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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended December 31, 1998
                                       or
                [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                         OF THE SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number 0-26390

                               CELERIS CORPORATION
             (Exact name of registrant as specified in its charter)
     
                  MINNESOTA                                41-1545493
       (State or other jurisdiction of                  (I.R.S. Employer
       incorporation or organization)                  Identification No.)
     
          1801 WEST END AVENUE, SUITE 750
               NASHVILLE, TENNESSEE                            37203
     (Address of principal executive offices)               (Zip Code)

       Registrant's telephone number, including area code: (615) 341-0223


        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                          COMMON STOCK, $.01 PAR VALUE
                                (Title of Class)

         Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding twelve 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 [ ]

         The aggregate market value of the common stock held by non-affiliates
of the registrant at March 19, 1999 was $ 7,945,730 based on the last sale price
for the Common Stock as quoted on the Nasdaq National Market on that date.

         As of March 19, 1999 there were 9,419,429 shares of the registrant's
common stock outstanding.

         DOCUMENTS INCORPORATED BY REFERENCE: Pursuant to General Instruction
G(3), the responses to Items 10, 11 and 12 of Part III of this report are
incorporated herein by reference from the Company's definitive proxy statement
for its 1999 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission on or before April 15, 1999.

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

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                                     PART I
ITEM 1.     BUSINESS

OVERVIEW

Celeris Corporation ("Celeris" or the "Company") is a provider of specialty
clinical research services to pharmaceutical, medical device and biotechnology
manufacturers. The Company's select services include regulatory consulting and
clinical studies management, investigative site identification and recruitment,
clinical monitoring staffing, data management and biostatistical consulting. In
its service areas, the Company focuses on services that expedite and streamline
clinical trials and regulatory submissions for new drugs, devices and other
regulated healthcare products. These services accelerate specific functions
within clinical trials and new product submissions which often become
bottlenecks for manufacturers seeking regulatory clearance to market new
products. Delays in obtaining regulatory clearance for new products can result
in significant lost revenues and increased expenses for manufacturers. As a
consequence, manufacturers have increasingly outsourced clinical research
functions to organizations, such as the Company, that can offer expertise and
services which speed the product development process.

CLINICAL RESEARCH OUTSOURCING AND INDUSTRY TRENDS

New pharmaceutical, medical device and biotechnology products undergo extensive
clinical testing and regulatory review to determine their safety and efficacy.
Manufacturers seeking approval for these products are often responsible for
performing and analyzing pre-clinical and multi-phase clinical trials.
Historically, manufacturers primarily used in-house personnel to conduct these
trials. In recent years, manufacturers have begun to outsource clinical trials
to clinical research organizations ("CROs"). Outsourcing of clinical research
has been done for a variety of reasons: (i) cost containment efforts have lead
companies to seek ways to reduce overhead, turning fixed costs into variable
costs; (ii) the increasingly complex nature and size of research trials requires
greater expertise, which may not be found in-house; (iii) the need to reduce the
time it takes get a product through the Food and Drug Administration ("FDA")
approval process; and (iv) the growth of smaller niche companies, particularly
in the biotechnology and medical device industries, which lack internal
resources to complete the approval process.

Industry analysts' estimates of worldwide research and development expenditures
by the pharmaceutical, medical device and biotechnology industries were
approximately $40 billion in 1998, of which approximately $26 billion was spent
on clinical trials. Of that amount, industry analysts estimate approximately $4
billion was outsourced to CROs. In recent years, it has been estimated that the
amount of research dollars being outsourced has increased at a rate of
approximately 12% annually. The Company believes this trend will continue as
manufacturers strive to enhance their revenues through faster product
development while containing their costs. The CRO industry assists companies in
this regard by providing a higher level of expertise or specialization than
would be available in-house, capability to perform product development
activities more quickly, and the opportunity to convert the fixed costs required
to maintain in-house resources into variable costs through outsourcing.

In recent years, a number of CROs have emerged as large, full service providers
of a broad range of product development services on a global basis. Their
strategy is to provide a turnkey approach to meet the product development needs
of manufacturers. These organizations typically maintain offices in multiple
countries and employ hundreds or even thousands of individuals. Many of the
large CROs have sustained significant growth rates over the past several years,
produced either by internal expansion, strategic acquisitions of other
organizations that provided geographic expansion, new therapeutic expertise, or
broader service capabilities, or by a combination thereof. While successful, the
larger CROs may not meet the needs of some pharmaceutical, biotechnology and
medical device manufacturers for a variety of reasons, including a preference on
the part of some manufacturers to work with smaller, more client-focused
organizations.

This unfulfilled need has contributed to the emergence of smaller niche 
providers, who are focused on providing specific services within the product
development process, or who specialize in one or more therapeutic areas.
Services provided by these organizations, including those provided by the
Company, may be utilized by product development organizations directly or by
other CROs. These organizations range in size from a few hundred employees to
sole proprietorships. Overall, the CRO industry is highly fragmented with
several hundred CROs in existence.

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BUSINESS STRATEGY

The Company's overall strategy is to offer select clinical research services to
pharmaceutical, medical device and biotechnology manufacturers in areas that
accelerate the product development process.

Among medical device and biologics manufacturers, the Company believes that it
has a reputation as a high quality provider of regulatory consulting services.
Many of the Company's regulatory consulting professionals are former senior
managers from the FDA and the medical industry. To date, the Company has served
over 500 clients. In addition, the Company believes the product development
needs of manufacturers within the medical device and biologics industries have
been overlooked by the CRO industry as a whole, and therefore, is expanding its
capabilities to offer a wider array of services to these clients, including
clinical trial management.

The Company has also begun to address certain areas that it believes cause
delays in the product development process for pharmaceutical and biotechnology
manufacturers. Those areas include investigative site selection and
qualification, clinical monitoring staffing services, data management and
biostatistical consulting.

Investigative Site Selection and Qualification. In order to conduct clinical
trials, sponsoring manufacturers must identify, qualify and enroll patients in
the trial based on certain pre-established criteria. Trial sponsors recruit
investigative sites to screen and recruit qualified patients, administer the
study protocol and collect required data. Depending on the size and complexity
of the trial and the number of sites and patients required, this process may
take a significant amount of time. The Company is developing a system to address
delays in the selection and recruitment of investigative sites. The Company
pre-qualifies investigative sites for participation in clinical trials in
specific therapeutic areas. In the pre-qualification process, the Company
establishes the site's regulatory compliance for participation in clinical
trials and identifies groups of patients who meet criteria for inclusion in
clinical trials in various therapeutic areas. The Company will assist the site
in managing the administrative portion of the trials in which it participates,
allowing the physician to focus on patient care. For its services, the Company
will receive a portion of the grant paid to the investigative site by the study
sponsor.

Clinical Monitoring Staffing Services. The clinical research process requires
highly trained, experienced individuals. The CRO industry's rapid growth over
recent years has made for a very competitive environment regarding the hiring,
training and retention of employees which has, in many cases, resulted in a high
employee turnover rate throughout the industry. Throughout the life of a
clinical study, significant employee turnover can dramatically impact data
quality and FDA submission timelines, resulting in increased costs. To assist
product development organizations and CROs in identifying qualified resources,
the Company is providing experienced clinical monitors on a contract basis to
both product development organizations and to CROs. These individuals possess a
number of years recent experience monitoring trials in multiple therapeutic
areas, strong interpersonal skills, and a demonstrated ability to work
independently.

Data Management and Biostatistical Consulting. Clinical trials produce large
amounts of data that must be properly collected, entered into databases and
analyzed. This process can be inefficient, particularly when it involves the use
of antiquated systems or the merging of large data sets housed on disparate
systems. To address these issues, the Company has invested in a state-of-the-art
database management system that will allow for the efficient replication and
upload of sponsor data sets. The Company believes use of the system provides a
competitive advantage as a number of product development companies use the same
database system. In addition, the Company is also experienced in the collection
and integration of disparate data sets. As the size and complexity of clinical
trials grows, data sets within a particular protocol or set of protocols may be
generated using different systems making it cumbersome to analyze and compare
study results. The Company's experience in this area allows it to assist clients
in the efficient integration of data sets suitable for statistical analysis and
submission to regulatory authorities. The Company believes the demand for data
integration will continue to grow due in part to the growth in new product
development coupled with increased licensing activity and joint ventures between
product development organizations.

SERVICES

Regulatory Consulting. Through its subsidiary, C.L. McIntosh & Associates
("CLMA"), Celeris provides regulatory consulting services, primarily to medical
device and biologic manufacturers. The Company assists 

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manufacturers in obtaining and maintaining FDA clearance to market their
products and to comply with all applicable FDA regulations. There are five
consulting groups within CLMA as described below.

         Medical Device Evaluation. The Medical Device Evaluation Group provides
         medical device manufacturers with strategic planning, preparation and
         review services related to various FDA submissions, such as IDEs,
         510(k)s, PMAs and INDs, for clearance to market new medical products.
         In doing so, this group may prepare the entire regulatory submission or
         individual sections, or review the client's submission for potential
         FDA issues and completeness. Additionally, the group will represent and
         advise clients in meetings with FDA reviewers and advisory panels.

         Statistics. The Statistics Group provides comprehensive statistical
         consulting related to clinical study design and protocol development,
         database design, programming and validation, data analysis and report
         preparation. This groups also assists clients in their interactions
         with and presentations to the FDA.

         Clinical Studies. The Clinical Studies Group provides consultative
         services related to medical device and biotechnology clinical studies,
         as well as an array of clinical study and trial management services.
         This group offers protocol development, management of clinical
         investigations, clinical study monitoring, auditing and database
         development and management.

         Biologics. The Biologics Group provides regulatory and product
         development strategy, submission preparation and review, FDA
         interaction, and clinical trial design to companies which produce blood
         and blood-related products, biologic therapeutic agents (recombinant
         proteins from cell culture and from transgenic sources), monoclonal
         antibodies, classical and biotech-derived vaccines, and cell and gene
         therapies.

         Quality Systems and Compliance. The Quality Systems and Compliance
         Group provides consultative services to clients with medical device and
         radiation-emitting electronic products regarding GMP (Good
         Manufacturing Practices) and QSR (Quality System Regulations). This
         group also consults on issues related to electronic product radiation
         safety performance standards, product certification processes, recalls,
         responses to FDA inspections, complaint handling systems and other
         record-keeping and reporting requirements.

In addition to the services described above, the Company began to expand its
service offerings in 1998 to address certain needs of pharmaceutical and
biotechnology manufacturers. The new service offerings are described below.

Investigative Site Selection and Qualification. Celeris provides pre-qualified
investigative sites for clinical trials and assists the sites in managing the
administrative procedures related to the execution of study protocols. Services
provided by this group also include centralized collection of regulatory
documents, patient population evaluation, transcription of source documents and
audit support.

Clinical Monitoring Staffing Services. Celeris provides experienced clinical
monitors to assist in the execution of clinical study protocols and the
collection of data. The Company provides this service for both short and long
term assignments to research sponsors or other CROs.

Data Management and Biostatistical Consulting. Celeris designs, implements and
manages clinical study databases and assists with the data collection process.
The Company also consolidates and integrates data from multiple study protocols,
platforms and legacy systems for a variety of uses including product
submissions, ISS/ISE filings, NDAs, PMAs and future analysis.

SALES AND MARKETING, CUSTOMERS AND COMPETITION

Sales and Marketing. Marketing of the Company's regulatory consulting services
is focused primarily on medical device and biologics manufacturers located in
the United States. The previous FDA and industry experience of the senior
consultants is critical to the Company's sales and marketing strategy. The
Company works to generate repeat business primarily by providing quality
services to its clients. New client leads are generated through participation in
medical industry seminars and exhibits, as well as direct mail and advertising
campaigns. In 1998, the Company

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also hired an experienced business development representative to market the
Company's regulatory and clinical study consulting services directly to medical
device and biologics manufacturers.

To market its new service offerings, the Company has hired an experienced
business development manager to build a sales team focused on selling services
to pharmaceutical and biotechnology manufacturers who have a track record of
outsourcing clinical research services and who the Company believes can benefit
from its particular services.

Customers. To date, the Company has served over 500 medical device and
biotechnology manufacturers. The Company's customer base is primarily in the
United States, with less than 10% of its customers being located in foreign
countries. Within these firms, the Company works with various individuals
including medical and scientific personnel, regulatory affairs professionals,
and business executives. The Company has clients in a broad array of medical
specialties, with a strong presence in the cardiovascular, ophthalmology and
biologics markets. During 1998, revenues from Mentor Corporation and Guidant 
Corporation accounted for 13.2% and 10.7%, respectively, of the Company's 
consolidated revenues. The Company anticipates that, in the future, these 
clients or other clients may account for greater than ten percent of its 
consolidated revenues, depending on the product development plans for each 
client, each client's continued use of outside clinical research services and 
the Company's ability to retain each client's business.

Competition. The Company competes in a large and highly fragmented industry
which consists of a broad array of companies ranging from large, publicly traded
organizations to sole proprietorships. The Company primarily competes against
in-house research and development departments of product development
manufacturers and other CROs, some of which possess substantially greater
capital, technical and other resources than the Company. CROs compete in a
variety of areas, including previous client experience, expertise in particular
services or therapeutic areas, the quality of services performed, financial
viability and price.

GOVERNMENT REGULATION

The clinical investigation of new pharmaceutical, biotechnology and medical
device products is highly regulated by governmental agencies. The purpose of
United States federal regulations is to ensure that only those products which
have been proven to be safe and effective are made available to the public. The
FDA has set forth regulations and guidelines that pertain to applications to
initiate trials of products, approval and conduct of studies, report and record
retention, informed consent, applications for the approval of new products and
post-marketing requirements. Pursuant to FDA regulations, CROs that assume
obligations of a drug sponsor are required to comply with applicable FDA
regulations and are subject to regulatory action for failure to comply with such
regulations. In the United States, the historical trend has been in the
direction of increased regulation by the FDA.

The services provided by the Company are ultimately subject to FDA regulation in
the United States and comparable agencies in other countries, although the level
of applicable regulation in other countries is generally less comprehensive than
regulation present in the United States. The Company is obligated to comply with
FDA regulations governing such activities as selecting qualified investigators,
obtaining required forms from investigators, verifying that patient informed
consent is obtained, monitoring the validity and accuracy of data, verifying
drug/device accountability and instructing investigators to maintain records and
reports. The Company must also maintain records for each study for specified
periods for inspection by the study sponsor and the FDA during audits. If such
audits document that the Company has failed to adequately comply with Federal
regulations and guidelines, it could have a material adverse effect on the
Company. In addition, the Company's failure to comply with applicable
regulations could possibly result in termination of ongoing research or the
disqualification of data, either of which could also have a material adverse
effect on the Company, including, without limitation, damage to the Company's
reputation.

EMPLOYEES

As of February 28, 1999, the Company had 72 full-time employees. The Company's
performance depends on its ability to attract, develop, motivate and retain
qualified professional, scientific and technical staff. There is significant
competition for employees with the skills required to perform the services
offered by the Company from other CROs as well as from the in-house research
departments of pharmaceutical, medical device and biotechnology companies. The
Company's employees are not covered by collective bargaining agreements. The
Company has experienced no work stoppages and believes its relations with its
employees to be good.

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DISCONTINUED OPERATIONS

On June 10, 1998 the Company announced its intent to transition out of the
healthcare provider software market and focus its resources on its clinical
research services segment. On December 24, 1998 the Company completed the sale
of the healthcare provider software segment. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," for
further discussion of discontinued operations.

CAUTIONARY STATEMENT AND RISK FACTORS

This Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include statements regarding intent, belief, or
current expectations of the Company and its management related to the business,
financial condition, liquidity, results of operations or prospects of the
Company. Such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties that may cause the Company's
actual results to differ materially from the results expressed or implied by the
forward-looking statements. The risk factors set forth below, among others, in
the context of a forward-looking statement means that any one of the factors may
cause actual results to differ materially from those implied by such
forward-looking statements. These risk factors are in addition to any other
cautionary statements, written or oral, which may be made or referred to in
connection with any such forward-looking statement.

The Company May Continue to Incur Net Losses

The Company has incurred substantial net losses since its formation. Net losses
for the year ended December 31, 1998 were $12.65 million, and the accumulated
deficit at that date was $55.42 million. The Company's ability to increase
revenue will depend on a number of factors, including expanding its regulatory
and clinical studies consulting services and developing its new models for
clinical research services. The Company also anticipates increased operating
expenses for personnel to expand services. As a result, the Company expects that
it will continue to experience operating losses through at least 1999. The
Company's ability to achieve profitability and positive cash flow in future
periods will depend on its ability to control costs and to keep increases in
expenditures below growth in revenue, if any. The Company cannot predict whether
it will generate sufficient revenues, or adequately control costs, to achieve
profitability or positive cash flow.

The Company's Ability to Increase Revenue from Clinical Research Services Is
Uncertain

The Company is seeking to increase revenue by expanding its clinical research
service offerings. To date, the Company has generated only modest revenue from
these new service offerings and has a limited operating history in the clinical
research services market on which to base expectations for future performance.
Accordingly, the ability to expand the Company's presence in this market
successfully is uncertain. The Company faces several obstacles to expanding its
share of the clinical research service offerings, including:

-  competition from established competitors, many of which have superior market
   acceptance and greater experience with clinical research services;
-  difficulty of creating the required corporate organization for this market;
   and
-  difficulty of differentiating the Company's clinical research services from
   those offered by competitors.

The Company cannot predict whether its clinical research services will overcome
these obstacles and achieve market acceptance. Failure to achieve market
acceptance for the expanded clinical research services could have a material
adverse effect on the business, financial condition, results of operations and
prospects of the Company.

The Company Will Experience Fluctuations in Quarterly Operating Results

The Company's quarterly operating results may fluctuate significantly because of
several factors, including the commencement or completion of significant
contracts, delays in implementing or completing particular clinical trials and
terminations of clinical trials. Due to the relatively fixed nature of most
costs, including personnel and facilities costs, any unanticipated shortfall in
revenue in any fiscal quarter would have an adverse effect on the results of
operations in that quarter. In general, quarterly revenue is difficult to
forecast because many of the Company's services have been recently introduced,
which makes forecasting demand for, and revenue from, these services uncertain.
As a result of the foregoing factors, it is possible that in some future
quarters results of

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operations will be below the expectations of public market analysts and
investors. In such event, the price of the Company's common stock could be
adversely affected.

The Company Depends on Certain Industries

The Company's revenue is highly dependent upon the research and development
expenditures of the pharmaceutical, medical device and biotechnology industries
and the use of outside clinical research services by these industries. The
Company's operations could be materially and adversely affected by a general
economic decline in these industries or by any reduction in their research and
development expenditures or in the outsourcing of clinical research services.

The Company Operates in a Highly Competitive Industry

The market for clinical research services offered by the Company is highly
competitive. The Company competes against traditional clinical research
organizations, the in-house research and development departments of sponsor
companies, as well as universities and teaching hospitals. Most of these
competitors have established market positions and greater capital, technical and
other resources than the Company. The Company also competes against consulting
firms offering regulatory consulting services. Increased competition may lead to
price and other forms of competition that may affect margins.

Large Contracts May Be Terminated or Delayed

Most of the Company's contracts are terminable by the client. Clients
terminate or delay contracts for a variety of reasons, including, among others,
the failure of products being tested to satisfy safety requirements, unexpected
or undesired clinical results of the product, the client's decision to forego a
particular study, such as for economic reasons, insufficient patient enrollment
or investigator recruitment or production problems resulting in shortages of the
drug being tested. In addition, the Company believes that cost-containment and
competitive pressures have caused sponsor companies to apply more stringent
criteria to the decision to proceed with clinical trials and, therefore, may
result in a greater willingness of these companies to cancel contracts with
clinical research organizations. The loss or delay of a large contract or the
loss or delay of multiple contracts could have a material adverse effect on the
Company's financial performance.

The Company May Experience Operational Difficulties

Expansion in the clinical research services market will place a strain on
operational, human and financial resources. In order to manage such expansion,
the Company must continue to improve operating, administrative and information
systems, accurately predict future personnel and resource needs to meet client
contract commitments, track the progress of ongoing client projects, and attract
and retain qualified management, professional, scientific and technical
operating personnel. Failure to meet the demands of the expansion of the
business could have a material adverse effect on the Company.

The Company Depends on Government Regulation

The clinical research industry depends on the comprehensive government
regulation of the product development process. In the United States, the general
trend has been in the direction of continued or increased regulation, although
the FDA recently announced regulatory changes intended to streamline the
approval process for biotechnology products by applying the same standards that
are in effect for conventional drugs. Changes in regulation, including a
relaxation in regulatory requirements or the introduction of simplified drug
approval procedures, as well as anticipated regulation, could materially and
adversely affect the demand for the services offered by the Company. In
addition, failure to comply with applicable regulations could result in the
termination of ongoing research or the disqualification of data, either of which
could have a material adverse effect on the Company.

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The Company Is a Defendant in Shareholder Litigation

The Company is a defendant in IN RE SUMMIT MEDICAL SYSTEMS, INC. SECURITIES
LITIGATION, a consolidated federal court securities action venued in the United
States District Court, District of Minnesota. The putative class action was
filed on March 10, 1997 and alleges violations of Section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5,
Section 20(a) of the Exchange Act, Section 11 of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 15 of the Securities Act. The
Company is also a defendant in a federal court securities action captioned
TEACHERS' RETIREMENT SYSTEM OF LOUISIANA V. SUMMIT MEDICAL SYSTEMS, INC. ET. AL.
The Teachers' Retirement action was filed on April 16, 1997 in the United States
District Court, District of Minnesota and is not a class action. In addition to
the claims alleged in the consolidated action, the Teachers' Retirement
complaint alleges a claim under Section 18(a) of the Exchange Act, common law
fraud, and negligent misrepresentation. Each action alleges, in essence, that
the Company made misleading public disclosures relating to its financial
statements and seeks compensatory damages for losses incurred as a result of
each alleged misleading public disclosure. As to federal securities law claims,
both actions are subject to the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). The actions do not state the monetary damages that are being
sought at this time. The Company intends to defend against these actions
vigorously. There can be no assurance that any judgement, order or decree
against the Company arising out of these actions will not have a material
adverse effect on the Company or its business.

The Company Is Subject to a Securities and Exchange Commission Investigation

The Division of Enforcement of the Securities and Exchange Commission (the
"Commission") is conducting an investigation relating to the Company's
restatement of certain financial statements in 1997. The Company is cooperating
fully with the Commission and its investigation. The Company cannot predict
whether any order, decree or other action issued or taken by the Commission
arising out of its investigation will not result in sanctions which could have a
material adverse effect on the Company or certain individuals.

The Company May Not Have Directors' and Officers' Insurance Coverage for
Litigation Liabilities

The insurance underwriters of the Company's former directors' and officers'
insurance policies have denied coverage for costs and liabilities related to the
pending shareholder litigation and Securities and Exchange Commission
investigation. The insurance underwriters have filed a declaratory relief action
seeking to affirm this denial. The Company is opposing this action and has filed
a counterclaim to enforce coverage under this policy. If the insurance
underwriters are successful in this action, the insurance underwriters would not
be responsible for any potential losses resulting from an adverse judgement on,
or settlement of, the shareholder litigation, or for the Company's expenses
related to the defense of directors and officers in connection with this
litigation, which could have a material adverse effect on the Company.

The Company May Experience Different Results Than Expected Related to
Discontinued Operations

Future collections of the proceeds from the sale of the assets of the
discontinued healthcare provider software segment are based on performance of
those assets in accordance with the agreement. In addition, the Company has
retained certain liabilities related to the discontinued operations. Failure of
assumptions regarding the performance of the assets or the estimated remaining
liability amounts of the discontinued operations could have a material adverse
effect on the Company.

ITEM 2.  PROPERTIES

The Company leases approximately 13,000 square feet for its corporate
headquarters in Nashville, Tennessee; approximately 15,500 square feet for its
office in Rockville, Maryland; and approximately 16,000 square feet for its
office in Morrisville, North Carolina. The Company believes that the space
leased is adequate for the Company's operations and that the leases generally
reflect market rates in their respective geographic locations. The expiration
dates of the leases range from 2001 to 2003.

Effective March 1, 1999 the Company assigned the lease agreement for its 34,000
square feet of office space in Minneapolis, Minnesota. Upon this assignment, the
Company has no further obligations related to this lease.

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ITEM 3.     LEGAL PROCEEDINGS

The Company is a defendant in IN RE SUMMIT MEDICAL SYSTEMS, INC. SECURITIES
LITIGATION, a consolidated federal court securities action venued in the United
States District Court, District of Minnesota. The putative class action was
filed on March 10, 1997 and alleges violations of Section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5,
Section 20(a) of the Exchange Act, Section 11 of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 15 of the Securities Act. The
Company is also a defendant in a federal court securities action captioned
TEACHERS' RETIREMENT SYSTEM OF LOUISIANA V. SUMMIT MEDICAL SYSTEMS, INC. ET. AL.
The Teachers' Retirement action was filed on April 16, 1997 in the United States
District Court, District of Minnesota and is not a class action. In addition to
the claims alleged in the consolidated action, the Teachers' Retirement
complaint alleges a claim under Section 18(a) of the Exchange Act, common law
fraud, and negligent misrepresentation. Each action alleges, in essence, that
the Company made misleading public disclosures relating to its financial
statements and seeks compensatory damages for losses incurred as a result of
each alleged misleading public disclosure. As to federal securities law claims,
both actions are subject to the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). The actions do not state the monetary damages that are being
sought at this time. The Company intends to defend against these actions
vigorously. There can be no assurance that any judgement, order or decree
against the Company arising out of these actions will not have a material
adverse effect on the Company or its business.

The Division of Enforcement of the Securities and Exchange Commission (the
"Commission") is conducting an investigation of the Company, relating to the
Company's restatement of certain financial statements. The Company is
cooperating fully with the Commission and its investigation. There can be no
assurance that any order, decree or other action issued or taken by the
Commission arising out of its investigation will not result in sanctions against
the Company or certain individuals that could have a material adverse effect on
the Company or its business.

The Company and certain of the Company's directors and officers are defendants
in a declaratory relief action, DAVID FOSTER ET. AL. V. SUMMIT MEDICAL SYSTEMS,
INC. ET. AL., venued in the District Court of Hennepin County, Minnesota. The
action was initiated on August 7, 1998 and seeks a declaration that there is no
coverage under the Company's directors' and officers' insurance policies for the
Company's pending federal securities actions or the investigation by the
Commission. The plaintiffs, the insurance underwriters of the Company's
directors' and officers' insurance policies, allege that the claims the Company
has submitted for coverage involve matters commenced before the period covered
by the policies. Additionally, the plaintiffs allege that the Commission's
investigation does not constitute a proper claim under the policies. The Company
believes the plaintiffs' request for declaratory judgment misinterprets the
Company's directors' and officers' insurance policy. The Company intends to
oppose this action vigorously and has filed a counterclaim to enforce coverage
under the policy, including advancement of expenses. There can be no assurance
that any order, decree or declaration arising out of this matter will not have a
material adverse effect on the Company or its business.

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

None.

                                       8
<PAGE>   10



                                     PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
            MATTERS

The Company's Common Stock is Listed on The Nasdaq Stock Market ("Nasdaq") under
the symbol "CRSC". On March 19, 1999 the last reported sale price for the Common
Stock on Nasdaq was $ 1.09. As of March 19, 1999 the Company had approximately
178 holders of record of the Common Stock and the Company estimates an
additional 1,900 beneficial owners. The following table shows the high and low
sales prices for the Common Stock as reported by Nasdaq for the periods
indicated.

<TABLE>
<CAPTION>
                                         HIGH                     LOW
                                         ----                     ---
<S>                                     <C>                     <C>   
1997
     First quarter                      $ 7.88                  $ 3.25
     Second quarter                     $ 3.38                  $ 2.44
     Third quarter                      $ 2.75                  $ 1.88
     Fourth quarter                     $ 3.81                  $ 1.50

1998
     First quarter                      $ 3.56                  $ 1.44
     Second quarter                     $ 5.13                  $ 2.06
     Third quarter                      $ 2.88                  $ 1.00
     Fourth quarter                     $ 1.50                  $ 0.63
</TABLE>

The Company has paid no dividends since its inception date.

ITEM 6.     SELECTED FINANCIAL DATA

The consolidated statements of operations data set forth below for each of the
three years ended December 31, 1998, 1997 and 1996 and the consolidated balance
sheet data at December 31, 1998 and 1997 are derived from, and are qualified by
reference to, the audited consolidated financial statements included elsewhere
in this Annual Report on Form 10-K. The consolidated statements of operations
data for the years ended December 31, 1995 and 1994 and the consolidated balance
sheet data at December 31, 1996, 1995 and 1994 are derived from audited
consolidated financial statements of the Company not included herein. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's Consolidated Financial Statements and related Notes, and other
financial information included elsewhere herein. All prior period amounts have
been restated for discontinued operations.


                                       9
<PAGE>   11


<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31
                                                    -------------------------------------------------------
                                                       1998        1997       1996        1995       1994
                                                    -------------------------------------------------------
                                                           (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S>                                                 <C>         <C>         <C>         <C>         <C>    
Revenue                                             $  5,783    $  5,102    $  3,671    $  3,895    $ 2,698

Costs of sales                                         4,028       3,424       2,100       2,077      1,991
                                                    --------    --------    --------    --------    -------

  Gross profit                                         1,755       1,678       1,571       1,818        707

General and administrative expenses                    5,068       2,767       2,390       1,707        919
                                                    --------    --------    --------    --------    -------

  Loss from operations                                (3,313)     (1,089)       (819)        111       (212)

Interest income, net                                   1,199       1,946       1,888         575         81
                                                    --------    --------    --------    --------    -------

  Income (loss) from continuing operations            (2,114)        857       1,069         686       (131)

Discontinued operations:
     Loss from discontinued operations                (4,707)    (19,902)    (13,905)     (9,710)    (1,042)
     Loss on disposal of discontinued operations      (5,832)          -           -           -          -
                                                    --------    --------    --------    --------    -------
     Total discontinued operations                   (10,539)    (19,902)    (13,905)     (9,710)    (1,042)
                                                    --------    --------    --------    --------    -------
  Net loss                                          $(12,653)   $(19,045)   $(12,836)   $ (9,024)   $(1,173)
                                                    ========    ========    ========    ========    =======

Basic income (loss) per common share:
       Continuing operations                        $  (0.22)   $   0.08    $   0.11    $   0.10    $ (0.03)
       Discontinued operations                         (1.10)      (1.94)      (1.48)      (1.49)     (0.21)
                                                    --------    --------    --------    --------    -------
                                                    $  (1.32)   $  (1.86)   $  (1.37)   $  (1.39)   $ (0.24)
                                                    ========    ========    ========    ========    =======
Diluted income (loss) per common share:
       Continuing operations                        $  (0.22)   $   0.08    $   0.11    $   0.10    $ (0.03)
       Discontinued operations                         (1.10)      (1.84)      (1.39)      (1.38)     (0.21)
                                                    --------    --------    --------    --------    -------
                                                    $  (1.32)   $  (1.76)   $  (1.28)   $  (1.28)   $ (0.24)
                                                    ========    ========    ========    ========    =======
Weighted average shares outstanding:
       Basic                                           9,574      10,259       9,399       6,513      4,930
       Diluted                                         9,574      10,812      10,016       7,069      4,930

Balance sheet data (end of period):
Cash, cash equivalents and short-term investments   $ 15,222    $ 27,996    $ 44,630    $ 22,921    $ 3,148
Working capital                                       11,192      24,226      41,707      24,276      2,924
Total assets                                          18,164      30,671      49,847      29,530      6,441
Long-term debt                                             -           -           -           8        147
Shareholders' equity                                  12,205      25,597      46,083      25,834      3,891
</TABLE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included in Item 8
of this Annual Report on Form 10-K. Except for the historical information
contained herein, the following discussion and analysis may contain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statement made in Item 1 of this Annual Report on Form 10-K should be
read as being applicable to all related forward-looking statements wherever they
appear in this discussion and analysis. The Company's results could differ
materially from those implied by the following discussion and analysis. Factors
that could cause or contribute to such differences include those discussed in
Item 1 of this Annual Report on Form 10-K under the caption "Cautionary
Statement and Risk Factors," as well as other factors discussed elsewhere
herein.

OVERVIEW

The Company is a provider of specialty clinical research services to
pharmaceutical, medical device and biotechnology manufacturers. Services offered
by the Company include regulatory consulting and strategy, device evaluation,
product and manufacturing quality assurance, statistical analysis and clinical
study design. In addition, 

                                       10

<PAGE>   12

in 1998 the Company expanded its service offerings to include investigative site
selection and qualification, clinical monitoring staffing services, data
management and biostatistical consulting.

On June 10, 1998 the Company announced its intent to transition out of the
healthcare provider software market and focus its resources on its clinical
research services segment. As a result of this decision, the Company recorded a
charge of $5.35 million in the second quarter of 1998 to dispose of the software
segment. This charge represented management's estimate of costs to exit the
software business, including employee severance and retention, facility
restructuring, operating losses through the disposal period and fulfillment of
remaining contractual obligations.

On December 24, 1998 the Company completed the sale of its healthcare provider
software segment. As consideration for the sale, the Company will receive a
total purchase price of up to $2,000,000, contingent upon the performance of the
assets and the buyer's costs to perform prepaid support and service obligations
after the closing. The Company has retained certain liabilities related to the
software segment including severance and retention liabilities, certain amounts
due under customer contracts and other liabilities related to the disposal of
the segment. In connection with the sale, the Company recorded a $483,000 loss
in the fourth quarter of 1998. The loss represents the net book value of assets
and liabilities transferred to the buyer, net of cash received at closing of
$200,000 and related transaction costs. The charge also includes the net effect
of a reassessment of the Company's retained obligations not transferred to the
buyer. The Company will record the remaining proceeds from the sale of the
software segment as gain on sale of discontinued operations in the period
collection is assured.

The financial position and results of operations of the healthcare provider
software segment are reported as discontinued operations and all prior period
amounts have been restated to reflect the discontinued operations. The financial
position and results of operations of the BSM Consulting Group and Medical
Information Systems Company, Inc., both sold in the third quarter of 1997, are
considered part of the healthcare provider software segment and are presented as
discontinued operations in 1997 and 1996.

RESULTS OF OPERATIONS

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

The Company incurred a net loss of $12.65 million, or $1.32 per diluted share,
for the year ended December 31, 1998 as compared to a net loss of $19.04
million, or $1.76 per diluted share, for the year earlier period. The 1998
results include a loss from continuing operations of $2.11 million, or $0.22 per
diluted share, and a loss from discontinued operations of $10.54 million, or
$1.10 per diluted share. The 1997 results include income from continuing
operations of $857,000, or $0.08 per diluted share, and a loss from discontinued
operations of $19.90 million, or $1.84 per diluted share.

Continuing operations. Revenue from continuing operations for the year ended
December 31, 1998 was $5.78 million compared to $5.10 million for the year
earlier period, an increase of 13.4%. This increase in revenue resulted
primarily from a higher volume of consulting services performed.

Cost of sales were $4.03 million for the 1998 period, or 69.7% of revenue,
compared to $3.42 million for the 1997 period, or 67.1% of revenue. This
increase in cost of sales as a percentage of revenue is primarily the result of
the addition of client service personnel related to the Company's expanded
service offerings throughout 1998. As these service offerings remained in a
start-up phase, these personnel did not provide any significant billable client
services in 1998. These additional resources have had and will continue to have
a negative effect on operating margins until such time the individuals are
utilized as billable resources.

General and administrative expenses were $5.07 million, or 87.6% of revenue, for
the 1998 period compared to $2.77 million, or 54.2% of revenue, for the 1997
period. This increase in general and administrative expenses as a percentage of
revenue is primarily due to the addition of salaries, benefits and other
overhead costs associated with the Company's expanded service offerings. At the
end of 1998, the Company had in place a significant portion of the
infrastructure necessary to support the expanded service offerings. The Company
does not anticipate future general and administrative expense growth rates to
reach 1998 levels.


                                       11

<PAGE>   13

Interest income for the 1998 period was $1.20 million compared to $1.95 million
for the 1997 period as the Company's cash and cash equivalents balance,
including short-term investments, decreased to $15.22 million at December 31,
1998 from $28.0 million at December 31, 1997.

Discontinued operations. The Company incurred losses from the discontinued
operations of its healthcare provider software segment of $10.54 million for the
1998 period, which included charges for disposal of discontinued operations of
$5.35 million recorded in the second quarter related to the decision to exit the
healthcare provider software market and $483,000 recorded in the fourth quarter
related to the sale of the assets of the software segment. The loss from
discontinued operations of $4.71 million in the 1998 period represents results
of operations of the discontinued business segment through June 30, 1998. Losses
for the period July 1, 1998 to December 24, 1998 (the date the assets of the
discontinued segment were sold) were accrued in conjunction with the $5.35
million charge discussed above. For the 1997 period, the loss from discontinued
operations was $19.90 million, which included $10.05 million in various special
charges related the Company's 1996 revenue restatement and 1997 restructuring.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

The Company incurred a net loss of $19.04 million, or $1.76 per diluted share,
for the year ended December 31, 1997 as compared to a net loss of $12.84
million, or $1.28 per diluted share, for the year earlier period. The 1997
results include income from continuing operations of $857,000 or $0.08 per
diluted share, and a loss from discontinued operations of $19.90 million, or
$1.84 per diluted share. The 1996 results include income from continuing
operations of $1.07 million, or $0.11 per diluted share, and a loss from
discontinued operations of $13.90 million, or $1.39 per diluted share.

Continuing operations. Revenue from continuing operations for the year ended
December 31, 1997 was $5.10 million compared to $3.67 million for the year
earlier period, an increase of 39.0%. This increase in revenue resulted
primarily from a higher volume of consulting services performed.

Cost of sales were $3.42 million for the 1997 period, or 67.1% of revenue,
compared to $2.10 million for the 1996 period, or 57.2% of revenue. The increase
in cost of sales as a percentage of revenue is primarily related to the addition
of higher cost billable resources during 1997 to meet client demand.

General and administrative expenses were $2.77 million, or 54.2% of revenue, for
the 1997 period compared to $2.39 million, or 65.1% of revenue, for the 1996
period. This decrease in general and administrative expenses as a percentage of
revenue is primarily due to revenue growth during 1997 in excess of general and
administrative resources added to meet growth.

Interest income for the 1997 period was $1.95 million compared to $1.89 million
for the 1996 period.

Discontinued operations. The Company incurred a loss from the discontinued
operations of its healthcare provider software segment of $19.90 million for the
1997 period compared to $13.90 million for the 1996 period. The 1997 period
included special charges of $10.05 million related to the Company's 1996 revenue
restatement and 1997 restructuring.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents, including short-term investments,
totaled $15.22 million as of December 31, 1998, a decrease of $12.77 million
from December 31, 1997. This decrease was primarily due to a) $8.58 million used
in discontinued operations, b) $2.39 million used in continuing operating
activities, c) $1.02 million used for the purchase of equipment and fixtures,
principally computer and computer systems equipment, and d) $837,000 used to
repurchase shares of the Company's stock.

As of December 31, 1998 the Company had net working capital of $11.19 million,
compared to $24.23 million at December 31, 1997. This decrease resulted
primarily from net losses of $12.65 million incurred during the year ended
December 31, 1998 which included charges on the disposal of discontinued
operations of $5.83 million. 

                                       12

<PAGE>   14

Management anticipates the Company will continue to experience operating losses
into 1999, and as a result, it believes working capital will continue to
decline.

As of December 31, 1998, the Company had $1.52 million in accounts receivable,
net of bad debt allowance, related to continuing operations compared to $1.10
million as of December 31, 1997. The Company believes its current allowance of
$172,000 for bad debts is adequate.

As of December 31, 1998, the Company had remaining liabilities of $4.26 million
related to the disposal of the discontinued operations. The Company expects to
pay these liabilities during 1999. Additionally, the Company is due up to $1.80
million at various dates during 1999 under the terms of the agreement for the
sale of the assets of the discontinued healthcare provider software segment. The
consideration from the sale is payable in the form of $1,000,000 cash, of which
$200,000 was paid at closing on December 24, 1998 and the remainder of which is
payable in four equal cash payments of $200,000 to be made at the end of each
fiscal quarter of the fiscal year ending December 31, 1999. At the closing, the
buyer also delivered to the Company a $1,000,000 non-interest bearing promissory
note (the "Note") due and payable on the earlier of December 24, 1999 or the
date on which the buyer closes an equity financing of at least $3,000,000. The
Note is subject to adjustment in the event that the amount of service fees and
similar charges to customers of the Company's healthcare provider software
segment that was billed during the twelve-month period ending March 31, 1999 and
is paid and collected on or before September 25, 1999 (the "Anniversary
Revenue") is less than $2,000,000; provided that the principal amount of the
Note may not be reduced by more than $500,000. If the Note is paid in full prior
to September 25, 1999, the Company will reimburse the buyer for any shortfall in
collected fees and charges, up to a $500,000 maximum. The Company has also
agreed to reimburse the buyer in three installments through June 30, 1999 for
the performance of prepaid support and service obligations on assigned contracts
totaling $500,000; provided that if the Anniversary Revenue exceeds $2,000,000,
the Company's reimbursement obligation will be reduced by the amount of the
excess up to a maximum of $500,000.

The Company's Board of Directors has authorized a stock repurchase program under
which up to 2.0 million shares of the Company's common stock may be repurchased.
From inception of the stock repurchase program in August 1997 through December
31, 1998, the Company has repurchased 1,134,600 shares of common stock for
approximately $2.86 million. As of December 31, 1998, there were 9,419,429
shares of the Company's common stock issued and outstanding.

The Company anticipates 1999 capital expenditures will be approximately $1.0
million primarily for computer and computer-related equipment and software
associated with the Company's expanded clinical research services as well as
capital expenditures required for new employees.

The Company believes that continued expenditure of funds will be necessary to
support its future operations, and that cash and cash equivalents, including
short-term investments, of $15.22 million on hand at December 31, 1998 will be
sufficient to fund its operations, capital requirements, and expansion goals
through 1999. However, there can be no assurances that the Company will generate
sufficient revenue, or adequately control costs, to achieve profitability or
positive cash flow for periods into and beyond 1999. If the Company cannot
achieve profitability or positive cash flow, or if its contingencies result in
material expenditures, the Company may require additional external financing in
the future. There can be no assurances that such financing will be available on
terms acceptable to the Company.

The Company has experienced net losses for each of the past five years. Net
losses for the year ended December 31, 1998 were $12.65 million. The Company had
an accumulated deficit of $55.42 million as of December 31, 1998. The Company's
ability to increase revenue, and to achieve profitability and positive cash flow
will depend on a number of factors as summarized in Item 1 of this Annual Report
on Form 10-K under the caption "Cautionary Statement and Risk Factors."

Year 2000 Issue. The Company is currently evaluating the potential effect of the
situation commonly referred to as the "Year 2000 Issue," which involves the
inability of certain software and hardware systems to properly recognize and
process dates for the year 2000 and beyond. The Company, with the assistance of
outside consultants, has developed and is implementing a plan to evaluate the
Company's internal systems and material third-party relationships. 

                                       13

<PAGE>   15

The Company has paid third parties approximately $175,000 on Year 2000 testing,
auditing, and modifications or upgrades through December 31, 1998. The costs of
Year 2000 compliance have been and will be expensed as incurred. Additionally,
the Company expects to spend approximately $55,000 on these efforts to complete
its Year 2000 compliance procedures.

The Company's internal information technology ("IT") systems and non-IT systems
use hardware and software supplied by third-party vendors. The Company is
currently evaluating Year 2000 compliance of the third-party hardware and
software, including obtaining Year 2000 compliance statements from the vendors.
To date, the Company has substantially completed the review of its hardware and
software systems. Based on this review, the Company does not expect to incur
material costs to upgrade or replace its hardware or software systems. However,
the estimates of costs to complete Year 2000 compliance procedures are based, in
part, on compliance statements received from third-party vendors of the
Company's hardware and software systems. Subsequent revisions to these
compliance statements by third-party vendors could result in revised estimated
costs to complete Year 2000 compliance measures. The Company can not predict
whether these revisions, if any, will be material.

The Company expects to complete substantially its Year 2000 readiness
preparations by June 1999. However, unforeseen circumstances could prevent a
timely completion of all necessary Year 2000 compliance measures. The Company
believes that adequate alternatives are available for information processing
should necessary upgrades or replacements not occur in a timely manner.

The Company's clinical research services, particularly its data management
services, will depend on the use of third-party software. The Company is
obtaining certification of Year 2000 compliance from the vendors of software
used in its services. Any failure or delay of this software to be Year 2000
compliant could cause a material disruption in the Company's business. The
Company's contingency plan should this software fail to be Year 2000 compliant
is to seek modifications from the vendors of this software in order for it to be
Year 2000 compliant. In addition, the Company depends on infrastructure services
provided by third parties and government agencies (e.g. electricity, phone
service, water and transportation). The failure of one or more of these
infrastructure services could cause a material disruption in the Company's
business.

The Company ended all expenditures on Year 2000 testing of its healthcare
provider software products upon the sale of these assets on December 24, 1998.
In connection with the sale of the assets of the Company's healthcare provider
software segment, the Company made certain representations regarding Year 2000
compliance of the Company's software products and agreed to indemnify the buyer
against losses related to a breach of representations and certain third-party
claims related to the operation of the assets prior to the sale. Although the
Company's tests and audits of these software products prior to the asset sale
did not indicate any issues with Year 2000 compliance, if an issue with Year
2000 compliance by these products were to arise, the Company could face claims
under its indemnification obligations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents and short-term investments. The
Company invests its cash and cash equivalents and short-term investments in
investment grade, highly liquid investments, consisting of money market
instruments, U.S. Treasury bills, U.S. Treasury notes, commercial paper and
discounted notes and does not believe these investments are subject to material
market risks. In addition, all of the Company's transactions are conducted and
accounts are denominated in U.S. dollars. Accordingly, the Company is not
exposed to foreign currency risks.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and related supplementary data of the Company as of and
for the year ended December 31, 1998 begin on page F-1 of this Annual Report on
Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

On June 2, 1997, the Company advised Ernst & Young LLP ("Ernst & Young") that
the Company was discontinuing Ernst & Young's services as the Company's
independent accountants. The Company subsequently 

                                       14

<PAGE>   16

engaged Arthur Andersen LLP ("Arthur Andersen") as the Company's independent
public accountants on June 10, 1997. The decisions to discontinue Ernst & Young
and to engage Arthur Andersen were unanimously approved by the Board of
Directors of the Company.

As previously disclosed by the Company, the Company's management, Ernst & Young
and outside legal counsel began an investigation of the Company's accounting
practices in March 1997. The outside legal counsel to the Company also retained
Arthur Andersen to assist in the investigation. As a result of the
investigation, the Company disclosed restatements of previously reported
financial position and results of operations for the years 1994 and 1995 and the
nine months ended September 30, 1996 as part of its Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, filed with the Securities and
Exchange Commission on April 4, 1997. Amounts restated in the years 1994 and
1995 and the nine months ended September 30, 1996 related only to amounts
subsequently reclassified as discontinued operations as a result of the
Company's decision to exit the healthcare provider software market. Amounts
currently reported as continuing operations in the financial statements of the
Company were not affected by this restatement.

Ernst & Young's reports on the financial statements of the Company for the
fiscal years ended December 31, 1994, 1995 and 1996 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.

To the knowledge of the present executive management and the Board of Directors
of the Company, in connection with the audits of the Company's financial
statements for each of the three fiscal years ended December 31, 1994, 1995 and
1996, there were no disagreements with Ernst & Young on any matters of
accounting principles or practices, financial statement disclosure or auditing
scope and procedure which, if not resolved to the satisfaction of Ernst & Young,
would have caused Ernst & Young to make reference to the matter in its reports.

                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 1999 Annual Meeting of
Shareholders.

ITEM 11.      EXECUTIVE COMPENSATION

Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 1999 Annual Meeting of
Shareholders.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning this Item is incorporated herein by reference to the
Company's definitive proxy materials for the Company's 1999 Annual Meeting of
Shareholders.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


                                     PART IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1)  Financial Statements of the Company and its subsidiaries required to be
         included in Part II, Item 8 begin on page F-1 of this Annual Report on
         Form 10-K.

                                       15
<PAGE>   17



(a) (2) and (d)   Schedule II -Valuation and Qualifying Accounts is located on
                  page S-1 of this Annual Report on Form 10-K.

(a) (3) and (c)   Exhibits.

<TABLE>
<CAPTION>
EXHIBIT NO.                        DESCRIPTION
-----------                        -----------
<S>               <C>
*3.1              Restated Articles of Incorporation of the Company, as amended

 3.2              Amendment to Articles of Incorporation of the Company for 
                  name change

*3.3              Bylaws of the Company

 4.1              Form of Certificate for Common Stock

*10.1             Summit Medical Systems, Inc., 1993 Stock Option Plan

*10.2             Summit Medical Systems, Inc., 1995 Non-Employee Director Stock
                  Option Plan

**10.3            First and Second Amendment to Summit Medical Systems, Inc.,
                  1993 Stock Option Plan

***10.4           Employment Agreement between Summit Medical Systems, Inc., 
                  C. L. McIntosh & Associates, Inc. and Charles L. McIntosh dated
                  December 31, 1996

***10.5           Employment Agreement between Summit Medical Systems, Inc. and
                  Donald F. Fortin dated December 31, 1996

****10.6          Third Amendment to Summit Medical Systems, Inc., 1993 Stock
                  Option Plan

****10.7          Fourth Amendment to Summit Medical Systems, Inc., 1993 Stock
                  Option Plan

****10.8          Employment Agreement dated October 6, 1997 between Summit
                  Medical Systems, Inc. and Barbara A. Cannon

*****10.9         Asset Purchase Agreement, dated November 25, 1998, between
                  Velos Medical Informatics, Inc. and Summit Medical Systems,
                  Inc.

23.1              Consent of Arthur Andersen LLP

23.2              Consent of Ernst & Young LLP

27.1              Financial Data Schedule (for SEC use only) - Year Ended 
                  December 31, 1998

27.2              Restated Financial Data Schedule (for SEC use only) - Year
                  Ended December 31, 1997
</TABLE>

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

*                 Incorporated by reference to the Company's Registration
                  Statement on Form S-1 (File No. 33-93700).

**                Incorporated by reference to the Company's Current Report on
                  Form 8-K filed January 14, 1997 (File No. 0-26390).

***               Incorporated by reference to the Company's Annual Report on
                  Form 10-K/A for the year ended December 31, 1996 (File No.
                  0-26390).

                                       16

<PAGE>   18

****              Incorporated by reference to the Company's Annual Report on
                  Form 10-K for the year ended December 31, 1997 (File No.
                  0-26390)

*****             Incorporated by reference to the Company's Current Report on
                  Form 8-K dated January 8, 1999 (File No. 0-26390)

(b)    No reports on Form 8-K were filed during the quarter ended December 31,
       1998.

                                       17
<PAGE>   19


                                   SIGNATURES

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


         Date:  March 30, 1999         CELERIS CORPORATION


                                       By         /s/ BARBARA A. CANNON
                                         ---------------------------------------
                                                      BARBARA A. CANNON
                                          President and Chief Executive Officer

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


<TABLE>
<CAPTION>
                SIGNATURE                                           TITLE                               DATE
                ---------                                           -----                               ----
<S>                                                <C>                                             <C> 
            /s/ JOHN M. NEHRA                      Chairman of the Board                           March 30, 1999
-------------------------------------------
              JOHN M. NEHRA

          /s/ BARBARA A. CANNON                    President and Chief Executive Officer           March 30, 1999
-------------------------------------------        and Director (principal executive
            BARBARA A. CANNON                      officer)
                                                   

           /s/ PAUL R. JOHNSON                     Vice President and Chief                        March 30, 1999
-------------------------------------------        Financial Officer and Secretary 
             PAUL R. JOHNSON                       (principal financial and 
                                                   accounting officer)
                                                   

        /s/ W. HUDSON CONNERY, JR.                 Director                                        March 30, 1999
-------------------------------------------
          W. HUDSON CONNERY, JR.

         /s/ RICHARD B. FONTAINE                   Director                                        March 30, 1999
-------------------------------------------
           RICHARD B. FONTAINE

           /s/ PETER T. GARAHAN                    Director                                        March 30, 1999
-------------------------------------------
             PETER T. GARAHAN

        /s/ ANDRE G. PERNET, PH.D.                 Director                                        March 30, 1999
-------------------------------------------
          ANDRE G. PERNET, PH.D.

            /s/ KENT J. THIRY                      Director                                        March 30, 1999
-------------------------------------------
              KENT J. THIRY
</TABLE>


                                       18
<PAGE>   20
                      CELERIS CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS


                                    CONTENTS



Consolidated Financial Statements:

<TABLE>
<S>                                                                                                        <C>
Consolidated Balance Sheets as of December 31, 1998 and 1997  .............................................F-2
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996  ...............F-3
Consolidated Statements of Shareholders' Equity for the Years
        Ended December 31, 1998, 1997 and 1996  ...........................................................F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996  ...............F-5
Notes to Consolidated Financial Statements  ...............................................................F-6

Reports of Independent Public Accountants  ................................................................F-15

Schedule II - Valuation and Qualifying Accounts  ..........................................................S-1
</TABLE>




                                      F-1
<PAGE>   21


                      CELERIS CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                   AS OF DECEMBER 31
                                                                           --------------------------------
                                                                               1998                1997
                                                                           ------------        ------------
<S>                                                                        <C>                 <C>         
             ASSETS
Current assets:
       Cash and cash equivalents                                           $  8,138,542        $  5,949,478
       Short-term investments                                                 7,083,851          22,046,671
       Accounts receivable, net of allowance of $172,000 and $59,000          1,516,712           1,103,555
       Other current assets                                                     412,360             199,487
                                                                           ------------        ------------
             Total current assets                                            17,151,465          29,299,191

Furniture, fixtures and equipment:
       Furniture and fixtures                                                   563,085             250,384
       Computer and telephone equipment                                         772,798             184,598
       Leasehold improvements                                                   234,599             115,725
                                                                           ------------        ------------
                                                                              1,570,482             550,707
       Less: accumulated depreciation                                          (557,496)           (361,676)
                                                                           ------------        ------------
                                                                              1,012,986             189,031

Long-term assets of discontinued operations                                           -           1,182,335
                                                                           ------------        ------------
             Total assets                                                  $ 18,164,451        $ 30,670,557
                                                                           ============        ============

       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
       Accounts payable and accrued expenses                               $  1,024,837        $  1,142,098
       Deferred revenue and payables                                            398,653             305,886
       Accrued compensation                                                     279,853             111,756
       Net current liabilities of discontinued operations                     4,256,332           3,513,527
                                                                           ------------        ------------
             Total current liabilities                                        5,959,675           5,073,267

COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)

SHAREHOLDERS' EQUITY:
       Common stock, $.01 par value - 40,553,333 shares
             authorized; 9,419,429 and 9,757,429 shares
             issued and outstanding                                              94,194              97,574
       Additional paid-in capital                                            67,528,819          68,264,965
       Accumulated deficit                                                  (55,418,237)        (42,765,249)
                                                                           ------------        ------------
             Total shareholders' equity                                      12,204,776          25,597,290
                                                                           ------------        ------------
             Total liabilities and shareholders' equity                    $ 18,164,451        $ 30,670,557
                                                                           ============        ============
</TABLE>

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



                                      F-2


<PAGE>   22

                      CELERIS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                              FOR THE YEARS ENDED DECEMBER 31
                                                      ----------------------------------------------
                                                          1998             1997             1996
                                                      ------------     ------------     ------------
<S>                                                   <C>              <C>              <C>         
Revenue                                               $  5,782,487     $  5,101,627     $  3,671,133
Cost of sales                                            4,027,819        3,423,173        2,099,945
                                                      ------------     ------------     ------------
  Gross profit                                           1,754,668        1,678,454        1,571,188
General and administrative expenses                      5,067,863        2,767,168        2,390,304
                                                      ------------     ------------     ------------
  Loss from operations                                  (3,313,195)      (1,088,714)        (819,116)

Interest income, net                                     1,199,258        1,946,162        1,887,928
                                                      ------------     ------------     ------------
  Income (loss) from continuing operations              (2,113,937)         857,448        1,068,812

Discontinued operations:
      Loss from discontinued operations                 (4,706,639)     (19,902,083)     (13,904,944)
      Loss on disposal of discontinued operations       (5,832,412)               -                -
                                                      ------------     ------------     ------------
      Total discontinued operations                    (10,539,051)     (19,902,083)     (13,904,944)
                                                      ------------     ------------     ------------
  Net loss                                            $(12,652,988)    $(19,044,635)    $(12,836,132)
                                                      ============     ============     ============

Basic income (loss) per common share:
       Continuing operations                          $      (0.22)    $       0.08     $       0.11
       Discontinued operations                               (1.10)           (1.94)           (1.48)
                                                      ------------     ------------     ------------
                                                      $      (1.32)    $      (1.86)    $      (1.37)
                                                      ============     ============     ============

Diluted income (loss) per common share:
       Continuing operations                          $      (0.22)    $       0.08     $       0.11
       Discontinued operations                               (1.10)           (1.84)           (1.39)
                                                      ------------     ------------     ------------
                                                      $      (1.32)    $      (1.76)    $      (1.28)
                                                      ============     ============     ============

Weighted average shares outstanding:
       Basic                                             9,574,130       10,258,860        9,398,931
       Diluted                                           9,574,130       10,811,853       10,015,567
</TABLE>



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

                                      F-3
<PAGE>   23

                      CELERIS CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY



<TABLE>
<CAPTION>
                                                        COMMON STOCK            ADDITIONAL
                                                   ------------------------     PAID - IN      ACCUMULATED
                                                     SHARES        AMOUNT        CAPITAL         DEFICIT          TOTAL
                                                   -----------    ---------    ------------    ------------    ------------
<S>                                                <C>            <C>          <C>             <C>             <C> 
Balance at January 1, 1996                           8,492,018    $  84,920    $ 36,187,859    $(10,438,411)   $ 25,834,368
     Exercise of stock options                          60,550          606         127,204               -         127,810
     Employee stock purchase plan                       39,262          392         399,816               -         400,208
     Public offering proceeds, net of
          expenses of $590,503                       1,752,000       17,520      29,193,497               -      29,211,017
     Value of stock warrants issued in
          connection with purchase of technology              
          used in discontinued operations                    -            -       3,792,000               -       3,792,000
     Distribution to shareholders                            -            -               -        (446,071)       (446,071)
     Net loss                                                -            -               -     (12,836,132)    (12,836,132)
                                                   -----------    ---------    ------------    ------------    ------------
Balance at December 31, 1996                        10,343,830      103,438      69,700,376     (23,720,614)     46,083,200
     Issuance of common stock                          109,091        1,091         298,909               -         300,000
     Exercise of stock options                          48,550          485          74,800               -          75,285
     Employee stock purchase plan                       69,194          692         112,504               -         113,196
     Issuance of common stock to former
          shareholders of C.L. McIntosh                 88,888          889         199,109               -         199,998
     Repurchase of common stock                       (764,600)      (7,646)     (2,011,454)              -      (2,019,100)
     Repurchase of common stock as part
          of sale of subsidiary                       (137,524)      (1,375)       (316,649)              -        (318,024)
     Value of options issued for services                    -            -          72,370               -          72,370
     Value of repriced options issued                        -            -         135,000               -         135,000
     Net loss                                                -            -               -     (19,044,635)    (19,044,635)
                                                   -----------    ---------    ------------    ------------    ------------
Balance at December 31, 1997                         9,757,429       97,574      68,264,965     (42,765,249)     25,597,290
     Exercise of stock options                          32,000          320          47,680               -          48,000
     Repurchase of common stock                       (370,000)      (3,700)       (833,175)              -        (836,875)
     Value of options issued for services                    -            -          49,349               -          49,349
     Net loss                                                -            -               -     (12,652,988)    (12,652,988)
                                                   -----------    ---------    ------------    ------------    ------------
Balance at December 31, 1998                         9,419,429    $  94,194    $ 67,528,819    $(55,418,237)   $ 12,204,776
                                                   ===========    =========    ============    ============    ============
</TABLE>



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


                                       F-4
<PAGE>   24

                      CELERIS CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                       FOR THE YEARS ENDED DECEMBER 31
                                                                               ----------------------------------------------
                                                                                  1998              1997             1996
                                                                               ------------     ------------     ------------
<S>                                                                            <C>              <C>              <C>          
OPERATING ACTIVITIES:
   Net loss                                                                    $(12,652,988)    $(19,044,635)    $(12,836,132)
   Adjustments to reconcile net loss to net cash provided by
       (used in) continuing operating activities:
       Depreciation                                                                 195,820          115,491           56,364
       Provision for bad debts                                                      119,892          127,132           15,845
       Loss from discontinued operations                                          4,706,639       19,902,083       13,904,944
       Loss on disposal of discontinued operations                                5,832,412                -                -
       Value of common stock issued in connection with acquisitions                       -          199,998                -
       Value of options issued for consulting services                               13,099                -                -

   Changes in operating assets and liabilities:
       Accounts receivable                                                         (533,049)        (408,038)          98,542
       Other current assets                                                        (212,873)        (180,526)          (6,478)
       Accounts payable and accrued expenses                                       (117,261)      (1,568,977)       1,895,983
       Deferred revenue and payables                                                 92,767          156,414           59,030
       Accrued compensation                                                         168,097         (126,119)         (18,927)
                                                                               ------------     ------------     ------------
             Net cash provided by (used in) continuing operating activities      (2,387,445)        (827,177)       3,169,171

INVESTING ACTIVITIES:
   Purchase of short-term investments                                            (9,352,884)     (26,071,047)     (66,648,127)
   Sales and maturities of short-term investments                                24,315,704       39,268,000       52,123,177
   Purchases of furniture, fixtures and equipment                                (1,019,775)         (85,320)        (177,547)
                                                                               ------------     ------------     ------------
             Net cash provided by (used in) investing activities                 13,943,045       13,111,633      (14,702,497)

FINANCING ACTIVITIES:
   Principal payments on long-term debt                                                   -           (6,920)         (12,033)
   Proceeds from (payments on) notes payable                                              -         (100,000)          85,000
   Proceeds from (payments on) line of credit                                             -         (150,000)          70,000
   Distribution to shareholders                                                           -                -         (446,071)
   Net proceeds from common stock transactions                                            -          413,196       29,611,225
   Repurchase of common stock                                                      (836,875)      (2,019,100)               -
   Net proceeds from exercise of common stock options                                48,000           75,285          127,810
                                                                               ------------     ------------     ------------
            Net cash provided by (used in) financing activities                    (788,875)      (1,787,539)      29,435,931
Cash used in discontinued operations                                             (8,577,661)     (13,933,508)     (10,718,540)
                                                                               ------------     ------------     ------------
Increase (decrease) in cash and cash equivalents                                  2,189,064       (3,436,591)       7,184,065
Cash and cash equivalents at beginning of period                                  5,949,478        9,386,069        2,202,004
                                                                               ------------     ------------     ------------
Cash and cash equivalents at end of period                                     $  8,138,542     $  5,949,478     $  9,386,069
                                                                               ============     ============     ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Cash paid during the period for interest                                 $      4,386     $      5,351     $     14,054
      Equipment and fixtures acquired in exchange for long-term debt           $          -     $          -     $     35,000
</TABLE>



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

                                      F-5
<PAGE>   25


                      CELERIS CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  DESCRIPTION OF BUSINESS

Celeris Corporation (formerly Summit Medical Systems, Inc.) (the "Company") is a
provider of specialty clinical research services to pharmaceutical, medical
device and biotechnology manufacturers. Services offered by the Company include
regulatory consulting and strategy, device evaluation, product and manufacturing
quality assurance, statistical analysis, and clinical study design. In addition,
in 1998 the Company expanded its service offerings to include investigative site
selection and qualification, clinical monitoring staffing services, data
management and biostatistical consulting.

The Company has experienced operating losses for each of the past five years.
Net losses for the year ended December 31, 1998 were $12,652,988, and the
Company had an accumulated deficit of $55,418,237 at December 31, 1998. The
Company's ability to increase revenue and achieve profitability and positive
cash flow will depend on a number of factors including the Company's ability to
control costs and keep increases in expenditures below growth in revenue, if
any; obtaining market acceptance of the Company's new service offerings in an
intensely competitive market for clinical research services; the Company's
ability to attract and integrate new key employees and to develop new
operational and financial systems, procedures and controls related to the new
service offerings; risks associated with the Company's decision to exit from the
provider software market, including the failure to realize the Company's
assumptions regarding estimated charges; and the possibility of adverse outcomes
related to the Company's shareholder lawsuits, Securities and Exchange
Commission investigation or declaratory action by the underwriters of the
Company's directors' and officers' insurance policies discussed in Note 7. There
can be no assurances that the Company will generate revenue, or adequately
control costs, to achieve profitability or positive cash flow.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Revenue Recognition

Revenue is comprised of amounts earned for research and consulting services and
is generally recognized on a per diem basis as the services are performed.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with maturities of
three months or less to be cash equivalents. Cash equivalents are carried at
cost, which approximates market value.

Short-Term Investments

Investments with a maturity of more than 90 days at the date of purchase are
classified as short-term investments. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. The Company has classified its
short-term investments, consisting of U.S. Treasury bills, U.S. Treasury notes,
commercial paper and discounted notes, as available for sale. At December 31,
1998 and 1997, the fair market value of the short-term investments approximated
cost.

                                      F-6

<PAGE>   26

Allowance for Doubtful Accounts

The Company determines an allowance for doubtful accounts based upon an analysis
of the collectability of specific accounts and the aging of the accounts
receivable.

Furniture, Fixtures and Equipment

Equipment and fixtures are stated at cost. The Company provides for depreciation
using accelerated methods at rates designed to depreciate the cost of equipment
and fixtures over their estimated useful lives of three to five years.

The Company evaluates the carrying value of long-lived equipment and fixtures in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The Company's evaluation considers nonfinancial data such as
changes in the operating environment and business strategy, competitive
information, market trends and operating performance. Based on this evaluation,
the Company has not identified any impaired long-lived assets at December 31,
1998.

Income Taxes

The Company accounts for income taxes using the liability method. Deferred
income taxes are calculated for the temporary differences between financial
reporting and tax bases of assets and liabilities.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
The principal estimates made by management relate to liabilities of discontinued
operations, accrued expenses and bad debt reserves. Actual results could differ
from those estimates.

Fair Value of Financial Instruments

The carrying amounts related to cash and cash equivalents, short-term
investments, accounts receivable, other current assets, accounts payable and
accrued expenses, deferred revenue and payables, accrued compensation, and
liabilities of discontinued operations approximate fair value at December 31,
1998 and 1997 due to the relatively short maturities of such instruments.

Recently Issued Accounting Pronouncements

The Company adopted SFAS No. 130, "Reporting Comprehensive Income," on January
1, 1998. SFAS No. 130 establishes standards for reporting and display in the
financial statements of total net income (loss) and the components of all other
nonowner changes in equity, referred to as comprehensive income. The adoption
had no impact on the financial statement presentation of the Company.

The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1) is
effective for fiscal years beginning after December 15, 1998. SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. The Company believes that the adoption of SOP 98-1 will not
have a material impact on its financial condition or results of operations.

Legal Costs

The Company's policy is to accrue all probable and estimatable legal fees as
they are identified.


                                      F-7
<PAGE>   27


Reclassifications

Certain amounts previously reported in the 1997 and 1996 financial statements
have been reclassified to conform to the 1998 presentation. These
reclassifications had no effect on previously reported net loss or shareholders'
equity.

3.       DISCONTINUED OPERATIONS

On June 10, 1998 the Company announced its intent to transition out of the
healthcare provider software market and focus its resources on its clinical
research services segment. As a result of this decision, the Company recorded a
charge of $5.35 million in the second quarter of 1998 to dispose of the software
segment. This charge represented management's estimate of costs to exit the
software business, including employee severance and retention, facility
restructuring, operating losses through the disposal period, and fulfillment of
remaining contractual obligations.

On December 24, 1998 the Company completed the sale of its healthcare provider
software segment. As consideration for the sale, the Company will receive a
total purchase price of up to $2,000,000, contingent upon the performance of the
assets and the buyer's costs to perform prepaid support and service obligations
after the closing. The consideration from the sale is payable in the form of
$1,000,000 cash, of which $200,000 was paid at closing on December 24, 1998 and
the remainder of which is payable in four equal cash payments of $200,000 to be
made at the end of each fiscal quarter of the fiscal year ending December 31,
1999. At the closing, the buyer also delivered to the Company a $1,000,000
non-interest bearing promissory note (the "Note") due and payable on the earlier
of December 24, 1999 or the date on which the buyer closes an equity financing
of at least $3,000,000. The Note is subject to adjustment in the event that the
amount of service fees and similar charges to customers of the Company's
healthcare provider software segment that was billed during the twelve-month
period ending March 31, 1999 and is paid and collected on or before September
25, 1999 (the "Anniversary Revenue") is less than $2,000,000; provided that the
principal amount of the Note may not be reduced by more than $500,000. If the
Note is paid in full prior to September 25, 1999, the Company will reimburse the
buyer for any shortfall in collected fees and charges, up to a $500,000 maximum.
The Company has also agreed to reimburse the buyer in three installments through
June 30, 1999 for the performance of prepaid support and service obligations on
assigned contracts totaling $500,000; provided that if the Anniversary Revenue
exceeds $2,000,000, the Company's reimbursement obligation will be reduced by
the amount of the excess up to a maximum of $500,000. The Company has retained
certain liabilities related to the software segment including severance and
retention liabilities, certain amounts due under customer contracts and other
liabilities related to the disposal of the segment. In connection with the sale,
the Company recorded a $483,000 loss in the fourth quarter of 1998. The loss
represents the net book value of assets and liabilities transferred to the
buyer, net of cash received at closing of $200,000 and related transaction
costs. The charge also includes the net effect of a reassessment of the
Company's retained obligations not transferred to the buyer. The Company will
record the remaining proceeds from the sale of the software segment as gain on
sale of discontinued operations in the period collection is assured.

The financial position and results of operations of the healthcare provider
software segment are reported as discontinued operations and all prior periods
have been restated to reflect the discontinued operations. The financial
position and results of operations of the BSM Consulting Group and Medical
Information Systems Company, Inc., both sold in the third quarter of 1997, are
considered part of the healthcare provider software segment and are presented as
discontinued operations in 1997 and 1996. Revenues related to the discontinued
segment prior to the sale on December 24, 1998 were $3,125,715, $7,978,469 and
$13,500,301 for the years ended December 31, 1998, 1997 and 1996.

4.       INCOME (LOSS) PER COMMON SHARE

Basic income (loss) per common share is computed by dividing income (loss) for
the period by the weighted average number of shares of common stock outstanding
during the period. The computation of diluted income (loss) per common share,
formerly referred to as fully diluted income (loss) per common share, requires
that the number of weighted average shares outstanding be increased for the
assumed exercise of dilutive options using the treasury stock method.

                                      F-8

<PAGE>   28

Weighted average shares used in computing income (loss) per share are as
follows:

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31
                                                            -------------------------------------
                                                              1998          1997          1996
                                                            ---------    ----------    ----------
<S>                                                         <C>          <C>            <C>      
Weighted average common shares outstanding                  9,574,130    10,258,860     9,398,931
Dilutive effect of stock options outstanding,
     using treasury stock method                                    -       552,993       616,636
                                                            ---------    ----------    ----------
Shares used in computing diluted income (loss) per share    9,574,130    10,811,853    10,015,567
                                                            =========    ==========    ==========
</TABLE>

Diluted loss per share for the year ended December 31, 1998 does not include
common stock equivalents of 2,502,413 as their effect would be antidilutive.

5.       MERGERS

Effective December 31, 1996, the Company exchanged 976,453 shares for all
outstanding shares of common stock in a pooling of interests of C.L. McIntosh &
Associates ("C.L. McIntosh"), a regulatory consulting and clinical research
services firm.

During 1997, the Company paid the selling shareholders of C.L. McIntosh
$1,800,000, issued shares of common stock totaling 88,888 at $2.25, and canceled
and reissued options repriced at $2.75, primarily in exchange for their release
from potential claims, including potential liability associated with the
Company's restatement of revenues in early 1997.

6.       COMMON STOCK

In July 1996, the Company sold 1,752,000 shares of its common stock in a
secondary offering for $31,536,000, less related costs of $2,324,983.

In August 1997, the Company's Board of Directors authorized a stock repurchase
program under which up to 2.0 million shares of the Company's common stock may
be repurchased. As of December 31, 1998, the Company had repurchased 1,134,600
shares in conjunction with this program at prices ranging from $1.19 to $3.38.

7.       COMMITMENTS AND CONTINGENCIES

Litigation

The Company is a defendant in IN RE SUMMIT MEDICAL SYSTEMS, INC. SECURITIES
LITIGATION, a consolidated federal court securities action venued in the United
States District Court, District of Minnesota. The putative class action was
filed on March 10, 1997 and alleges violations of Section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5,
Section 20(a) of the Exchange Act, Section 11 of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 15 of the Securities Act. The
Company is also a defendant in a federal court securities action captioned
TEACHERS' RETIREMENT SYSTEM OF LOUISIANA V. SUMMIT MEDICAL SYSTEMS, INC. ET. AL.
The Teachers' Retirement action was filed on April 16, 1997 in the United States
District Court, District of Minnesota and is not a class action. In addition to
the claims alleged in the consolidated action, the Teachers' Retirement
complaint alleges a claim under Section 18(a) of the Exchange Act, common law
fraud, and negligent misrepresentation. Each action alleges, in essence, that
the Company made misleading public disclosures relating to its financial
statements and seeks compensatory damages for losses incurred as a result of
each alleged misleading public disclosure. As to federal securities law claims,
both actions are subject to the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). The actions do not state the monetary damages that are being
sought at this time. The Company intends to defend against these actions
vigorously. There can be no assurance that any judgement, order or decree
against the Company arising out of these actions will not have a material
adverse effect on the Company or its business.

The Division of Enforcement of the Securities and Exchange Commission (the
"Commission") is conducting an investigation of the Company, relating to the
Company's restatement of certain financial statements. The Company is
cooperating fully with the Commission and its investigation. There can be no
assurance that any order, decree or 

                                      F-9

<PAGE>   29

other action issued or taken by the Commision arising out of its investigation
will not result in sanctions against the Company or certain individuals that
could have a material adverse effect on the Company or its business.

The Company and certain of the Company's directors and officers are defendants
in a declaratory relief action, DAVID FOSTER ET. AL. V. SUMMIT MEDICAL SYSTEMS,
INC. ET. AL., venued in the District Court of Hennepin County, Minnesota. The
action was initiated on August 7, 1998 and seeks a declaration that there is no
coverage under the Company's directors' and officers' insurance policies for the
Company's pending federal securities actions or the investigation by the
Commission. The plaintiffs, the insurance underwriters of the Company's
directors' and officers' insurance policies, allege that the claims the Company
has submitted for coverage involve matters commenced before the period covered
by the policies. Additionally, the plaintiffs allege that the Commission's
investigation does not constitute a proper claim under the policies. The Company
believes the plaintiffs' request for declaratory judgment misinterprets the
Company's directors' and officers' insurance policy. The Company intends to
oppose this action vigorously and has filed a counterclaim to enforce coverage
under the policy, including advancement of expenses. There can be no assurance
that any order, decree or declaration arising out of this matter will not have a
material adverse effect on the Company or its business.

Leases

The Company leases its office space, automobiles and certain office equipment
under various operating leases which expire at various dates through August
2003. The Company is required to pay a pro rata share of taxes and utilities for
each of the office locations. Future minimum payments under the leases at
December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                   FISCAL YEAR
                   -----------
                   <S>                           <C>         
                       1999                      $    875,571
                       2000                           840,470
                       2001                           622,966
                       2002                           509,469
                       2003                           294,663
                                                 ------------
                                                 $  3,143,139
                                                 ============
</TABLE>

Rent expense related to continuing operations for the years ended December 31,
1998, 1997 and 1996 was $564,778, $235,451 and $174,097, respectively.

Effective March 1, 1999 the Company assigned the lease for its office space in
Minneapolis, Minnesota. Upon this assignment, the Company has no further
obligations related to this lease. Minimum lease payments up to the date of
assignment are included in amounts above.

8.       INCOME TAXES

As of December 31, 1998, the Company had a net operating loss (NOL) and
alternative minimum tax (AMT) credit carryforwards of approximately $40,465,000
and $37,000, respectively, available to offset its future income tax liability.
The NOL and tax credit carryforwards begin to expire in the year 2009.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

                                      F-10

<PAGE>   30


Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:

<TABLE>
<CAPTION>
                                                            1998             1997
                                                        ------------     ------------
<S>                                                     <C>              <C>         
Deferred tax assets:
  Net operating loss carryforwards                      $ 15,400,000     $ 11,567,000
  Temporary differences-
     Purchase of in-process research and development       2,366,000        4,163,000
     Other reserves and accrued expenses                   2,241,000          732,000
  Valuation allowance                                    (20,007,000)     (16,462,000)
                                                        ------------      -----------
            Net deferred tax asset                      $          -     $          -
                                                        ============     ============
</TABLE>

A valuation allowance of 100% of tax benefits has been provided because of the
Company's history of operating losses. As a result of sales of common stock
during the past three years, ownership changes under Section 382 of the Internal
Revenue Code may have occurred. Section 382 may limit the amount of NOLs that
can be utilized in the future.

9.       STOCK OPTIONS

The Company has established the Stock Option Plan of 1993, for which 2,626,666
shares of common stock are reserved. All officers, employees and consultants of
the Company are eligible to receive stock option grants under this plan. The
options held by employees of the Company are incentive stock options within the
meaning of Section 422 of the Internal Revenue Code. The options held by
officers and consultants of the Company can be either incentive stock options or
nonstatutory options. The option price is equal to the fair market value of the
common stock on the date of grant. Options vest and become exercisable at
various intervals and expire ten years from the date of grant.

The Company has also adopted the 1995 Director Plan, for which 66,666 shares of
common stock have been reserved. The plan provides for an automatic grant of
nonqualified stock options to purchase 6,666 shares of common stock to
nonemployee directors on the date such individuals are first appointed directors
of the Company, and an automatic grant of an option to purchase an additional
2,000 shares of common stock on the day after each subsequent annual meeting of
the Company's shareholders. The option price is equal to the fair market value
of the common stock on the date of grant. Options vest and become exercisable as
to 100% of such shares on the first anniversary of the date of such grant and
expire ten years from the date of grant.

Option activity is summarized as follows:


<TABLE>
<CAPTION>
                                                                                     WEIGHTED
                                                                                      AVERAGE
                                    SHARES                           NONPLAN         EXERCISE
                                 AVAILABLE FOR   PLAN OPTIONS        OPTIONS         PRICE PER
                                    GRANT        OUTSTANDING       OUTSTANDING         SHARE
                                -------------    -------------    -------------    -------------
<S>                             <C>              <C>              <C>              <C> 
Balance at December 31, 1995          106,698          709,969           98,790    $        5.53
     Shares reserved                1,300,000                -                -                -
     Granted                       (2,346,634)       2,346,634          610,666            10.63
     Exercised                              -          (54,975)          (5,575)            2.11
     Canceled                       1,266,609       (1,266,609)          (5,000)           15.41
                                -------------    -------------    -------------    -------------
Balance at December 31, 1996          326,673        1,735,019          698,881             6.65
     Shares reserved                  500,000                -                -                -
     Granted                       (1,607,500)       1,607,500          713,000             3.00
     Exercised                              -          (43,676)          (4,874)            1.55
     Canceled                       1,658,321       (1,658,321)        (603,345)            7.76
                                -------------    -------------    -------------    -------------
Balance at December 31, 1997          877,494        1,640,522          803,662             2.90
     Granted                         (999,168)         999,168           23,336             2.03
     Exercised                              -          (32,000)               -             1.50
     Canceled                         900,275         (900,275)         (32,000)            2.78
                                -------------    -------------    -------------    -------------
Balance at December 31, 1998          778,601        1,707,415          794,998    $        2.61
                                =============    =============    =============    =============
</TABLE>



                                      F-11



<PAGE>   31

In addition to the options granted under the Stock Option Plan of 1993, the
Company had 794,998 nonplan options outstanding at December 31, 1998. These
options represented 755,000 options outstanding primarily as consideration for
acquisitions and 39,998 options outstanding under the 1995 Director Plan.

In late 1996, the Company repriced previously granted options held by management
to purchase 669,442 shares of common stock from original exercise prices that
ranged from $13.00 to $17.00 per share to new exercise prices that ranged from
$6.75 to $7.00 per share. Additionally, previously granted options held by the
same individuals to purchase 185,250 shares of common stock at exercise prices
ranging from $13.00 to $17.00 per share were canceled.

During 1997, the Company canceled and reissued previously granted options held
by employees to purchase shares of common stock with original exercise prices
that ranged from $4.75 to $17.25 per share and replaced them with new options
with an exercise price of $2.69 per share. Also, during 1997, the Company
canceled and reissued options and warrants including shares issued in
conjunction with certain acquisitions.

The following table summarizes information about the stock options outstanding
at December 31, 1998:


<TABLE>
<CAPTION>
                                         OPTIONS OUTSTANDING                            OPTIONS EXERCISABLE
                         ----------------------------------------------------       -----------------------------
                                         WEIGHTED AVERAGE                                              WEIGHTED
                                             REMAINING                                                 AVERAGE
RANGE OF                   NUMBER           CONTRACTUAL     WEIGHTED AVERAGE           NUMBER          EXERCISE      
EXERCISE PRICES          OUTSTANDING           LIFE          EXERCISE PRICE         EXERCISABLE         PRICE
---------------          -----------       ------------    -----------------        -----------      ------------
<S>                      <C>               <C>             <C>                      <C>              <C>  
$0.75 - 1.99                 528,332        8.79 years            $1.29                132,582           $1.61
$2.00 - 2.99               1,502,500        8.19 years             2.60                711,050            2.55
$3.00 - 3.99                 364,665        7.40 years             3.42                138,933            3.55
$4.00 - 6.99                 100,250        8.05 years             6.49                 38,300            6.88
$7.00 - 7.88                   6,666        7.79 years             7.88                  6,666            7.88
                         -----------        ----------            -----             ----------           -----
                           2,502,413        8.19 years            $2.61              1,027,531           $2.76
                         ===========        ==========            =====             ==========           =====
</TABLE>

Options outstanding expire at various dates during the period from 2000 through
2008. Exercise prices for options outstanding as of December 31, 1998 ranged
from $0.75 to $7.88 per share. The number of options exercisable as of December
31, 1998, 1997 and 1996 were 1,027,531, 492,157 and 461,808, respectively, at
weighted average exercise prices of $2.76, $3.15 and $4.89 per share,
respectively.

The weighted average grant date fair value of plan options granted at market
prices during the years ended December 31, 1998, 1997 and 1996 was $1.68, $1.87
and $4.81 per share, respectively. The weighted average grant date fair value of
nonplan options granted at market prices during the years ended December 31,
1998, 1997 and 1996 was $2.99, $2.19 and $9.61, respectively. All options were
granted at the current market price during the years ended December 31, 1998 and
1997. The weighted average grant date fair value of nonplan options granted
below market prices during the year ended December 31, 1996 was $5.52.



                                      F-12
<PAGE>   32
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plans. Accordingly, no compensation cost has been recognized in the
accompanying consolidated statements of operations. Had compensation cost been
recognized based on the fair values of options at the grant dates consistent
with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company's net loss and net loss per common share would have been increased
to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                                    For the Years Ended December 31
                                                     ----------------------------------------------------------
                                                          1998                  1997                 1996
                                                     ----------------      ----------------     ---------------
<S>                                                  <C>                   <C>                  <C>          
Net loss:
    As reported                                        $(12,652,988)         $(19,044,635)       $(12,836,132)
    Pro forma                                           (13,403,598)          (19,844,559)        (13,672,621)
Basic loss per common share:
    As reported                                               (1.32)                (1.86)              (1.37)
    Pro forma                                                 (1.40)                (1.93)              (1.45)
Diluted loss per common share:
    As reported                                               (1.32)                (1.76)              (1.28)
    Pro forma                                                 (1.40)                (1.84)              (1.37)
</TABLE>

Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1998, 1997 and
1996: risk-free interest rate of 5.1%, 6.0% and 6.0%; no dividend yield;
volatility factors of 108.0%, 86.5% and 87.7%; and a weighted average expected
life of the options of 6.0, 5.0 and 2.3 years.

10.      EMPLOYEE BENEFIT PLANS

Employee Stock Purchase Plans

Under the 1995 Employee Stock Purchase Plan, 133,333 shares of common stock were
reserved and issued at December 31, 1998. Effective January 1, 1999, the Company
adopted the 1999 Employee Stock Purchase Plan under which 500,000 shares are
reserved. All employees who have met the service eligibility requirements are
eligible to participate in this new plan and may direct the Company to make
payroll deductions of 1% to 15% of their compensation during a purchase period
for the purchase of shares under the plan. The Celeris Corporation Employee
Stock Purchase Plan provides participating employees the right, subject to
certain limitations, to purchase the Company's common stock at a price equal to
the lower of 85% of the fair market value of the Company's common stock on the
first day, or the last day, of the applicable purchase period. The first
purchase period commenced January 1, 1999 and will end on June 30, 1999.
Subsequent purchase periods will run for six months, subject to acceleration in
the case of a merger or consolidation in which the Company is not the surviving
corporation, or the liquidation, dissolution or sale of substantially all of the
assets of the Company.

401(k) Plan

All employees who are at least 18 years of age are eligible to participate in
the Company's 401(k) plan. Each employee may contribute from 1% to 15% of their
eligible compensation to the plan. The Company may make discretionary matching
contributions to the plan based on employee contributions. No matching
contributions were made by the Company in 1998, 1997 and 1996.

11.      SEGMENT REPORTING AND SIGNIFICANT CUSTOMER INFORMATION

The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," in the fourth quarter of 1998. SFAS No. 131
established standards for disclosure of financial information related to
operating segments of the Company as well as disclosure requirements for
customer and geographic information. SFAS No. 131 defines an operating segment
as a component of a company for which operating results are reviewed regularly
by the chief operating decision maker to determine resource allocation and
assess performance. The Company has four segments reportable under the
guidelines of SFAS No. 131: C.L. McIntosh, the Company's regulatory consulting
and clinical research services subsidiary; site research and clinical trial
staffing services group, a start-up operation formed in the first quarter of
1998; data management and biostatistical services group, a start-up operation
formed in the fourth quarter of 1998; and the Company's corporate operating
function.


                                      F-13

<PAGE>   33


The Company's operating segment disclosures are as follows:


<TABLE>
<CAPTION>
                                                          SITE RESEARCH &         DATA
                                                          CLINICAL TRIAL      MANAGEMENT &
                                                             STAFFING        BIOSTATISTICAL
                                       C.L. MCINTOSH         SERVICES           SERVICES          CORPORATE       CONSOLIDATED
                                       -------------      ---------------    --------------      -----------      ------------
<S>                                    <C>                <C>                <C>                 <C>              <C>
1998
Revenue                                 $ 5,684,067       $    32,300           $  66,120        $          -      $  5,782,487
Depreciation                                111,108            40,361              44,351                   -           195,820
Interest income                                 634                 -                   -           1,198,624         1,199,258
Income (loss) from
     continuing operations                 (217,423)       (1,429,145)           (596,118)            128,749        (2,113,937)
Segment assets                            2,073,629           343,527             551,376          15,195,919        18,164,451
Capital expenditures                        150,783           330,084             538,908                   -         1,019,775

1997
Revenue                                 $ 5,101,627       $         -           $       -        $          -       $ 5,101,627
Depreciation                                115,491                 -                   -                   -           115,491
Interest income                                   -                 -                   -           1,946,162         1,946,162
Income from continuing
     operations                             414,445                 -                   -             443,003           857,448
Segment assets                            1,675,861                 -                   -          27,812,361        29,488,222 (a)
Capital expenditures                         85,320                 -                   -                   -            85,320

1996
Revenue                                 $ 3,671,133       $         -            $      -        $          -       $ 3,671,133
Depreciation                                 56,364                 -                   -                   -            56,364
Interest income                                   -                 -                   -           1,887,928         1,887,928
Income from continuing
     operations                             191,459                 -                   -             877,353         1,068,812
Segment assets                            1,295,081                 -                   -          44,395,424        45,690,505 (a)
Capital expenditures                        177,547                 -                   -                   -           177,547
</TABLE>


(a)      Excludes net long-term assets of discontinued operations of $1,182,335
         and $4,156,777 at December 31, 1997 and 1996, respectively.

Revenues from individual clients generated by the Company's C.L. McIntosh
segment that represent greater than 10% of consolidated revenues are as follows:

<TABLE>
<CAPTION>
                               1998             1997             1996
                               ----             ----             ----
           <S>              <C>              <C>              <C>      
           Client A         $ 760,461        $  568,249       $ 494,174
           Client B         $ 620,055             <10%          <10%
           Client C            <10%               <10%        $ 418,880
</TABLE>



                                      F-14
<PAGE>   34



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Celeris Corporation:

We have audited the accompanying consolidated balance sheets of Celeris
Corporation (formerly Summit Medical Systems, Inc.) (a Minnesota corporation)
and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years then
ended. These consolidated financial statements and schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedule based
on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Celeris
Corporation and Subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.

We have also audited the adjustments described in Note 3 that were applied to
restate the 1996 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule with respect to the years ended December 31, 1998 and 1997 has
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.


                                     /s/ ARTHUR ANDERSEN LLP


Minneapolis, Minnesota,
  February 5, 1999



                                      F-15
<PAGE>   35


                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Celeris Corporation

We have audited the consolidated statements of operations, changes in 
shareholders' equity and cash flows of Celeris Corporation (formerly Summit
Medical Systems, Inc.) for the year ended December 31, 1996. Our audit also
includes the financial statement schedule for the year ended December 31, 1996
listed in the Index at Item 14(a). These consolidated financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Celeris Corporation for the year ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.


                                  /s/ Ernst & Young LLP

Minneapolis, Minnesota
April 3, 1997



                                      F-16
<PAGE>   36

                      CELERIS CORPORATION AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
                                                                        ADDITIONS
                                                               ---------------------------
                                             BALANCE AT        CHARGED TO       CHARGED TO
                                             BEGINNING         COSTS AND          OTHER                               BALANCE AT
                                             OF PERIOD         EXPENSES          ACCOUNTS        DEDUCTIONS         END OF PERIOD
                                             ----------        ----------       ----------       ----------         -------------
<S>                                          <C>               <C>              <C>              <C>                  <C>     
Year ended December 31, 1996:
     Allowance for doubtful accounts         $      -          $  15,845        $      -         $ 15,845  (a)        $      -
Year ended December 31, 1997:
     Allowance for doubtful accounts                -            127,132               -           67,707  (a)           59,425
Year ended December 31, 1998:
     Allowance for doubtful accounts           59,425            119,892               -            7,561  (a)          171,756
</TABLE>

(a) Uncollectible accounts written off

Note:  Amounts have been restated for discontinued operations.


                                      S-1