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 March 31, 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 May 10, 1999, there were 11,921,404 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 March 31, 1999

     Consolidated  Statements of Operations for the Three Months ended March 31,
     1998 and 1999

     Consolidated  Statements of Cash Flows for the Three Months ended March 31,
     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 1. Legal Proceedings.

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

Signatures

Exhibit Index


                                       2
<PAGE>


                       DISPATCH MANAGEMENT SERVICES CORP.

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


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

Cash and cash equivalents ...................................   $   3,012    $   4,707
Accounts receivable, less allowances of $4,416 and $2,788 ...      36,416       34,924
Prepaid and other expenses ..................................       1,890        1,235
Income tax receivable .......................................       2,784        2,442
                                                                ---------    ---------
          Total current assets ..............................      44,102       43,308

Property and equipment, net .................................       8,851        8,354
Deferred financing costs, net ...............................       1,501        1,390
Intangible assets,  primarily  goodwill,  net of amortization
   of $3,186 and $4,457 .....................................     154,923      156,712

Notes receivable ............................................       9,002        6,546
Other assets ................................................       1,031          861
Deferred income taxes .......................................         291          291
                                                                ---------    ---------
          Total assets ......................................   $ 219,701    $ 217,462
                                                                =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Bank overdrafts .............................................   $   2,944    $   1,523
Current portion of long-term debt ...........................         900        2,400
Accounts payable ............................................       5,758        5,658
Accrued liabilities .........................................      13,356       13,914
Accrued payroll and related expenses ........................       5,527        5,395
Income tax payable ..........................................       1,817        2,680
Capital lease obligations ...................................         886          759
Acquisition-related notes payable, current portion ..........       7,207        5,844
                                                                ---------    ---------
          Total current liabilities .........................      38,395       38,173

Long-term debt ..............................................      70,600       72,250
Acquisition-related notes payable ...........................       5,337        4,053
Other long-term liabilities .................................       5,996        5,242
                                                                ---------    ---------
          Total liabilities .................................     120,328      119,718
                                                                ---------    ---------

Commitments and contingencies

Stockholders' equity
  Common stock, $.01 par 100,000,000 shares authorized;
     11,817,634 and 11,921,404 shares issued and outstanding          118          119
Additional paid-in capital ..................................     117,686      117,992
Value of stock to be issued .................................       3,197        2,890
Accumulated deficit .........................................     (21,523)     (22,859)
Accumulated other comprehensive loss ........................        (105)        (398)
                                                                ---------    ---------
          Total stockholders' equity ........................      99,373       97,744
                                                                ---------    ---------
          Total liabilities and stockholders' equity ........   $ 219,701    $ 217,462
                                                                =========    =========
</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
                                                                ------------------
                                                                     March 31
                                                                     --------
                                                               1998            1999
                                                          ------------    ------------
<S>                                                       <C>             <C>         
Net revenue ...........................................   $     24,316    $     57,129
Cost of revenue .......................................         15,029          35,414
                                                          ------------    ------------
  Gross profit ........................................          9,287          21,715

Selling, general and administrative expenses ..........          7,530          18,796
Depreciation and amortization .........................            706           1,946
                                                          ------------    ------------
  Income from operations ..............................          1,051             973

Interest expense ......................................            228           1,868
Acquired in-process research and development ..........            700            --
Other expense (income) ................................             82              (4)
                                                          ------------    ------------
Income (loss) before income tax provision .............             41            (891)
Income tax provision ..................................             73             445
                                                          ------------    ------------
  Loss before extraordinary item ......................            (32)         (1,336)

Extraordinary loss on early extinguishment of debt ....           (713)           --
                                                          ------------    ------------

  Net loss ............................................   $       (745)   $     (1,336)
                                                          ============    ============

Loss per common share - basic and diluted

  Loss before extraordinary item ......................   $       --      $      (0.11)
  Extraordinary item ..................................          (0.11)           --
                                                          ------------    ------------
Net loss ..............................................   $      (0.11)   $      (0.11)
                                                          ============    ============

Weighted average shares outstanding (basic and diluted)      6,806,285      11,921,404
                                                          ============    ============
</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>
                                                                                                           Three months ended,
                                                                                                           -------------------
                                                                                                                 March 31
                                                                                                                 --------
                                                                                                           1998              1999
                                                                                                         --------          --------

<S>                                                                                                      <C>               <C>      
Cash flows from operating activities:
  Net loss .....................................................................................         $   (745)         $ (1,336)
  Adjustments  to  reconcile  net loss to net cash (used in) provided by
     operating activities
     Depreciation ..............................................................................              404               687
     Amortization of goodwill and other intangibles ............................................              302             1,259
     Amortization of deferred finance costs ....................................................               --               111
     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 ................................................................           (5,933)            2,489
            Prepaid expenses and other current assets ..........................................            6,668               863
            Accounts payable and accrued liabilities ...........................................           (3,024)           (1,280)
                                                                                                         --------          --------

            Net cash (used in) provided by operating activities ................................             (915)            2,793

Cash flows from investing activities:
  Cash used in acquisitions, net of cash acquired ..............................................          (62,692)           (3,054)
  Additions to property and equipment ..........................................................           (1,180)             (190)
                                                                                                         --------          --------

            Net cash used in investing activities ..............................................          (63,872)           (3,244)

Cash flows from financing activities:
  Proceeds from initial public offering, net ...................................................           76,276
  Proceeds from bank borrowings ................................................................                              3,150
  Principal payments on long and short-term obligations ........................................           (8,110)             (711)
                                                                                                         --------          --------

            Net cash provided by (used in) financing activities ................................           68,166             2,439

Effect of exchange rate changes on cash and cash equivalents ...................................               61              (293)
                                                                                                         --------          --------

Net increase in cash and cash equivalents ......................................................            3,440             1,695

Cash and cash equivalents, beginning of period .................................................              354             3,012

Cash and cash equivalents, end of period .......................................................         $  3,794          $  4,707
                                                                                                         ========          ========
</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

                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

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 (each, together with the software firm, 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.  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.

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions that affect the reported amounts of assets, liabilities,  sales
     and expenses. Actual results could differ from these estimates.

     The Company's financial  statements have been prepared on the basis that it
     will continue as a going concern,  which  contemplates  the  realization of
     assets  and  the  satisfaction  of  liabilities  in the  normal  course  of
     business.  The ability to continue as a going concern is  dependent,  among
     other things, upon the Company achieving profitable results from operations
     and maintaining positive cash flow from operations.

     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.  As described in Note 4, the Company  entered
     into a definitive  Amended and Restated Credit  Agreement with  NationsBank
     N.A. and a syndicate of senior lenders. The amended facility has a maturity
     date of May 31,  2000,  and provides for revised  financial  covenants  and
     other  provisions.  The Company intends to enter into negotiations with its
     group of lenders  during the second  quarter of 1999 to extend the maturity
     of the syndicated  senior credit facility beyond May 31, 2000. There can be
     no assurances that the Company will be successful in negotiating a maturity
     date beyond May 31, 2000.

     During the three months ended March 31, 1999,  the senior  management  team
     has  established  a number of  strategic  priorities  designed to stabilize
     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 front-end and back-end systems, as well as enhanced cost control
     and reporting mechanisms.

     The  Company has also  recently  executed a number of  structural  changes,
     including  the  appointment  of  four  new  independent  directors  to  the
     Company's  Board and the creation of a United  States  regional  management
     team designed to oversee and support the 22 metropolitan operating centers.


                                       6
<PAGE>


     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 an extension of its senior credit facility
     terms beyond its maturity date of May 31, 2000.

2.   Initial Public Offering

     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 approximately $76,276.

     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 $713, 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  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, Australia and New Zealand. 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.

     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 three months ended March 31, 1999,  goodwill associated with the
     1998  acquisitions  increased  by  $3,060,   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 (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  facility  leases  assumed by the Company.  Amounts  accrued
     represent  management's  estimate  of the cost to exit the  facilities  and
     equipment leases.

     The changes in the  Acquisition  Liabilities  during the three month period
     ended March 31, 1999 were as follows:

                                               Severance      Lease
                                               Liability    Liability     Total
                                               ---------    ---------     -----

     Balance  December 31, 1998 ..............  $ 195        $ 666        $ 861
     Additions ...............................                  11           11
     Utilization .............................    (11)         (96)        (107)
                                                =====        =====        =====
     Balance March 31, 1999 ..................  $ 184        $ 581        $ 765
                                                =====        =====        =====

                                       7
<PAGE>

     Pro Forma Financial Information

     The following  unaudited  condensed pro forma financial  information of the
     Company  for the  three-month  period  ended March 31,  1998  includes  the
     combined  operations of the Company,  and the 1998  Acquisitions  as if the
     Offering and the acquisitions had occurred on January 1, 1998.


                                                              Three months ended
                                                                 March 31, 1998
                                                              ------------------
     Net revenue                                                    $51,751
     Income before extraordinary item                               $   423

     Per share data:
       Income before extraordinary item - basic                     $  0.04

     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'   stockholders  and  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 dates  indicated  or of the results
     which may be realized in the future.

4.   Senior Credit Facility

     In February  1998,  the Company  obtained a $25 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
     2.50% and 1.50% 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 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 million senior credit facility. In August,
     1998,  Nations Bank led a syndication for a $105 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
     equal to the current  outstanding  indebtedness,  or $78.5  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
     May 31, 2000, with minimum  principal  payments of $900 and $1,500 required
     in 1999 and the first quarter of 2000, respectively.  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 initial pricing level between April
     8,  1999 and June 30,  1999 will be at LIBOR + 4.00% (30 Day LIBOR at March
     31, 1999 was 5.0%).


                                       8
<PAGE>


     Borrowings  under the line of credit are  secured by a first lien on all of
     the business 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 the first
     fiscal quarter 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 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 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
     ratios,  defined as EBITDA as a ratio to cash interest expense.  The Credit
     Agreement  also  limits or  prohibits  (i) the amount of  indebtedness  the
     Company  can incur,  (ii) the amount of  equipment  the  Company can lease,
     (iii) the liens, pledges and guarantees that can be granted by the Company,
     (iv) the amount of cash dividends that can be declared by the Company,  (v)
     certain capital  expenditures,  and (vi) the sale of stock of the Company's
     subsidiaries.  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 1998 acquisitions.

     The Company  paid $1,664 in  financing  fees during  1998,  which have been
     deferred and are being amortized over the term of the Credit Agreement. The
     Company amortized $111 of the deferred finance fees during the three months
     ended March 31,  1999.  Interest  expense  incurred on the senior bank debt
     during the three months ended March 31, 1999 amounted to $670.

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.

     Changes in  stockholders'  equity and  comprehensive  loss during the three
     months ended March 31, 1999 were as follows:

<TABLE>
<CAPTION>
                                                        Stockholders' Comprehensive
                                                           Equity         Loss
                                                        ------------- -------------
<S>                                                       <C>         <C>      
     Stockholders' equity at December 31, 1998            $ 99,373

     Comprehensive loss:
       Net loss                                             (1,336)   $ (1,336)
       Foreign currency translation  adjustment               (293)       (293)
                                                          --------    --------
       Total                                                (1,629)   $ (1,629)
                                                          --------    --------
     Stockholders'  equity  balance  at March  31, 1999   $ 97,744
                                                          ========
</TABLE>

7.   Loss per Share

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


                                       9
<PAGE>


<TABLE>
<CAPTION>
                                                           Three months ended
                                                                March 31,
                                                                ---------
                                                           1998            1999
                                                      ------------    ------------
<S>                                                   <C>             <C>          
     BASIC AND DILUTED LOSS PER SHARE:

         Loss before extraordinary item               $        (32)   $     (1,336)
         Extraordinary loss on early
           extinguishment of debt                             (713)
                                                      ------------    ------------

         Net loss                                     $       (745)   $     (1,336)
                                                      ============    ============

         Weighted average shares outstanding (basic
             and diluted)                                6,806,285      11,921,404
                                                      ============    ============

        Loss before extraordinary item                $      (0.00)   $      (0.11)
         Extraordinary loss on early
           Extinguishment of debt                            (0.11)
                                                      ------------    ------------
           Net loss per share                         $      (0.11)   $      (0.11)
                                                      ============    ============
</TABLE>

8.   Recent Accounting Pronouncements

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
     Instruments and Hedging  Activities."  SFAS No. 133 is effective for fiscal
     years   beginning  after  June  15,  1999  and  defines  a  derivative  and
     establishes  common  accounting  principles  for all  types  of  derivative
     financial  instruments.  The Company is currently  evaluating the impact if
     any, of SFAS No.133.

9.   Litigation

     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 1997,  the  Company  was served with a claim for unpaid
     monthly fees due under the full term of each respective service agreement.

     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  approximately  $5.2  million as an estimate of the
     liability with respect to these cases at March 31, 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,  after consulting with
     legal counsel, 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.

10.  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 three months ended March 31,
     1999:


                                       10
<PAGE>

<TABLE>
<CAPTION>
     Three months ended                              United 
       March 31, 1999          North America         Kingdom       Australasia               Total
       --------------          -------------         -------       -----------               -----

<S>                              <C>                 <C>               <C>                  <C>     
     Net Revenue                 $ 33,110            19,912            4,107                $ 57,129
                                                                                           
     Operating (loss) income     $   (888)            1,640              221                $    973
                                                                                           
     Identifiable assets         $ 36,643            21,370            2,737                $ 60,750
                                                                                           
     Capital expenditures        $     72                79               39                $    190
                                                                                           
     Depreciation                $    478               186               23                $    687
</TABLE>
                                                                  

<TABLE>
<CAPTION>
     Three months ended                              United 
       March 31, 1999          North America         Kingdom       Australasia               Total
       --------------          -------------         -------       -----------               -----

<S>                              <C>                 <C>               <C>                  <C>     

     Net Revenue                  $16,109             7,995              212                 $24,316
                                                                                            
     Operating income             $   245               774               32                 $ 1,051
                                                                                            
     Identifiable assets          $42,150            12,717              275                 $55,142
                                                                                            
     Capital expenditures         $   921               249               10                 $ 1,180
                                                                                            
     Depreciation                 $   301                95                8                 $   404
</TABLE>

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".


                                       11
<PAGE>


Introduction

The  following  discussion of the  Company's  results of  operations  and of its
liquidity  and  capital  resources  should  be  read  in  conjunction  with  the
consolidated  financial  statements of the Company and the related notes thereto
appearing  elsewhere  herein.  All dollar  amounts are  expressed in  thousands,
except for per share data.

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.

Management does not believe that a period-to-period comparison of the results of
operations of the Company whose consolidated  financial  statements are included
elsewhere  in this  report  would be  meaningful.  Prior to the  Initial  Public
Offering on February 11, 1998, the Company conducted no operations other than in
connection  with the Offering  and the  Combinations  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.

Results of Operations

<TABLE>
<CAPTION>
                                               Three months ended    Three months ended
                                                 March 31, 1998        March 31, 1999
                                               ------------------    ------------------
<S>                                            <C>         <C>       <C>         <C>   
Net revenue                                    $ 24,316    100.0%    $ 57,129    100.0%
Costs of revenue                                 15,029     61.8       35,414     62.0
                                               --------    -----     --------    -----
 Gross profit                                     9,287     38.2       21,715     38.0

Selling, general and
  Administrative                                  7,530     31.0       18,796     32.9
Depreciation and amortization                       706      2.9        1,946      3.4
                                               --------    -----     --------    -----
  Operating income                                1,051      4.3          973      1.7

Interest and other expense, net                     310      1.2        1,864      3.3
Acquired in-process research and development        700      2.9
                                               --------    -----     --------    -----

Income (loss) before income taxes and
  and extraordinary item                             41      0.2         (891)    (1.6)

Provision for income taxes                           73      0.3          445      0.8
                                               --------    -----     --------    -----
Loss before extraordinary item                 $    (32)    (0.1)    $ (1,336)    (2.4)
                                               ========    =====     ========    =====
</TABLE>

Net Revenue

Net  revenue  for the  quarter-ended  March 31,  1999 was $57.1  million.  These
revenues  were  predominantly  earned  from  Point-to-Point   delivery  services
throughout the United States, the United Kingdom, Australia and New Zealand. For
the quarter-ended  March 31, 1999, net revenues  generated in the United States,
the United Kingdom, and Australasia were $33.1 million,  $19.9 million, and $4.1
million, respectively.  Following certain acquisitions, the Company re-priced or
ceased providing certain services which failed to meet required margin criteria,
or were not pure  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 quarter-ended March 31, 1999 was $35.4 million, or 62.0%
of the Company's revenues. Cost of revenue percentages in the United States, the
United  Kingdom,  Australia  and New Zealand  vary  considerably  as a result of
different compensation  structures,  the proportion of owner-operated  vehicles,
benefit plans, and the mix of business.



                                       12
<PAGE>


For the quarter-ended March 31, 1999, cost of revenue percentages for the United
States,   United  Kingdom  and  Australasia   were  60.8%,   63.8%,  and  62.9%,
respectively.  Cost of revenue  percentages were positively  impacted during the
first quarter by the benefits associated with the continued physical integration
of a number of previously  independent courier fleets. As at March 31, 1999, the
Company still had a comprehensive courier fleet integration program remaining to
execute. This program is expected to be substantially completed during 1999.

Selling, General and Administrative Costs

Selling,  general and administrative  costs for the quarter-ended March 31, 1999
were $18.8 million, or 32.9% of the Company's net revenues. Selling, general and
administrative  percentages in the United States, the United Kingdom,  Australia
and New  Zealand  vary  considerably  as a  result  of the  degree  of  physical
integration,  different compensation structures and the mix of business. For the
quarter-ended  March 31, 1999, selling,  general and administrative  percentages
for the United States,  United Kingdom,  and Australasia were 37.0%,  26.7%, and
29.8%,  respectively.  Selling,  general  and  administrative  percentages  were
positively  impacted during the first quarter by an aggressive  cost-cutting and
overhead reduction program that commenced in February 1999.

Combined 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 March 31, 1999,  the Company had $4.7  million in cash and cash  equivalents,
$74.7  million of senior  bank  debt,  and $9.9  million of short and  long-term
acquisition-related  debt. Net cash provided from  operating  activities for the
quarter  ended  March 31,  1999 was $2.8  million.  Net cash  used in  investing
activities  and  provided  by  financing  activities  was $3.2  million and $2.4
million, respectively for the quarter ended March 31, 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,   Australia  and  New  Zealand.   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.  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 performance
goals are met, is approximately  $10.2 million, of which $3.5 million is payable
in cash and $6.7  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  approximately  $0.2  million in the three months
ended March 31, 1999,  primarily for office and computer equipment.  The Company
expects to make capital  expenditures of approximately  $1.0 million during 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 the
DMS Model requires investment in local operating centers.  Management  presently
anticipates that such additional capital  expenditures will total  approximately
$4.3 million over the next two years,  including  approximately  $1.8 million of
computer equipment,  $1.3 million of communications  equipment, and $1.2 million
of leasehold improvements.



                                       13
<PAGE>


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 million  senior credit  facility.  In August 1998,
Nations Bank led a syndication for a $105 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.

fubsequent 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 forebearance  agreement that deferred  certain lender  remedies
pending a restructuring of the senior credit  facility.  As described in Note 4,
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  equal to the current
outstanding  indebtedness at March 31, 1999, or $78.5 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 May 31,  2000,  although
minimum principal payments of $900 and $1,500 are required in 1999 and the first
quarter of 2000,  respectively.  The Company intends to enter into  negotiations
with the group of  lenders  during  the  second  quarter  of 1999 to extend  the
maturity of the syndicated senior credit facility beyond May 31, 2000. There can
be no assurances  that the Company will be successful in  negotiating a maturity
date beyond May 31, 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 initial  pricing  level between April 8,
1999 and June 30,  1999 will be at LIBOR + 4.00% (30 Day LIBOR at March 31, 1999
was 5.0%).

Borrowings under the line of credit are collateralized by a first lien on all of
the business assets of 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 the first fiscal quarter 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 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 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 ratios,  defined as EBITDA as a ratio
to cash interest expense.  The Credit Agreement also limits or prohibits (i) the
amount of indebtedness  the Company can incur,  (ii) the amount of equipment the
Company can lease,  (iii) the liens,  pledges and guarantees that can be granted
by the Company,  (iv) the amount of cash  dividends  that can be declared by the
Company,  (v) certain  capital  expenditures,  and (vi) the sale of stock of the
Company's subsidiaries. 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 1998 acquisitions.

Pursuant to the Credit Agreement, the Company expects to write-off approximately
$850,000 of deferred  financing  fees  related to the previous  Credit  Facility
dated June 11, 1998, in the second quarter of 1999.

The Company  believes that cash flow from  operations will be sufficient to fund
the  Company's  operations  and the revised  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 it's current  obligations,  ii) complying
with the financial covenants  described in the senior credit facility,  and iii)
negotiating an extension of the senior credit facility beyond it's maturity date
of May 31, 2000.  Given the current  senior credit  facility  restrictions,  the
Company is unlikely to pursue further acquisition  opportunities during the next
12 to 18 months.


                                       14
<PAGE>


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". 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 is addressing its most critical  internal  systems first,  including the
Company's proprietary capture and dispatch system ("KIWI"),  and targets to have
them Year 2000  compliant by September 1, 1999.  The Company is also  addressing
all major categories of information  technology and  non-information  technology
systems in use by the Company, including customer service, dispatch and finance.

The Company plans to use both  internal and external  resources to reprogram and
test the  software for Year 2000  modifications.  The cost of this and all other
efforts  to  achieve  Year 2000  compliance  is  estimated  to be less than $1.0
million.  To date,  the Company's  expenses have been mostly limited to internal
costs.  External expenditure for Year 2000 compliance in the quarter ended March
31, 1999 was $100. The Company has not separately  tracked internal costs, which
were primarily  associated with payroll costs.  The Company expects future costs
to be funded by internally generated funds. The Company has begun to communicate
with 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 the new 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 expects to develop
contingency plans, as the testing and implementation phases near completion, for
continuing 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.

Recently Issued Accounting Pronouncements

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities." SFAS No. 133 is effective for fiscal years
beginning  after June 15, 1999 and defines a derivative and  establishes  common
accounting  principles for all types of derivative  financial  instruments.  The
Company is currently evaluating the impact if any, of SFAS No.133.

Inflation

The Company does not believe  that  inflation  has had a material  effect on the
Company's  results  of  operations  nor  does  it  believe  it will do so in the
foreseeable future.

Potential Fluctuations in Quarterly Operating Results

The Company may experience  significant  quarter to quarter  fluctuations in its
results of operations. Quarterly results of operations may fluctuate as a result
of a variety  of  factors  including,  but not  limited  to,  the  timing of the
integration of the acquired companies and their conversion to the DMS Model, the
demand for the Company's  services,  the timing and introduction of new services
or service enhancements by the Company or its competitors, the market acceptance
of new services,  competitive  conditions  in the industry and general  economic
conditions.  As a result, the Company believes that 


                                       15
<PAGE>


period to period  comparisons of its results of operations  are not  necessarily
meaningful  or  indicative  of the  results  that the Company may achieve in any
subsequent quarter or full year.

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.  This report
contains forward-looking statements, which involve risks and uncertainties.  The
Company's actual results could differ materially from those anticipated in these
forward-looking  statements as a result of certain factors,  including those set
forth in the Annual  Report for the year ended  December  31, 1998 filed on Form
10-K and elsewhere in this report.

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 facility, but may do so in the future. A one percent
change in interest rates on variable rate debt would increase  interest  expense
by $747 based upon the variable rate debt outstanding at March 31, 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 1. Legal Proceedings

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 1997, the Company was served with a claim for unpaid monthly fees due under
the full term of each respective service agreement.

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  approximately  $5.2  million as an  estimate  of the
liability with respect to these cases at March 31, 1999.


                                       16
<PAGE>


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,  after consulting with legal counsel,  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.

Item 6. Exhibits and Reports on Form 8-K

None.



                                       17
<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:  May 12, 1999                           By: /s/ Marko Bogoievski 
                                                  ------------------------------
                                                  Marko Bogoievski
                                                  Chief Financial Officer


                                       18
<PAGE>

                                INDEX TO EXHIBITS

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

    27.1                 Financial data schedule