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 quarter ended September 30, 1999

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 0-23349

                       DISPATCH MANAGEMENT SERVICES CORP.
             (Exact name of registrant as specified in its charter)

Delaware                                                        13-3967426
(State of Incorporation)                    (I.R.S. Employer Identification No.)

1981 Marcus Ave., Suite C131
Lake Success, New York 11042                                            11042
 (Address of principal executive offices)                           (Zip Code)

                                 (516) 326-9810
              (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 |_|

As of November 3, 1999, there were 12,113,023 shares of Common Stock
outstanding.

<PAGE>

                       DISPATCH MANAGEMENT SERVICES CORP.

                                      INDEX

PART I. FINANCIAL INFORMATION

Item  1. Financial Statements (unaudited):

            Consolidated Balance Sheets as of December 31, 1998 and September
                  30, 1999

            Consolidated Statements of Operations for the Three and Nine Months
                  ended September 30, 1998 and 1999

            Consolidated Statements of Cash Flows for the Nine Months ended
                  September 30, 1998 and 1999

            Notes to Consolidated Financial Statements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

PART II. OTHER INFORMATION

Item 5. Other Information.

Item 6. Exhibits and Reports on Form 8-K.

Signatures

Exhibit Index

<PAGE>

                       DISPATCH MANAGEMENT SERVICES CORP.

                           CONSOLIDATED BALANCE SHEETS
                (Dollars in thousands, except for share amounts)

<TABLE>
<CAPTION>
                                                        December 31,   September 30,
                                                            1998           1999
                                                        ------------   -------------
                                                                    (Unaudited)
<S>                                                      <C>            <C>
ASSETS

  Cash and cash equivalents ..........................   $   3,012      $   1,457
  Accounts  receivable, less allowances of $4,416
    and $2,431 .......................................      36,416         30,330
  Prepaid and other current assets ...................       1,890          2,659
  Income tax receivable ..............................       2,784          1,082
                                                         ---------      ---------
            Total current assets .....................      44,102         35,528

  Property and equipment, net ........................       8,851          8,184
  Deferred financing costs, net ......................       1,501            520
  Intangible assets, primarily goodwill, net of
    amortization of $3,186 and $7,068 ................     154,923        160,915
  Notes receivable ...................................       9,002          1,698
  Other assets .......................................       1,322          1,160
                                                         ---------      ---------
            Total assets .............................   $ 219,701      $ 208,005
                                                         =========      =========

  LIABILITIES AND STOCKHOLDERS' EQUITY

  Bank overdrafts ....................................   $   2,944      $   1,785
  Current portion of long-term debt ..................         900          4,800
  Accounts payable ...................................       5,758          5,542
  Accrued liabilities ................................      13,356          9,667
  Accrued payroll and related expenses ...............       5,527          3,905
  Income tax payable .................................       1,817          1,316
  Capital lease obligations ..........................         886            611
  Acquisition-related notes payable, current
  portion ............................................       7,207          6,064
  Other current liabilities ..........................          --            881
                                                         ---------      ---------
            Total current liabilities ................      38,395         34,571

  Long-term debt .....................................      70,600         69,250
  Acquisition-related notes payable ..................       5,337          2,935
  Other long-term liabilities ........................       5,996          3,475
                                                         ---------      ---------
            Total liabilities ........................     120,328        110,231
                                                         ---------      ---------

  Commitments and contingencies - (see notes)

  Stockholders' equity
    Common stock, $.01 par value, 100,000,000
      shares authorized; 11,817,634 and 12,113,023
      shares issued and outstanding ..................         118            121
  Additional paid-in capital .........................     117,686        118,425
  Value of stock to be issued ........................       3,197          1,004
  Accumulated deficit ................................     (21,523)       (21,426)
  Accumulated other comprehensive loss ...............        (105)          (350)
                                                         ---------      ---------
            Total stockholders' equity ...............      99,373         97,774
                                                         ---------      ---------
            Total liabilities and stockholders' equity   $ 219,701      $ 208,005
                                                         =========      =========
</TABLE>

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


                                       3
<PAGE>

                       DISPATCH MANAGEMENT SERVICES CORP.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                (Dollars in thousands, except for share amounts)

<TABLE>
<CAPTION>
                                                                  Three months ended              Nine months ended
                                                                     September 30,                  September 30,
                                                                     -------------                  -------------
                                                                  1998           1999            1998            1999
                                                                  ----           ----            ----            ----
<S>                                                          <C>            <C>             <C>             <C>
Net revenue ..............................................   $     56,367   $     53,242    $    131,735    $    166,824
Cost of revenue ..........................................         34,500         32,185          80,493         101,702
                                                             ------------   ------------    ------------    ------------
  Gross profit ...........................................         21,867         21,057          51,242          65,122

Selling, general and administrative expenses .............         16,697         15,809          38,821          51,951
Depreciation and amortization ............................          1,410          2,001           3,299           6,116
Other charges (income) ...................................          1,703           (391)          1,841            (397)
                                                             ------------   ------------    ------------    ------------
  Income from operations .................................          2,057          3,638           7,281           7,452

Interest expense .........................................          1,024          1,677           1,689           5,261
Amortization and write-off of deferred financing costs ...             --            195              --           1,380
Acquired in-process research and development .............             --             --             700              --
                                                             ------------   ------------    ------------    ------------
Income before income tax provision .......................          1,033          1,766           4,892             811
Income tax provision .....................................            434            184           2,134             714
                                                             ------------   ------------    ------------    ------------
  Income before extraordinary item .......................            599          1,582           2,758              97

Extraordinary loss on early extinguishment of debt (net of
  income tax benefit of $384) ............................             --             --             713              --
                                                             ------------   ------------    ------------    ------------
  Net income .............................................   $        599   $      1,582    $      2,045    $         97
                                                             ============   ============    ============    ============

Income per common share - basic
   Income before extraordinary item ......................   $       0.05   $       0.13    $       0.27    $       0.01
   Extraordinary loss ....................................             --             --           (0.07)             --
                                                             ------------   ------------    ------------    ------------

   Net income ............................................   $       0.05   $       0.13    $       0.20    $       0.01
                                                             ------------   ------------    ------------    ------------

Income per common share - diluted
   Income before extraordinary item ......................   $       0.05   $       0.13    $       0.27    $       0.01
   Extraordinary loss ....................................             --             --           (0.07)             --
                                                             ------------   ------------    ------------    ------------

   Net income ............................................   $       0.05   $       0.13    $       0.20    $       0.01
                                                             ------------   ------------    ------------    ------------

Weighted average shares
   Common shares outstanding .............................     11,742,574     12,113,023      10,031,468      11,983,935
                                                             ------------   ------------    ------------    ------------

   Adjusted common shares assuming dilution ..............     12,012,380     12,252,673      10,240,769      12,088,952
                                                             ------------   ------------    ------------    ------------
</TABLE>

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


                                       4
<PAGE>

                       DISPATCH MANAGEMENT SERVICES CORP.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                             Nine months ended
                                                                               September 30,
                                                                               -------------
                                                                            1998         1999
                                                                            ----         ----
<S>                                                                      <C>          <C>
Cash flows from operating activities:
 Net income ..........................................................   $   2,045    $      97
 Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation .......................................................       1,509        2,145
  Amortization of goodwill and other intangibles .....................       1,790        3,971
  Amortization and write-off of deferred financing costs .............          --        1,380
  Non-cash gain ......................................................          --         (391)
  Acquired in-process research and development .......................         700           --
  Extraordinary item .................................................         713           --
   Changes in operating assets and liabilities (net of assets acquired
    and liabilities assumed in business combinations):
     Accounts receivable .............................................      (9,668)       6,086
     Prepaid and other current assets ................................      (1,204)         432
     Accounts payable and accrued liabilities ........................       4,750       (6,946)
                                                                         ---------    ---------
     Net cash provided by operating activities .......................         635        6,774
                                                                         ---------    ---------
Cash flows from investing activities:
 Cash used in acquisitions, net of cash acquired .....................    (103,976)      (7,469)
 Additions to property and equipment .................................      (5,211)      (1,478)
                                                                         ---------    ---------
      Net cash used in investing activities ..........................    (109,187)      (8,947)
                                                                         ---------    ---------
Cash flows from financing activities:
 Proceeds from initial public offering, net ..........................      76,276           --
 Proceeds from bank borrowings .......................................      55,579        3,150
 Payments on bank borrowings .........................................          --         (600)
 Deferred financing costs ............................................      (1,808)        (399)
 Principal payments on long and short-term obligations ...............     (17,565)      (1,288)
                                                                         ---------    ---------
         Net cash provided by financing activities ...................     112,482          863
                                                                         ---------    ---------
Effect of exchange rate changes on cash and cash equivalents .........          --         (245)
                                                                         ---------    ---------
Net increase (decrease) in cash and cash equivalents .................       3,930       (1,555)

Cash and cash equivalents, beginning of period .......................         354        3,012
                                                                         ---------    ---------
Cash and cash equivalents, end of period .............................   $   4,284    $   1,457
                                                                         =========    =========
</TABLE>

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


                                       5
<PAGE>

               DISPATCH MANAGEMENT SERVICES CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization, Basis of Presentation and Financial Condition

      In connection with the closing of the initial public offering (the
      "Offering") of the common stock, $.01 par value (the "Common Stock"), of
      Dispatch Management Services Corp. (the "Company" or "DMS") in February
      1998, the Company acquired, in separate combination transactions (the
      "Combinations"), 38 urgent, on-demand, point-to-point courier firms and
      one software firm which was subsequently liquidated (each, a "Founding
      Company," and collectively, the "Founding Companies").

      The accompanying consolidated financial statements and related notes to
      consolidated financial statements include the accounts of the Company, the
      Founding Companies and the other businesses acquired subsequent to the
      Offering (the "Recent Acquisitions").

      The interim financial statements have been prepared in accordance with the
      instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of
      Regulation S-X, and should be read in conjunction with the Company's
      Annual Report on Form 10-K for the year ended December 31, 1998, as
      amended by a Form 10-K/A filed on April 30, 1999. Accordingly, significant
      accounting policies and other disclosures normally provided have been
      omitted since such items are disclosed therein. In the opinion of
      management, the information contained herein reflects all adjustments
      (consisting of only normal recurring items) considered necessary to make
      the consolidated financial position, consolidated results of operations
      and cash flows for the interim periods a fair presentation. The results of
      operations for the interim periods are not necessarily indicative of the
      results that may be expected for the year ending December 31, 1999.

      During the first quarter of 1999, the Company notified its senior lenders
      of an event of default in relation to certain financial covenants
      described in the syndicated senior credit facility led by NationsBank,
      N.A. Following this notification of default, the Company operated under a
      forbearance agreement that deferred certain lender remedies pending a
      restructuring of the senior credit facility. In April 1999, the Company
      entered into a definitive Amended and Restated Credit Agreement with
      NationsBank N.A. and a syndicate of senior lenders. The amended facility
      had a maturity date of May 31, 2000, and provided for revised financial
      covenants and other provisions. Effective August 2, 1999, the maturity of
      this facility was extended to October 15, 2000. There can be no assurances
      that the Company will be successful in negotiating further maturity date
      extensions beyond October 15, 2000.

      During the nine months ended September 30, 1999, the senior management
      team has established a number of strategic priorities designed to
      strengthen operations, including i) an aggressive cost reduction program,
      ii) a focus on receivables management and collection procedures, and iii)
      implementation of a technology investment program designed to deliver
      integrated operating systems, as well as enhanced cost control and
      reporting mechanisms.

      During the first nine months of 1999, the Company also executed a number
      of structural changes, including the appointment of four new independent
      directors to the Company's Board so that the Board now includes five
      directors (effective September 15, 1999 Michael Fiorito, who is a Brand
      Manager of the Company, resigned as a Director), and the creation of a
      United States regional management team designed to oversee and support the
      22 metropolitan operating centers.

      The Company believes that the cumulative impact of such initiatives and
      actions will provide the Company with sufficient cash flow to continue as
      a going concern for the next twelve months. The Company's ability to
      continue as a going concern is dependent upon i) achieving and maintaining
      cash flow from operations sufficient to satisfy its current obligations,
      ii) complying with the financial covenants described in the senior credit
      facility, and iii) negotiating further extensions of its senior credit
      facility terms beyond its maturity date of October 15, 2000.

2.    Initial Public Offering


                                       6
<PAGE>

      On February 6, 1998, DMS completed the Offering of 6,000,000 shares of
      Common Stock at $13.25 per share. In March 1998, the underwriters
      exercised their over-allotment option to purchase an additional 900,000
      shares of Common Stock at the initial public offering price. The total
      proceeds from the Offering of the 6,900,000 shares of Common Stock, net of
      underwriter commissions and offering costs, was $76.3 million.

      The net proceeds were used primarily for the cash portion of the purchase
      prices for the Founding Companies, for the early extinguishment of certain
      note payable obligations of the Company which resulted in an extraordinary
      loss of $0.7 million, and for the repayment of certain indebtedness of the
      Founding Companies.

3.    Business Combinations

      On February 11, 1998, the Company acquired all of the outstanding common
      stock and/or net assets of the Founding Companies simultaneously with the
      closing of the Offering. The aggregate consideration for these
      acquisitions included $62.7 million in cash, the issuance of 3,378,590
      shares of Common Stock, and $4.6 million of notes payable.

      During the period following the Offering to December 31, 1998, the Company
      acquired an additional 28 messenger or same-day courier companies in the
      United States, the United Kingdom, Australia and New Zealand. The
      aggregate consideration for these acquisitions included $47.6 million in
      cash, the issuance of 355,160 shares of Common Stock, $3.2 million in
      value of stock to be issued, and $7.9 million of notes payable.

      The acquisitions have been accounted for using the purchase method of
      accounting. The consideration does not reflect certain additional
      contingent consideration which may be issued pursuant to earn-out
      arrangements included in the definitive agreements with the acquired
      companies.

      During the third quarter of 1998, the Company wrote off $1.5 million of
      legal and professional fees associated with planned acquisitions that
      failed to close. Such amounts are included in "other charges (income)" on
      the Statement of Operations. During the nine months ended September 30,
      1999, goodwill associated with the 1998 acquisitions increased by $9.9
      million, primarily due to contingent consideration earned.

      Acquisition Liabilities

      In connection with completed acquisitions, the Company recorded
      liabilities for employee severance and for operating lease payments as a
      result of exit plans formulated as of the respective acquisition dates
      (the "Acquisition Liabilities"). The severance accrual relates to the
      involuntary termination of administrative and middle management personnel
      from the integration of the acquired operations. The operating lease
      payment accrual relates to equipment and facilities leases assumed by the
      Company. Amounts accrued represent management's estimate of the cost to
      exit the equipment and facilities leases, including lease payments and
      termination costs.

      The changes in the Acquisition Liabilities during the nine month period
      ended September 30, 1999 were as follows (dollars in thousands):

                                              Severance      Lease
                                              Liability    Liability      Total
                                              ---------    ---------     -------
Balance December 31, 1998 ...............       $ 195        $ 666        $ 861
Additions ...............................          --           11           11
Utilization .............................         (36)        (201)        (237)
                                                -----        -----        -----
Balance September 30, 1999 ..............       $ 159        $ 476        $ 635
                                                =====        =====        =====

   Pro Forma Financial Information


                                       7
<PAGE>

      The following unaudited condensed pro forma financial information of the
      Company for the nine-month period ended September 30, 1998 includes the
      consolidated operations of the Company and the 1998 Acquisitions as if the
      Offering and the acquisitions had occurred on January 1, 1998 (dollars in
      thousands).

                                                              Nine months ended
                                                              September 30, 1998
                                                              ------------------
Net revenue                                                        $177,272
Income before extraordinary item                                   $  2,187

Per share data:
  Income before extraordinary item - basic and diluted             $   0.18

      The unaudited condensed pro forma financial information includes
      adjustments to the Company's historical results of operations which
      provide for reductions in salaries, bonuses and benefits payable or
      provided to the acquired companies' managers to which they agreed
      prospectively, incremental amortization of goodwill, reduction in royalty
      payments made by certain Founding Companies in accordance with franchise
      agreements that terminated as a result of the Combinations, income tax
      adjustments, incremental interest expense associated with borrowings to
      fund the acquisitions and the reduction in expense related to amounts
      allocated to in-process research and development activities. This
      summarized pro forma information may not be indicative of actual results
      if the transactions had occurred on the date indicated or of the results
      which may be realized in the future.

4.    Senior Credit Facility

      In February 1998, the Company obtained a $25.0 million revolving line of
      credit from NationsBank, N.A. pursuant to a credit agreement. Outstanding
      principal balances under this line incurred interest at increments between
      1.50% and 2.50% over the LIBOR rate, depending on the Company's ratio of
      Funded Debt to EBITDA (as defined in the credit agreement).

      In May 1998, NationsBank provided the Company an additional $10.0 million
      short-term line of credit facility in anticipation of closing a syndicated
      credit facility. The short-term line of credit facility was
      cross-defaulted and cross-collateralized with the revolving line of credit
      and matured in June 1998.

      In June 1998, the Company entered into a credit agreement with NationsBank
      N.A. as underwriter of a new $60.0 million senior credit facility. In
      August 1998, NationsBank led a syndication for a $105.0 million committed
      line of credit with a group of senior lenders, including First Union
      National Bank, BankBoston N.A., CIBC, Inc., and Fleet Bank N.A.

      Subsequent to December 31, 1998, the Company notified the senior lenders
      of an event of default in relation to certain financial covenants
      described in the senior credit agreement. Following this notification of
      default, the Company operated under a forbearance agreement that deferred
      certain lender remedies pending a restructuring of the senior credit
      facility. On April 8, 1999, the Company entered into a definitive Amended
      and Restated Credit Agreement (the "Credit Agreement") with NationsBank
      N.A. and a syndicate of senior lenders. The Credit Agreement provides a
      revolving credit facility in an amount equal to the outstanding
      indebtedness as of September 30, 1999 of $77.9 million, which includes a
      sub-limit of $3.8 million for existing standby letters of credit. All
      amounts drawn down under the line of credit must be repaid on October 15,
      2000, with minimum principal payments of $0.3 million per quarter required
      in 1999 and $1.5 million per quarter required in 2000.

      Outstanding principal balances under the line of credit bear interest,
      payable monthly, at increments between 1.75% and 4.00% over the LIBOR
      rate, depending on the Company's ratio of Funded Debt to trailing quarter
      annualized EBITDA (as defined in the Credit Agreement). The current
      pricing level at September 30, 1999 is LIBOR + 3.75% (30-Day LIBOR at
      September 30, 1999 was 5.4%).


                                       8
<PAGE>

      Borrowings under the line of credit are secured by a first lien on all of
      the assets of the Company, including the shares of common stock of certain
      of the Company's subsidiaries. The Company is required to maintain minimum
      quarterly EBITDA targets through the maturity of the facility, provided
      that for the last fiscal quarter of 1999 and for the fiscal quarters of
      2000 the EBITDA targets are modified such that the Company can still meet
      the financial covenant criteria by maintaining a Funded Debt to EBITDA
      ratio at no more than 3.0x (as defined in the Credit Agreement).

      Other financial covenants include: (i) maintenance of a monthly positive
      pre-tax income on a consolidated basis after June 30, 1999 (adjusted for
      certain non-cash gains and losses), (ii) maintenance of a collateral
      coverage ratio whereby accounts receivable outstanding for less than 60
      days as a proportion of the total outstanding under the revolving line of
      credit cannot fall below levels ranging from 35% - 40%, and (iii) minimum
      quarterly interest coverage ratio, defined as EBITDA as a ratio to cash
      interest expense. The Credit Agreement prohibits (i) liens, pledges and
      guarantees that can be granted by the Company, (ii) the declaration or
      payment of cash dividends, and (iii) the sale of stock of the Company's
      subsidiaries. The Credit Agreement also limits (i) the amount of
      indebtedness that the Company can incur, (ii) the amount of finance lease
      commitments, and (iii) certain capital expenditures. Material acquisitions
      and disposals of certain operations require approval by the lender. The
      Credit Agreement contains customary representations and warranties,
      covenants, defaults and conditions. The line of credit is intended to be
      used for short-term working capital, and for the issuance of letters of
      credit. The facility specifically allows for the payment of various
      acquisition-related notes payable disclosed in the consolidated financial
      statements related to the 1998 acquisitions.

      In response to the Company's determination that it would not likely meet
      the affirmative covenants related to the EBITDA target and collateral
      coverage ratio for the quarter ended September 30, 1999, the syndicate of
      senior lenders agreed to modify such covenants effective September 30,
      1999. Affirmative covenant targets applicable for future fiscal quarters
      remain unchanged.

      The Company paid $1.5 million in financing fees during fiscal year 1998,
      which were deferred and amortized over the term of the 1998 credit
      facility. As a result of the Company entering into the Credit Agreement in
      April 1999, the Company wrote-off $0.9 million of the fees associated with
      the 1998 credit facility. The Company amortized an additional $0.5 million
      of the deferred financing fees during the nine months ended September 30,
      1999. Interest expense incurred on the senior bank debt during the nine
      months ended September 30, 1999 amounted to $5.0 million.

5.    Stockholders' Equity and Comprehensive Loss

      Effective January 1, 1998, the Company adopted Statement of Financial
      Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No.
      130"). SFAS No. 130 requires the reporting and display of comprehensive
      loss and its components in the financial statements.

      SFAS No. 130 also requires the Company to classify items of other
      comprehensive income or loss by their nature in financial statements.


                                       9
<PAGE>

      Changes in stockholders' equity and comprehensive loss during the nine
      months ended September 30, 1999 were as follows (dollars in thousands):

                                                    Stockholders'  Comprehensive
                                                       Equity           Loss
                                                    -------------  -------------
Stockholders' equity at December 31, 1998               $ 99,373

Comprehensive loss:
 Net income                                                   97       $     97
 Common stock                                                  3
 Additional paid-in capital                                  739
 Value of stock to be issued                              (2,193)
 Foreign currency translation adjustment                    (245)          (245)
                                                        --------       --------
  Total                                                   (1,599)      $   (148)
                                                        --------       --------
Stockholders' equity balance at September 30, 1999      $ 97,774
                                                        ========

6.    Earnings (loss) per Share

      The following table sets forth the calculation of basic and diluted
      earnings (loss) per share (dollars in thousands, except per share data):

<TABLE>
<CAPTION>

                                               Three months ended     Nine months ended
                                                   September 30,         September 30,
                                                   -------------         -------------
                                                 1998       1999       1998        1999
                                              --------   --------   --------    --------
<S>                                           <C>        <C>        <C>         <C>
BASIC EARNINGS (LOSS) PER SHARE:

Income before extraordinary item              $    599   $  1,582   $  2,758    $     97
Extraordinary item-loss on early
 extinguishment of debt, net of income taxes        --         --        713          --
                                              --------   --------   --------    --------

Net income                                    $    599   $  1,582   $  2,045    $     97
                                              ========   ========   ========    ========

Weighted average shares outstanding             11,743     12,113     10,031      11,984
                                              ========   ========   ========    ========

Income before extraordinary item              $   0.05   $   0.13   $   0.27    $   0.01
Extraordinary item-loss on early
 extinguishment of debt, net of income taxes        --         --      (0.07)         --
                                              --------   --------   --------    --------
 Net income per share                         $   0.05   $   0.13   $   0.20    $   0.01
                                              ========   ========   ========    ========

DILUTED EARNINGS (LOSS) PER SHARE:

Income before extraordinary item              $    599   $  1,582   $  2,758    $     97
Extraordinary item-loss on early
 extinguishment of debt, net of income taxes        --         --        713          --
                                              --------   --------   --------    --------
 Net income                                   $    599   $  1,582   $  2,045    $     97
                                              ========   ========   ========    ========

Weighted average shares outstanding             11,743     12,113     10,031      11,984
Potential common shares from stock options         214        140        191         105
Shares subject to earnout provisions                55         --         19          --
                                              --------   --------   --------    --------
Total weighted average shares outstanding       12,012     12,253     10,241      12,089
                                              ========   ========   ========    ========

Income before extraordinary item              $   0.05   $   0.13   $   0.27    $   0.01
Extraordinary item-loss on early
 extinguishment of debt, net of income taxes        --         --      (0.07)         --
                                              --------   --------   --------    --------
Net income per share                          $   0.05   $   0.13   $   0.20    $   0.01
                                              ========   ========   ========    ========
</TABLE>

7.    Taxation

      The Company's effective tax rate can vary dependent on the financial
      performance of the different geographic regions. The Company has incurred
      income tax expense in the United Kingdom and Australasian divisions, which
      are not currently benefiting from significant carryforward tax losses
      generated in the United States.

8.    Litigation


                                       10
<PAGE>

      Following the acquisition of certain of the Founding Companies, the
      Company terminated a relationship with an equipment vendor due to repeated
      and substantial problems with certain telecommunications and computer
      equipment. In July 1998, the Company was served with a claim for unpaid
      monthly fees due under the full term of each respective service agreement.
      On September 1, 1999, the Company settled all outstanding claims with the
      equipment vendor for $1.0 million plus interest payable over 12 months,
      resulting in a non-cash gain of $0.4 million versus previously established
      provisions.

      The Company is also involved in several acquisition-related disputes
      concerning acquisition contract interpretation, non-compete enforcement,
      and status of unregistered stock issued in connection with the Offering.
      The Company has accrued $3.4 million as an estimate of the liability with
      respect to these cases at September 30, 1999.

      The Company also becomes involved in various legal matters from time to
      time, which it considers to be in the ordinary course of business. While
      the Company is not currently able to determine the potential liability, if
      any, related to such matters, the Company believes that none of the
      matters, individually or in the aggregate, will have a material adverse
      effect on its financial position, results of operations or liquidity.

9.    Segment Information

      The Company's reportable segments are based on geographic area. The
      Company evaluates the performance of its geographic areas based on
      operating profit (loss) excluding interest expense, other income and
      expense, the effects of non-recurring items, and income tax expense. The
      following is a summary of local operations by geographic region for the
      nine months ended September 30, 1999 (dollars in thousands):

        Nine months ended         United        United
       September 30, 1999         States        Kingdom   Australasia    Total
       ------------------        --------       -------   -----------   --------
Net revenue                      $ 96,461       57,690       12,673     $166,824

Operating income                 $  2,624        4,125          703     $  7,452

Identifiable assets              $ 26,233       17,288        3,569     $ 47,043

Capital expenditures             $    458          838          182     $  1,478

Depreciation                     $  1,446          603           95     $  2,145

        Nine months ended         United        United
       September 30, 1998         States        Kingdom   Australasia    Total
       ------------------        --------       -------   -----------   --------

Net revenue                      $ 79,106       50,503        2,126     $131,735

Operating income                 $  3,068        3,990          223     $  7,281

Identifiable assets              $ 43,049       24,376        2,742     $ 70,167

Capital expenditures             $  4,085        1,076           50     $  5,211

Depreciation                     $    635          842           32     $  1,509


                                       11
<PAGE>

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

The following discussion should be read in conjunction with the information
contained in the Company's consolidated financial statements, including the
notes thereto, and the other financial information appearing elsewhere in this
report. Statements regarding future economic performance, management's plans and
objectives, and any statements concerning its assumptions related to the
foregoing contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute forward-looking statements.
Certain factors which may cause actual results to vary materially from these
forward-looking statements accompany such statements or are listed in "Factors
Affecting the Company's Prospects" set forth in the Company's annual report on
Form-10K for the fiscal year ended December 31, 1998, as amended by a Form-10K/A
filed on April 30, 1999.

Overview

The Company was formed in 1997 to create one of the largest providers of
point-to-point delivery services in the world. The Company focuses on
point-to-point delivery by foot, bicycle, motorcycle, car and truck and operates
in 22 of the largest metropolitan markets in the United States as well as the
United Kingdom, Australia and New Zealand.

Prior to the Initial Public Offering (the "Offering") on February 6, 1998, the
Company conducted no operations other than in connection with the Offering and
generated no revenues other than the receipt of licensing fees. Simultaneous
with the Offering, the Company acquired, in separate combination transactions,
38 urgent, on-demand, point-to-point courier firms and one software company,
which was subsequently liquidated in 1998.

Results of Operations

<TABLE>
<CAPTION>
                                                          Three months ended   Nine months ended
                                                             September 30,       September 30,
                                                            1998      1999      1998     1999
                                                           -----     -----     -----    -----
<S>                                                        <C>       <C>       <C>      <C>
Net revenue                                                100.0%    100.0%    100.0%   100.0%
Costs of revenue                                            61.2      60.5      61.1     61.0
                                                           -----     -----     -----    -----
 Gross profit                                               38.8      39.5      38.9     39.0

Selling, general and
  administrative expenses                                   29.6      29.7      29.5     31.1
Depreciation and amortization                                2.5       3.8       2.5      3.7
Other charges (income)                                       3.2      (0.7)      1.4     (0.2)
                                                           -----     -----     -----    -----
  Operating income                                           3.4       6.8       5.6      4.5

Interest expense                                             1.8       3.2       1.3      3.2
Amortization and write-off of deferred financing costs        --       0.3        --      0.8
Acquired in-process research and development                  --        --       0.5       --
Other expense (income)                                      (0.2)       --        --       --
                                                           -----     -----     -----    -----
Income before income taxes
  and extraordinary item                                     1.8       3.3       3.7      0.5

Provision for income taxes                                   0.8       0.3       1.6      0.4
                                                           -----     -----     -----    -----
Income before extraordinary item                             1.0       3.0       2.1      0.1
                                                           =====     =====     =====    =====
</TABLE>

THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998


                                       12
<PAGE>

Net Revenue

Net revenue for the three months ended September 30, 1999 decreased $3.1
million, or 5.5%, to $53.2 million from $56.4 million for the three months ended
September 30, 1998. This decrease was primarily due to the continued
restructuring of certain non-core businesses related to the acquisition of 27
urgent, on-demand, point-to-point courier firms that the Company acquired at
various dates following the Company's initial public offering in February 1998.
Excluding the effect of the 27 acquired firms, net revenues from comparable
operating centers decreased $4.0 million, or 9.1%. The Company's revenues were
predominantly earned from urgent delivery services performed throughout the
United States, the United Kingdom, and Australasia, (dollars in thousands):

                                 Three months ended         Three months ended
                                 September 30, 1998         September 30, 1999
                                 ------------------         ------------------
United States                  $32,762          58.1%     $30,704          57.7%
United Kingdom                  21,995          39.0       18,469          34.6
Australasia                      1,610           2.9        4,069           7.7
                               -------         -----      -------         -----
 Total                         $56,367         100.0%     $53,242         100.0%

Following certain acquisitions, the Company re-priced or ceased providing
certain services which failed to meet required margin criteria, or were not pure
urgent, point-to-point delivery services. There can be no assurance that any
such initiatives in the future will not have a material adverse effect on the
Company's business, financial condition or results of operations.

Cost of Revenue

Cost of revenue for the three months ended September 30, 1999 decreased $2.3
million, or 6.7%, to $32.2 million from $34.5 million for the three months ended
September 30, 1998. This decrease was primarily due to the decrease in net
revenue noted above, and to a lesser extent the benefits associated with the
continued physical integration of a number of previously independent courier
fleets. As of September 30, 1999, the Company still had components of a courier
fleet integration program remaining to execute. This program is expected to be
substantially completed during the balance of 1999. Expressed as a percentage of
net revenue, cost of revenue for the three months ended September 30, 1999
decreased to 60.5%, from 61.2% for the three months ended September 30, 1998.
Cost of revenue percentages in the United States, the United Kingdom, and
Australasia vary considerably as a result of different compensation structures,
the proportion of owner-operated vehicles, the type of benefit plans, and the
mix of business. For the three months ended September 30, 1999, cost of revenue
percentages for the United States, United Kingdom and Australasia were 58.1%,
64.4%, and 60.1%, respectively, as compared to 58.4%, 65.4%, and 61.7%,
respectively, for the comparable 1998 period.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended
September 30, 1999 decreased $0.9 million, or 5.3%, to $15.8 million from $16.7
million for the three months ended September 30, 1998. This decrease was
primarily due to lower overall revenues experienced during the quarter.
Expressed as a percentage of net revenue, selling, general and administrative
costs for the three months ended September 30, 1999 increased to 29.7%, from
29.6% for the three months ended September 30, 1998. Selling, general and
administrative percentages in the United States (including corporate), the
United Kingdom, and Australasia vary considerably as a result of the degree of
physical integration, different compensation structures and the mix of business.
For the three months ended September 30, 1999, selling, general and
administrative expense percentages for the United States, United Kingdom, and
Australasia were 30.2%, 28.3%, and 32.6%, respectively, as compared to 32.1%,
26.1%, and 27.4%, respectively, for the comparable 1998 period.

Other Charges (Income)


                                       13
<PAGE>

Other charges (income) in 1998 included the write-off of $1.5 million of
professional fees associated with planned acquisitions that failed to close.
Other charges (income) for the three months ended September 30, 1999 included a
gain of $0.4 million related to the reversal of provisions associated with the
settlement of an outstanding legal action against the Company.

Interest Expense and Deferred Financing Costs

Interest expense for the three months ended September 30, 1999 was $1.7 million,
or 3.2% of the Company's net revenues. This represents an increase of $0.7
million over the same period in 1998. The increase was primarily due to higher
average principal balances outstanding. Interest expense included interest on
senior debt, acquired debt, acquisition-related debt, and capital lease
obligations, as well as bank charges. Interest rates on the senior credit
facility ranged from 9.2% to 9.4% during the three months ended September 30,
1999, compared with 7.1% to 7.3% for the three months ended September 30, 1998.
As a result of the Company entering into the Amended and Restated Credit
Agreement (the "Credit Agreement") in April 1999, the Company wrote off $0.9
million of the fees associated with the preceding credit facility during the
second quarter of 1999. The Company amortized an additional $0.2 million of the
deferred financing fees during the three months ended September 30, 1999.
Interest expense incurred on the senior bank debt during the three months ended
September 30, 1999 amounted to $1.6 million.

Provision for Income Taxes

The effective tax rate for the three months ended September 30, 1999 was 10.4%,
versus an effective tax rate of 42.0% for the three months ended September 30,
1998. The Company's effective tax rate can vary dependent on the financial
performance of the different geographic regions. The low effective tax rate for
the three months ended September 30, 1999 is a direct result of lower
profitability in the United Kingdom and the utilization of carryforward losses
in the United States. In September 1999, the Company finalized 1998 income tax
returns which resulted in the reversal of $0.2 million of previously recorded
income tax reserves.

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998

Net Revenue

Net revenue for the nine months ended September 30, 1999 increased $35.1
million, or 26.6%, to $166.8 million from $131.7 million for the nine months
ended September 30, 1998. This increase was primarily due to volumes generated
by 27 urgent, on-demand, point-to-point courier firms that the Company acquired
at various dates following the Company's initial public offering in February
1998. Excluding the effect of the 27 acquired firms, net revenues from
comparable operating centers decreased $3.2 million, or 2.6%. The Company's
revenues were predominantly earned from urgent delivery services performed
throughout the United States, the United Kingdom, and Australasia, (dollars in
thousands):

                                Nine months ended           Nine months ended
                                September 30, 1998          September 30, 1999

United States                $ 79,106          60.0%     $ 96,460          57.8%
United Kingdom                 50,503          38.3        57,690          34.6
Australasia                     2,126           1.7        12,674           7.6
                             --------         -----      --------         -----
 Total                       $131,735         100.0%     $166,824         100.0%


                                       14
<PAGE>

Cost of Revenue

Cost of revenue for the nine months ended September 30, 1999 increased $21.2
million, or 26.3%, to $101.7 million from $80.5 million for the nine months
ended September 30, 1998. This increase was primarily due to the cost of
revenues generated by the 27 urgent, on-demand, point-to-point courier firms
that the Company acquired at various dates after February 1998, offset partially
by the effect of revenue lost as a result of the restructuring of certain
non-core businesses. Expressed as a percentage of net revenue, cost of revenue
for the nine months ended September 30, 1999 decreased to 61.0%, from 61.1% for
the nine months ended September 30, 1998. Cost of revenue percentages in the
United States, the United Kingdom, and Australasia vary considerably as a result
of different compensation structures, the proportion of owner-operated vehicles,
the type of benefit plans, and the mix of business. For the nine months ended
September 30, 1999, cost of revenue percentages for the United States, United
Kingdom and Australasia were 59.4%, 63.4%, and 61.7%, respectively, as compared
to 58.6%, 65.1%, and 61.2%, respectively, for the comparable 1998 period.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September
30, 1999 increased $13.1 million, or 33.8%, to $51.9 million from $38.8 million
for the nine months ended September 30, 1998. This increase was primarily due to
the selling, general and administrative expenses of the 27 urgent, on-demand,
point-to-point courier firms that the Company acquired at various dates after
February 1998. Expressed as a percentage of net revenue, selling, general and
administrative costs for the nine months ended September 30, 1999 increased to
31.1%, from 29.5% for the nine months ended September 30, 1998. Selling, general
and administrative expense percentages in the United States (including
corporate), the United Kingdom, and Australasia vary considerably as a result of
the degree of physical integration, different compensation structures and the
mix of business. For the nine months ended September 30, 1999, selling, general
and administrative percentages for the United States, United Kingdom, and
Australasia were 33.1%, 28.0%, and 31.1%, respectively, as compared to 32.6%,
24.7%, and 26.8%, respectively, for the comparable 1998 period.

Other Charges (Income)

Other charges (income) in 1998 included the write-off of $1.5 million of
professional fees associated with planned acquisitions that failed to close.
Other charges (income) for the nine months ended September 30, 1999 included a
gain of $0.4 million related to the reversal of provisions associated with the
settlement of an outstanding legal action against the Company.

Interest Expense and Deferred Financing Costs

Interest expense for the nine months ended September 30, 1999 was $5.3 million,
or 3.2% of the Company's net revenues. This represents an increase of $3.6
million over the same period in 1998. The increase was primarily due to higher
average principal balances outstanding. Interest expense included interest on
senior debt, acquired debt, acquisition-related debt, and capital lease
obligations, as well as bank charges. Interest rates on the senior credit
facility ranged from 6.9% to 9.4% during the nine months ended September 30,
1999, compared with 6.2% to 7.3% for the nine months ended September 30, 1998.
As a result of the Company entering into the Credit Agreement in April 1999, the
Company wrote off $0.9 million of the fees associated with the preceding credit
facility. The Company amortized an additional $0.5 million of the deferred
financing fees during the nine months ended September 30, 1999. Interest expense
incurred on the senior bank debt during the nine months ended September 30, 1999
amounted to $5.0 million.

Provision for Income Taxes

The effective tax rate for the nine months ended September 30, 1999 was 88.0%
versus an effective tax rate of 43.6% for the nine months ended September 30,
1998. The Company's effective tax rate can vary dependent on the financial
performance of the different geographic regions. The high effective tax rate for
the nine months ended September 30, 1999 is related to the profitability of the
United Kingdom division, which is not currently benefiting from significant
carryforward tax losses incurred in the United States. In September 1999, the
Company finalized 1998 income tax


                                       15
<PAGE>

returns which resulted in the reversal of $0.2 million of previously recorded
income tax reserves.

Liquidity and Capital Resources

The Company is a holding company that conducts all of its operations through its
wholly-owned subsidiaries. Accordingly, the Company's principal sources of
liquidity are the cash flow of its subsidiaries, and cash available, if any,
from its credit facility.

At September 30, 1999, the Company had $1.5 million in cash and cash
equivalents, $1.8 million of bank overdrafts, $74.0 million of senior bank debt,
and $9.0 million of short and long-term acquisition-related debt. Net cash
provided from operating activities for the nine months ended September 30, 1999
was $6.8 million. Net cash used in investing activities and provided by
financing activities was $8.9 million and $0.9 million, respectively, for the
nine months ended September 30, 1999.

On February 11, 1998, the Company acquired all of the outstanding common stock
and/or net assets of the Founding Companies simultaneously with the closing of
the Offering. The aggregate consideration for these acquisitions included
approximately $62.7 million in cash, the issuance of 3,378,590 shares of common
stock, and $4.6 million of notes payable. The cash portion of these acquisitions
was funded through the proceeds of the Offering.

During the period following the Offering to December 31, 1998, the Company
acquired an additional 28 messenger or same-day courier companies in the United
States, the United Kingdom, and Australasia. The aggregate consideration for
these acquisitions included approximately $47.6 million in cash, the issuance of
355,160 shares of common stock, $3.2 million in value of stock to be issued, and
approximately $7.9 million of notes payable. Subsequent to December 31, 1998,
the Company converted $2.4 million of the stock consideration payable to cash
consideration payable. The cash portion of the consideration for the
acquisitions consummated after the Offering was provided by borrowings under the
Company's credit facility.

In addition, in connection with certain acquisitions, the Company agreed to pay
the sellers additional consideration if the acquired operations meet certain
performance goals related to their earnings before interest, taxes, depreciation
and amortization, as adjusted for certain other financial related matters. The
estimated maximum amount of additional consideration payable, if all of the
performance goals are met, is approximately $9.0 million, of which $3.2 million
is payable in cash and $5.8 million is payable in shares of the Company's common
stock. These payments of additional consideration are to be made on specified
dates through December 31, 2000. Management intends to fund the cash portion of
this additional consideration with internally generated cash flow.

Capital expenditures totaled $1.5 million in the nine months ended September 30,
1999, primarily for office and technology-related expenditures. The Company
expects to make additional capital expenditures of $0.5 million during the
balance of 1999 to upgrade certain components of its management and financial
reporting systems and to install an internal computer intranet network and
communications system integrating the metropolitan operating centers. In
addition, application of DMS operating practices requires investment in existing
operating centers. Management presently anticipates that such additional capital
expenditures will total $5.0 million over the next two years, including $2.5
million of computer equipment, $1.5 million of communications equipment, and
$1.0 million of leasehold improvements. However, no assurance can be made with
respect to the actual timing and amount of such expenditures.

Senior Credit Facility

In June 1998, the Company entered into a credit agreement with NationsBank N.A.
as underwriter of a new $60.0 million senior credit facility. In August 1998,
NationsBank led a syndication for a $105.0 million committed line of credit with
a group of senior lenders, including First Union National Bank, BankBoston N.A.,
CIBC, Inc., and Fleet Bank N.A.

Subsequent to December 31, 1998, the Company notified the senior lenders of an
event of default in relation to certain financial covenants described in the
senior credit agreement. Following this notification of default, the Company


                                       16
<PAGE>

operated under a forebearance agreement that deferred certain lender remedies
pending a restructuring of the senior credit facility. On April 8, 1999, the
Company entered into a Credit Agreement with NationsBank N.A. and a syndicate of
senior lenders. The Credit Agreement provides a revolving credit facility in an
amount equal to the outstanding indebtedness as of September 30, 1999 of $77.9
million, which includes a sub-limit of $3.8 million for existing standby letters
of credit. All amounts drawn down under the line of credit must be repaid on
October 15, 2000, with minimum principal payments of $0.3 million per quarter
required in 1999 and $1.5 million per quarter required in 2000.

Outstanding principal balances under the line of credit bear interest, payable
monthly, at increments between 1.75% and 4.00% over the LIBOR rate, depending on
the Company's ratio of Funded Debt to trailing quarter annualized EBITDA (as
defined in the Credit Agreement). The current pricing level at September 30,
1999 is LIBOR + 3.75% (30-Day LIBOR at September 30, 1999 was 5.4%).

Borrowings under the line of credit are collateralized by a first lien on all of
the assets of the Company, including the shares of common stock of certain of
the Company's subsidiaries. The Company is required to maintain minimum absolute
quarterly EBITDA targets through the maturity of the facility, provided that for
the last fiscal quarter of 1999 and for the fiscal quarters of 2000 the absolute
EBITDA targets are modified such that the Company can still meet the financial
covenant criteria by maintaining a Funded Debt to EBITDA ratio at no more than
3.0x (as defined in the Credit Agreement).

Other financial covenants include: (i) maintenance of a positive monthly pre-tax
income on a consolidated basis after June 30, 1999 (adjusted for certain
non-cash gains and losses), (ii) maintenance of a collateral coverage ratio
whereby accounts receivable outstanding for less than 60 days as a proportion of
the total outstanding under the revolving line of credit cannot fall below
levels ranging from 35% - 40%, and (iii) minimum quarterly interest coverage
ratio, defined as EBITDA as a ratio to cash interest expense. The Credit
Agreement prohibits (i) liens, pledges and guarantees that can be granted by the
Company, (ii) the declaration or payment of cash dividends, and (iii) the sale
of stock of the Company's subsidiaries. The Credit Agreement also limits (i) the
amount of indebtedness that the Company can incur, (ii) the amount of finance
lease commitments, and (iii) certain capital expenditures. Material acquisitions
and disposals of certain operations require approval by the lender. The Credit
Agreement contains customary representations and warranties, covenants, defaults
and conditions. The line of credit is intended to be used for short-term working
capital, and for the issuance of letters of credit. The facility specifically
allows for the payment of various acquisition-related notes payable disclosed in
the consolidated financial statements related to the 1998 acquisitions.

Pursuant to the establishment of the April 8, 1999 Credit Agreement, the Company
wrote off $0.9 million of deferred financing fees related to the $60.0 million
credit facility dated June 11, 1998, in the second quarter of 1999.

In response to the Company's determination that it would not likely meet the
affirmative covenants related to the EBITDA target and collateral coverage ratio
for the quarter ended September 30, 1999, the syndicate of senior lenders agreed
to modify such covenants effective September 30, 1999. Affirmative covenant
targets applicable for future fiscal quarters remain unchanged.

The Company believes that cash flow from operations will be sufficient to fund
the Company's operations and the acquisition-related notes payable repayment
schedule for the next twelve months. The Company's ability to continue as a
going concern is dependent upon, i) achieving and maintaining cash flow from
operations sufficient to satisfy its current obligations, ii) complying with the
financial covenants described in the Credit Agreement, and iii) negotiating
further extensions of the Credit Agreement beyond its maturity date of October
15, 2000. Given the current Credit Agreement restrictions, the Company is
unlikely to pursue further acquisition opportunities during the next 12 to 18
months.

Impact of Year 2000

The Year 2000 issue refers to the impact on information technology and
non-information technology systems, including codes embedded in chips and other
hardware devices, of date-related issues including the identification of a year
by two digits and not four so that a date using "00" would be recognized as the
year "1900" rather than "2000".



                                       17
<PAGE>

This date related problem could result in system failures, miscalculations or
errors causing disruptions of operations or other business problems, including,
among others, a temporary inability to process transactions, send invoices or
engage in normal business activities.

The Company has identified operating and software issues to address Year 2000
readiness in its internal systems and with its customers and suppliers. The
Company has substantially addressed its most critical internal systems,
including the Company's proprietary capture and dispatch system ("KIWI"), and
targets to have them Year 2000 compliant by November 30, 1999. The Company has
also substantially addressed all major categories of information technology and
non-information technology systems in use by the Company, including customer
service, dispatch and finance.

The Company has used both internal and external resources to reprogram and test
the KIWI software for Year 2000 modifications. The cost of this and all other
efforts to achieve Year 2000 compliance is estimated to be $1.2 million. To
date, the Company's expenses have been mostly limited to internal costs. The
amount of external expenditures for Year 2000 compliance for the nine months
ended September 30, 1999 was $1.0 million. The Company has not separately
tracked internal costs, which were primarily associated with payroll costs. The
Company expects any future costs to be funded by internally generated funds. The
Company has communicated with most of its major customers, suppliers and
financial institutions to determine the extent to which the Company is
vulnerable to those third parties' failure to remedy their own Year 2000 issues.
The feedback from some of the Company's major suppliers and customers contacted
confirmed that they anticipate being Year 2000 compliant on or before December
31, 1999.

The Company currently expects that the Year 2000 issue will not pose significant
operational problems. However, delays in the implementation of Year 2000
compliant systems, a failure to identify all of the Year 2000 dependencies in
the Company's systems and in the systems of its suppliers, customers and
financial institutions, or a failure of such third parties to adequately address
their respective Year 2000 issues could have a material adverse effect on the
Company's business, financial condition and results of operations. Therefore,
the Company has developed contingency plans with respect to possible problems it
has already identified, and expects to continue to develop contingency plans, as
the testing and implementation phases near completion so that it can continue
operations in the event such problems arise. However, there can be no assurance
that such contingency plans will be sufficient to handle all of the problems,
which may arise.

FACTORS AFFECTING THE COMPANY'S PROSPECTS

In addition to other information in this report, certain risk factors should be
considered carefully in evaluating the Company and its business. The following
supplements the risk factors set forth in the Annual Report on Form 10-K for the
year ended December 31, 1998, as amended by a Form-10K/A filed on April 30,
1999. The Company may have difficulty enforcing the terms and conditions of its
agreements with certain persons who manage some of the Company's operating
centers ("Brand Managers"). Brand Managers manage the business of the companies
they owned prior to each of such company's purchase by the Company under
compensation and incentive agreements, known as "Brand Manager Agreements". Each
Brand Manager is responsible for maximizing the revenues and profit margins of
the business of his or her previously owned company. The Brand Manager Agreement
provides that the Company can terminate the Agreement under certain limited
conditions based on performance. During the first quarter of 1999, the Company
attempted to convert a number of the Brand Manager Agreements into center
manager contracts, which would have provided for a new compensation and
incentive structure based on the pre-tax performance of an entire operating
center. The Company has discontinued this initiative. While a majority of the
Brand Managers now manage consolidated centers and not just the business of
their previously owned companies, the original Brand Manager Agreements remain
in place. The Company is presently attempting to renegotiate the Brand Manager
Agreements to more closely reflect the current goals and strategic objectives of
the Company and the integration of the various acquisitions into consolidated
operating centers since the initial public offering in February 1998. There can
be no assurance that the Company will be able to renegotiate the Brand Manager
Agreements, or terminate in a timely manner any Brand Manager who is not
performing as required, or negotiate appropriate levels of compensation for
Brand Managers. The Company's failure to resolve these issues could have a
material adverse impact on the Company's business, financial condition and
results of operations.


                                       18
<PAGE>

Item 3: Quantitative and Qualitative Disclosure about Market Risk

The Company is exposed to market risk, i.e. the risk of loss arising from
adverse changes in interest rates and foreign currency exchange rates.

Interest Rate Exposure

The Company has not entered into interest rate protection agreements on
borrowings under its Credit Agreement, but may do so in the future. A one
percent change in interest rates on variable rate debt would increase interest
expense by $0.7 million per annum based upon the amount of the Company's
variable rate debt outstanding at September 30, 1999.

Foreign Exchange Exposure

Significant portions of the Company's operations are conducted in Australia, New
Zealand and the United Kingdom. Exchange rate fluctuations between the US
dollar/Australian dollar, US dollar/New Zealand dollar and US dollar/pound
sterling result in fluctuations in the amounts relating to the Australian, New
Zealand, and United Kingdom operations reported in the Company's consolidated
financial statements.

The Company has not entered into hedging transactions with respect to its
foreign currency exposure, but may do so in the future.

PART II. OTHER INFORMATION

Item 5. Other Information

Effective September 2, 1999, the Company's shares of Common Stock were listed on
the American Stock Exchange ("AMEX") and are no longer listed on the Nasdaq
National Market System ("NASDAQ").

Item 6. Exhibits and Reports on Form 8-K

On July 29, 1999, the Company filed a Form 8-K reporting a change in independent
accountants.


                                       19
<PAGE>

                                   SIGNATURES

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.

                                              DISPATCH MANAGEMENT SERVICES CORP.


Date: November 3, 1999                        By:  /s/ Marko Bogoievski
                                                   -----------------------------
                                                       Marko Bogoievski
                                                       Chief Financial Officer



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<PAGE>

                                INDEX TO EXHIBITS

   Exhibit
   Number                           Description

   27.1                  Financial data schedule


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