting that occurred during the Company's last fiscal quarter to
             which this report relates that have materially affected, or are
             reasonably likely to materially affect, the Company's internal
             control over financial reporting.



                                       24
<PAGE>


                           PART II - OTHER INFORMATION

ITEM 1A - Risk Factors

         Aside from the risk factor noted below, there have not been any
         material changes in the risk factors that were previously disclosed in
         Item 1A to Part I of the Company's Annual Report on Form 10-K for the
         year ended December 31, 2005.

         BASED ON CURRENT DISCUSSIONS WITH THE SEC, WE MAY BE REQUIRED TO AMEND
         PRIOR FILINGS.

         The SEC has asked the Company to provide additional support for its
         accounting for the March 1, 2004 transaction wherein the Company
         repurchased certain Indiana-based assets and liabilities originally
         sold to First Choice Courier in June 2001. Consideration for the
         repurchase included cancellation of a promissory note receivable owed
         by First Choice plus a three year contingent earn-out based on retained
         revenue. The majority of the purchase price related to the value of the
         First Choice customer list. An intangible asset of $1,602,000 was
         recorded as of the purchase date. The asset is being amortized over
         five years. The SEC is questioning if all, or part, of the purchase
         price should have been accounted for as forgiveness of debt.

         On July 12, 2006, the Company filed Amendment No. 1 to its Annual
         Report on Form 10-K for the year ended December 31, 2005. This
         amendment reflected a change in the description of the First Choice
         transaction and resolved the previously disclosed SEC comment.


ITEM 4 - Submission of Matters to a Vote of Security Holders

         On June 7, 2006, the Company held its annual meeting of stockholders.
         The following sets forth a brief description of each matter which was
         acted upon, as well as the votes cast for, against or withheld for each
         such matter, and, where applicable, the number of abstentions and
         broker non-votes for each matter:

         1. Election of Directors.

            Name of Director                   Votes For         Withheld
            -------------------------          ---------         --------
             Albert W. Van Ness, Jr.           8,391,349          250,816
             Thomas E. Durkin III              8,336,898          305,267
             John A. Simourian                 8,381,996          260,169
             Peter Young                       8,382,890          259,275

2. Approval of the Amendment to the 2000 Stock Incentive Plan.

             Votes For:                        1,508,538
             Votes Against:                      527,475
             Abstentions:                         13,712
             Broker Non-Votes:                 6,592,440



                                       25
<PAGE>


ITEM 6 - Exhibits

(a)      Exhibits

         10.1     Form of Amended and Restated Employment Agreement dated April
                  14, 2004 with William T. Brannan (Employment Agreements of
                  Albert W. Van Ness, Jr., Michael Brooks, Russell J. Reardon,
                  and Mark T. Carlesimo are in the same form).

         31.1     Certification of Albert W. Van Ness, Jr. Pursuant to Exchange
                  Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

         31.2     Certification of Russell J. Reardon Pursuant to Exchange Act
                  Rules 13a- 14(a) and 15d-14(a), as Adopted Pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

         32.1     Certification of Albert W. Van Ness, Jr. Pursuant to 18 U.S.C.
                  Section 1350, as adopted Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.

         32.2     Certification of Russell J. Reardon Pursuant to 18 U.S.C.
                  Section 1350, as adopted Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.



                                       26
<PAGE>

                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



Dated: August 16, 2006                       CD&L, INC.




                                             By: \s\ Russell J. Reardon
                                                 ------------------------------
                                                 Russell J. Reardon
                                                 Vice President and
                                                 Chief Financial Officer



                                       27