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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2001

Or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________to______________

Commission File Number 0-26390

CELERIS CORPORATION
(Exact name of registrant as specified in its charter)

|                                                                         |  |                                 
|------------------------------------------------------------------------ |  | --------------------------------
|MINNESOTA
(State or other jurisdiction of
incorporation or organization) |  | 41-1545493
(IRS Employer ID No.)

1801 WEST END AVENUE
SUITE 750
NASHVILLE, TN 37203
(615) 341-0223
(Address including zip code, of Registrants
principal executive offices and telephone
number, including area code)

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

As of July 26, 2001 there were 3,357,496 shares of the registrants common
stock outstanding.





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|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                        
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)                                  
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)                                  
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)                             
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION                                                                   
|ITEM 1. LEGAL PROCEEDINGS                                                                    
|ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|ITEM 5. OTHER INFORMATION                                                                    
|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                                                                   
|LOAN AND SECURITY AGREEMENT                                                                  
|REVOLVING CREDIT NOTE                                                                        
|1ST AMEND. 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION                                           
|PRESS RELEASE DATED MAY 9, 2001                                                              
|PRESS RELEASE DATED MAY 22, 2001                                                             
|PRESS RELEASE DATED MAY 24, 2001                                                             



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##### Table of Contents



CELERIS CORPORATION

TABLE OF CONTENTS

|                                                                                                          |  |  |   | 
|--------------------------------------------------------------------------------------------------------- |  |  | - | 
|PART I. FINANCIAL INFORMATION                                                                             |  |  |   | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          |  |  |   | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Item 1. Financial Statements (Unaudited)                                                                  |  |  |   | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          |  |  |   | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000                           |  |  | 1 | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Condensed Consolidated Statements of Operations For the Three and Six Months
Ended June 30, 2001 and 2000 |  |  | 2 | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2001 and 2000           |  |  | 3 | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Notes to Condensed Consolidated Financial Statements                                                      |  |  | 4 | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          |  |  |   | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations             |  |  | 5 | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          |  |  |   | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Item 3. Quantitative and Qualitative Disclosures About Market Risks                                       |  |  | 8 | 
|                                                                                                         
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|                                                                                                         
|                                                                                                         
|                                                                                                          |  |  |   | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|PART II. OTHER INFORMATION                                                                                |  |  |   | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                          |  |  |   | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Item 1. Legal Proceedings                                                                                 |  |  | 8 | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Item 4. Submission of Matters to a Vote of Security Holders                                               |  |  | 8 | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Item 5. Other Information                                                                                 |  |  | 9 | 
|                                                                                                         
|                                                                                                         
|                                                                                                         
|                                                                                                         
|Item 6. Exhibits and Reports on Form 8-K                                                                  |  |  | 9 | 

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements include statements regarding intent, belief or
current expectations of Celeris Corporation (the Company) and its management.
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 discussed in the forward-looking statements.
Risks and uncertainties that might cause such differences include, but are not
limited to: (1) the Companys ability to generate sufficient revenue and
adequately control costs to keep increases in expenditures below revenue
growth, if any, to achieve profitability or positive cash flow; (2)
fluctuations in quarterly operating results as a result of commencement or
completion of significant contracts and/or delays in the implementation or
termination of particular clinical trials; (3) potential cancellation, delay or
change in scope of a large client contract or multiple client contracts for
clinical research services which may leave the Company with excess capacity;
(4) the Companys reported backlog may not be a meaningful predictor of future
revenue due to potential termination, delay or changes in scope of client
contracts; (5) a material portion of the Companys future revenue is dependent
on a single client; (6) challenges presented by the Companys clinical research
operations, which will require the Company to attract and integrate new key
employees and to develop new operational and financial systems, procedures and
controls; (7) intense competition in the market for clinical research services;
(8) the Companys dependence on the amount of research and development
activities, particularly clinical trials, of pharmaceutical, medical device and
biotechnology companies; (9) the Companys dependence on regulation of the
pharmaceutical, medical device and biotechnology industries; (10) the
possibility of an adverse outcome related to the Companys SEC investigation;
(11) the market acceptance of the Companys Internet capabilities; and (12)
risks associated with the Companys discontinued operations, including the
failure to realize the Companys assumptions regarding estimated remaining
liability amounts. The forward-looking statements herein are qualified in
their entirety by the cautionary statement and risk factors set forth in Item
1, under the caption Cautionary Statement and Risk Factors, of the Companys
Annual Report on Form 10-K, dated March 29, 2001. A copy of the Form 10-K may
be obtained from the Public Reference Branch of the SEC at 450 Fifth Street NW,
Washington, DC at prescribed rates.



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##### Table of Contents






ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CELERIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

|                                              |                                                                                                                      |                                            |       |          |       |              |       |         |       | 
|--------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | -------- | ----- | ------------ | ----- | ------- | ----- | 
|                                              |                                                                                                                      |                                            |       | JUNE 30, |       | DECEMBER 31,
|                                              |                                                                                                                      |                                            |       | 2001     |       | 2000        
|                                              |                                                                                                                      |                                            |       |          |       |             
|                                              | ASSETS                                                                                                               |                                            |       |          |       |              |       |         |      
|                                             
|                                             
|                                             
|                                             
|Current assets:                               |                                                                                                                      |                                            |       |          |       |              |       |        
|                                             
|                                             
|                                             
|                                             
|                                              | Cash and cash equivalents                                                                                            |                                            | $     | 3,647    |       |              | $     | 4,728   |      
|                                             
|                                             
|                                             
|                                             
|                                              | Restricted funds                                                                                                     |                                            |       | 424      |       |              |       | 510     |      
|                                             
|                                             
|                                             
|                                             
|                                              | Accounts receivable, net of allowance of
$244 and $258, respectively                                                 |                                            |       | 1,729    |       |              |       | 1,868   |      
|                                             
|                                             
|                                             
|                                             
|                                              | Other current assets                                                                                                 |                                            |       | 292      |       |              |       | 216     |      
|                                              |                                                                                                                      |                                            |       |          |       |              |       |        
|                                              |                                                                                                                      | Total current assets                       |       |          | 6,092 |              |       |         | 7,322 | 
|                                             
|                                             
|                                             
|                                             
|Net furniture, fixtures and equipment         |                                                                                                                      |                                            | 1,063 |          |       |              | 1,325 |        
|                                              |                                                                                                                      |                                            |       |          |       |              |       |        
|                                              |                                                                                                                      | Total assets                               |       | $        | 7,155 |              |       | $       | 8,647 | 
|                                              |                                                                                                                      |                                            |       |          |       |              |       |        
|                                              | LIABILITIES AND SHAREHOLDERS EQUITY                                                                                 |                                            |       |          |       |              |       |         |      
|                                             
|                                             
|                                             
|                                             
|Current liabilities:                          |                                                                                                                      |                                            |       |          |       |              |       |        
|                                             
|                                             
|                                             
|                                             
|                                              | Accounts payable and accrued expenses                                                                                |                                            | $     | 978      |       |              | $     | 1,087   |      
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred revenue and payables                                                                                        |                                            |       | 718      |       |              |       | 605     |      
|                                             
|                                             
|                                             
|                                             
|                                              | Current portion of capital lease obligation                                                                          |                                            |       | 129      |       |              |       | 124     |      
|                                             
|                                             
|                                             
|                                             
|                                              | Net current liabilities of discontinued operations                                                                   |                                            |       | 75       |       |              |       | 99      |      
|                                              |                                                                                                                      |                                            |       |          |       |              |       |        
|                                              |                                                                                                                      | Total current liabilities                  |       |          | 1,900 |              |       |         | 1,915 | 
|                                             
|Long-term portion of capital lease obligation |                                                                                                                      |                                            | 57    |          |       |              | 123   |        
|                                             
|Commitments and contigencies                  |                                                                                                                      |                                            |      |          |       |              |      |        
|                                             
|SHAREHOLDERS EQUITY:                         |                                                                                                                      |                                            |       |          |       |              |       |        
|                                             
|                                             
|                                             
|                                             
|                                              | Common stock, $.01 par value - 13,511 shares
authorized; 3,357 and
3,316 shares issued and
outstanding, respectively |                                            |       | 34       |       |              |       | 33      |      
|                                             
|                                             
|                                             
|                                             
|                                              | Additional paid-in capital                                                                                           |                                            |       | 68,736   |       |              |       | 68,722  |      
|                                             
|                                             
|                                             
|                                             
|                                              | Accumulated deficit                                                                                                  |                                            |       | (63,572  | )     |              |       | (62,146 | )    
|                                              |                                                                                                                      |                                            |       |          |       |              |       |        
|                                              |                                                                                                                      | Total shareholders equity                 |       |          | 5,198 |              |       |         | 6,609 | 
|                                              |                                                                                                                      |                                            |       |          |       |              |       |        
|                                              |                                                                                                                      | Total liabilities and shareholders equity |       | $        | 7,155 |              |       | $       | 8,647 | 
|                                              |                                                                                                                      |                                            |       |          |       |              |       |        

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

1



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CELERIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)

|                                     |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |       |       |        |  
|------------------------------------ | ----------------------------- | ------- | -------------------- | ----- | -------------------------- | ---- | ------------------------ | ----- | ----- | ------ | ----- | ----- | ----- | ------ | ----- | ----- | ----- | ------ | -
|                                     |                               |         |                      |       | FOR THE THREE MONTHS ENDED |      | FOR THE SIX MONTHS ENDED
|                                     |                               |         |                      |       | JUNE 30                    |      | JUNE 30                 
|                                     |                               |         |                      |       |                            |      |                         
|                                     |                               |         |                      |       | 2001                       |      | 2000                     |       | 2001  |        | 2000 
|                                     |                               |         |                      |       |                            |      |                          |       |       |        |      
|Revenues:                            |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |      
|                                    
|                                    
|                                    
|                                    
|                                     | Clinical research services    |         | $                    | 2,345 |                            |      | $                        | 2,859 |       |        | $     | 4,547 |       |        | $     | 5,648 |      
|                                    
|                                    
|                                    
|                                    
|                                     | Project pass-through expenses |         |                      | 152   |                            |      |                          | 229   |       |        |       | 327   |       |        |       | 469   |      
|                                     |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |      
|                                     |                               |         | 2,497                |       |                            |      | 3,088                    |       |       |        | 4,874 |       |       |        | 6,117 |      
|                                    
|                                    
|                                    
|                                    
|Cost of revenues:                    |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |      
|                                    
|                                    
|                                    
|                                    
|                                     | Clinical research services    |         |                      | 1,622 |                            |      |                          | 1,897 |       |        |       | 3,078 |       |        |       | 3,854 |      
|                                    
|                                    
|                                    
|                                    
|                                     | Project pass-through expenses |         |                      | 152   |                            |      |                          | 229   |       |        |       | 327   |       |        |       | 469   |      
|                                     |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |      
|                                     |                               |         | 1,774                |       |                            |      | 2,126                    |       |       |        | 3,405 |       |       |        | 4,323 |      
|                                    
|                                     |                               |         | Gross profit         |       |                            | 723  |                          |       |       | 962    |       |       |       | 1,469  |       |       |       | 1,794  |  
|                                    
|                                    
|                                    
|                                    
|General and administrative expenses  |                               |         | 1,444                |       |                            |      | 2,044                    |       |       |        | 2,988 |       |       |        | 3,821 |      
|                                     |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |      
|                                     |                               |         | Loss from operations |       |                            | (721 | )                        |       |       | (1,082 | )     |       |       | (1,519 | )     |       |       | (2,027 | )
|                                    
|                                    
|                                    
|                                    
|Interest income, net                 |                               |         | 37                   |       |                            |      | 88                       |       |       |        | 93    |       |       |        | 187   |      
|                                     |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |      
|                                     |                               |         | Net loss             |       | $                          | (684 | )                        |       | $     | (994   | )     |       | $     | (1,426 | )     |       | $     | (1,840 | )
|                                     |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |      
|Basic net loss per common share      |                               | $       | (0.21                | )     |                            | $    | (0.32                    | )     |       | $      | (0.43 | )     |       | $      | (0.59 | )    
|                                     |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |      
|Diluted net loss per common share    |                               | $       | (0.21                | )     |                            | $    | (0.32                    | )     |       | $      | (0.43 | )     |       | $      | (0.59 | )    
|                                     |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |      
|Weighted average shares outstanding: |                               |         |                      |       |                            |      |                          |       |       |        |       |       |       |        |       |      
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Basic   |                      |       | 3,316                      |      |                          |       | 3,130 |        |       |       | 3,316 |        |       |       | 3,127 |       
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Diluted |                      |       | 3,316                      |      |                          |       | 3,130 |        |       |       | 3,316 |        |       |       | 3,127 |       



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

2



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##### Table of Contents






CELERIS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)

|                                                                     |                                                                                        |                                                |                                       |                                                     |    |                          |        |        |     |        |        |  
|-------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------- | --------------------------------------------------- | -- | ------------------------ | ------ | ------ | --- | ------ | ------ | -
|                                                                     |                                                                                        |                                                |                                       |                                                     |    | FOR THE SIX MONTHS ENDED
|                                                                     |                                                                                        |                                                |                                       |                                                     |    | JUNE 30                 
|                                                                     |                                                                                        |                                                |                                       |                                                     |    |                         
|                                                                     |                                                                                        |                                                |                                       |                                                     |    | 2001                     |        | 2000  
|                                                                     |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|OPERATING ACTIVITIES:                                                |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Net loss                                                                               |                                                | $                                     | (1,426                                              | )  |                          | $      | (1,840 | )  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Adjustments to reconcile net loss to net cash
used in continuing operating activities: |                                                |                                       |                                                     |    |                          |        |        |    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                        |                                                | Depreciation                          |                                                     |    | 347                      |        |        |     | 302    |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                        |                                                | Provision for bad debts               |                                                     |    | 64                       |        |        |     | 113    |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Changes in operating assets and liabilities:                                           |                                                |                                       |                                                     |    |                          |        |        |    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                        |                                                | Accounts receivable                   |                                                     |    | 75                       |        |        |     | (1,752 | )     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                        |                                                | Other current assets                  |                                                     |    | (76                      | )      |        |     | 672    |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                        |                                                | Accounts payable and accrued expenses |                                                     |    | (109                     | )      |        |     | (557   | )     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                        |                                                | Deferred revenue and payables         |                                                     |    | 113                      |        |        |     | 7      |       
|                                                                     |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|                                                                     |                                                                                        |                                                |                                       | Net cash used in continuing operating activities    |    |                          | (1,012 | )      |     |        | (3,055 | )
|                                                                    
|INVESTING ACTIVITIES:                                                |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Decrease (increase) in restricted funds                                                |                                                |                                       | 86                                                  |    |                          |        | (15    | )  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Sales and maturities of short-term investments                                         |                                                |                                       |                                                    |    |                          |        | 1,023  |    
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Purchases of furniture, fixtures and equipment                                         |                                                |                                       | (85                                                 | )  |                          |        | (113   | )  
|                                                                     |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|                                                                     |                                                                                        |                                                |                                       | Net cash provided by investing activities           |    |                          | 1      |        |     |        | 895    |  
|                                                                    
|FINANCING ACTIVITIES:                                                |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Principal payments on capital lease obligation                                         |                                                |                                       | (61                                                 | )  |                          |        | (55    | )  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | Net proceeds from issuance of common stock                                             |                                                |                                       | 15                                                  |    |                          |        | 106    |    
|                                                                     |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|                                                                     |                                                                                        |                                                |                                       | Net cash provided by (used in) financing activities |    |                          | (46    | )      |     |        | 51     |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Cash used in discontinued operations                                 |                                                                                        |                                                | (24                                   | )                                                   |    |                          | (104   | )     
|                                                                     |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|Decrease in cash and cash equivalents                                |                                                                                        |                                                | (1,081                                | )                                                   |    |                          | (2,213 | )     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Cash and cash equivalents at beginning of period                     |                                                                                        |                                                | 4,728                                 |                                                     |    |                          | 7,397  |       
|                                                                     |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|Cash and cash equivalents at end of period                           |                                                                                        | $                                              | 3,647                                 |                                                     |    | $                        | 5,184  |       
|                                                                     |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                   |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                        | Cash paid during the period for interest       |                                       | $                                                   | 10 |                          |        | $      | 15  |       
|                                                                    
|SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: |                                                                                        |                                                |                                       |                                                     |    |                          |        |       
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     |                                                                                        | Assets acquired under capital lease obligation |                                       | $                                                   |   |                          |        | $      | 383 |       

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

3



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##### Table of Contents






CELERIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.     Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
Celeris Corporation (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain prior period amounts have been reclassified to conform with current
presentation. Operating results for the three and six month periods ended June
30, 2001 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto for the year ended
December 31, 2000 in the Companys Annual Report on Form 10-K for the year
ended December 31, 2000.

2.     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
requires that the number of weighted average shares outstanding be increased
for the assumed exercise of dilutive options using the treasury stock method.

Diluted loss per share for the three months and six months ended June 30, 2001
and 2000 does not include common stock equivalents of 1,815,845 and 1,159,761,
respectively, as their effect would be antidilutive.

3.     Contingencies

The Division of Enforcement of the Securities and Exchange Commission (the
SEC) began an investigation of the Company on March 27, 1997, relating to the
Companys restatement of certain financial statements. The Company is
cooperating fully with the SEC and its investigation. There can be no
assurance that any order, decree or other action issued or taken by the SEC
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.

4.     Segment Reporting Information

The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures About Segments of an Enterprise and Related Information.
SFAS No. 131 established standards for disclosure of financial information
related to operating segments of the Company. 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: the Companys clinical monitoring
services group; data management and biostatistical services group; regulatory
consulting services group; and the Companys corporate operating function.

4



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##### Table of Contents



The Companys operating segment disclosures are as follows (in thousands):

|                                         |  |            |       |            |  |            |       |           |  |              |       |  |  |   |        |   |  |   |        |  
|---------------------------------------- |  | ---------- | ----- | ---------- |  | ---------- | ----- | --------- |  | ------------ | ----- |  |  | - | ------ | - |  | - | ------ | -
|                                         |  | Clinical   |       | Data       |  |            |       |           |  |              |       |  |  |   |        |  
|                                         |  | Monitoring |       | Management |  | Regulatory |       |           |  |              |       |  |  |  
|                                         |  | Services   |       | Services   |  | Consulting |       | Corporate |  | Consolidated
|                                         |  |            |       |            |  |            |       |           |  |             
|Three Months Ended June 30, 2001         |  |            |       |            |  |            |       |           |  |              |       |  |  |   |        |   |  |   |        |  
|                                        
|                                        
|                                        
|                                        
|Revenues                                 |  | $          | 695   |            |  | $          | 809   |           |  | $            | 993   |  |  | $ |       |   |  | $ | 2,497  |  
|                                        
|                                        
|                                        
|                                        
|Income (loss) from continuing operations |  |            | (172  | )          |  |            | (171  | )         |  |              | 243   |  |  |   | (584   | ) |  |   | (684   | )
|                                        
|                                        
|                                        
|                                        
|Segment assets                           |  |            | 849   |            |  |            | 1,227 |           |  |              | 1,032 |  |  |   | 4,047  |   |  |   | 7,155  |  
|                                        
|                                        
|                                        
|                                        
|Three Months Ended June 30, 2000         |  |            |       |            |  |            |       |           |  |              |       |  |  |   |        |   |  |   |        |  
|                                        
|                                        
|                                        
|                                        
|Revenues                                 |  | $          | 663   |            |  | $          | 733   |           |  | $            | 1,692 |  |  | $ |       |   |  | $ | 3,088  |  
|                                        
|                                        
|                                        
|                                        
|Income (loss) from continuing operations |  |            | (88   | )          |  |            | (309  | )         |  |              | 246   |  |  |   | (843   | ) |  |   | (994   | )
|                                        
|                                        
|                                        
|                                        
|Segment assets                           |  |            | 546   |            |  |            | 1,561 |           |  |              | 3,158 |  |  |   | 5,830  |   |  |   | 11,095 |  
|                                        
|                                        
|                                        
|                                        
|Six Months Ended June 30, 2001           |  |            |       |            |  |            |       |           |  |              |       |  |  |   |        |   |  |   |        |  
|                                        
|                                        
|                                        
|                                        
|Revenues                                 |  | $          | 1,481 |            |  | $          | 1,487 |           |  | $            | 1,906 |  |  | $ |       |   |  | $ | 4,874  |  
|                                        
|                                        
|                                        
|                                        
|Income (loss) from continuing operations |  |            | (201  | )          |  |            | (400  | )         |  |              | 377   |  |  |   | (1,202 | ) |  |   | (1,426 | )
|                                        
|                                        
|                                        
|                                        
|Segment assets                           |  |            | 849   |            |  |            | 1,227 |           |  |              | 1,032 |  |  |   | 4,047  |   |  |   | 7,155  |  
|                                        
|                                        
|                                        
|                                        
|Six Months Ended June 30, 2000           |  |            |       |            |  |            |       |           |  |              |       |  |  |   |        |   |  |   |        |  
|                                        
|                                        
|                                        
|                                        
|Revenues                                 |  | $          | 1,353 |            |  | $          | 1,367 |           |  | $            | 3,397 |  |  | $ |       |   |  | $ | 6,117  |  
|                                        
|                                        
|                                        
|                                        
|Income (loss) from continuing operations |  |            | (171  | )          |  |            | (626  | )         |  |              | 444   |  |  |   | (1,487 | ) |  |   | (1,840 | )
|                                        
|                                        
|                                        
|                                        
|Segment assets                           |  |            | 546   |            |  |            | 1,561 |           |  |              | 3,158 |  |  |   | 5,830  |   |  |   | 11,095 |  

5.     Newly Adopted Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 supercedes Accounting Principles Board (APB) Opinion
No. 16, Business Combinations and requires all business combinations to be
accounted for using the purchase method of accounting. In addition, SFAS No.
141 requires that identifiable intangible assets be recognized apart from
goodwill based on meeting certain criteria.

SFAS No. 142 supercedes APB Opinion No. 17, Intangible Assets and addresses
how intangible assets and goodwill should be accounted for upon and after
acquisition. Specifically, goodwill and intangible assets with indefinite
useful lives will not be amortized but will be subject to impairment tests
based on their fair value.

The Company will adopt SFAS No. 141 and No. 142 on January 1, 2002. The
Company does not anticipate the adoption of these pronouncements will have a
material effect on their consolidated financial position, results of operations
or cash flows.




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

Overview

The Company is a provider of specialty clinical research and information
technology services that expedite and streamline the clinical trial and
regulatory submission process for pharmaceutical, medical device and
biotechnology manufacturers.

As of June 30, 2001, the Company had a backlog of projects for clinical studies
management, clinical monitoring staffing and data management with an aggregate
contract value of approximately $11.7 million. Potential cancellation, delay or
change in the scope of projects may affect the value of the Companys backlog.

On May 22, 2001, the Company announced its shares of common stock began trading
on the OTC Bulletin Board. Earlier that same day the Companys common stock
was delisted by the Nasdaq National Market for failure to meet certain
continuing listing requirements. There can be no assurance that the OTC
Bulletin Board will provide comparable liquidity to buyers and sellers of the
Companys common stock to that of the Nasdaq National Market.

5



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##### Table of Contents



The Company has adopted SEC Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, as amended, and the related Emerging
Issue Task Forces Issue No. 99-19, Reporting Revenue Gross as a Principal
Versus Net as an Agent. Accordingly, the Company has recognized, as revenue
and expense, amounts billed to clients relating to project pass-through
expenses incurred in the performance of the Companys clinical research
services in the accompanying condensed consolidated financial statements.
Revenues and expenses related to these pass-through expenses totaled $152,000
and $229,000 for the three months ended June 30, 2001 and 2000, respectively,
and $327,000 and $469,000 for the six months ended June 30, 2001 and 2000,
respectively.

Results of Operations

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

The Company incurred a net loss of $684,000, or $0.21 per diluted share, for
the three months ended June 30, 2001 as compared to a net loss of $994,000, or
$0.32 per diluted share, for the year earlier period.

Continuing Operations.Clinical research services revenues for the three months
ended June 30, 2001 were $2.35 million compared to $2.86 million for the year
earlier period, a decrease of 18.0%. This decrease in clinical research
services revenues is attributed to decreased volume of clinical research
services performed, in part due to delays in certain projects in the Companys
backlog of contracts. Given the Companys current size, management believes
that fluctuations in the timing of the performance of clinical research
services may impact revenue growth rates on a quarterly basis.

Cost of clinical research services revenues were $1.62 million for the 2001
period, or 69.2% of clinical research services revenues, compared to $1.90
million for the 2000 period, or 66.3% of clinical research services revenues.
This increase in cost of revenues as a percentage of clinical research services
revenues is primarily the result of delays in certain projects in the Companys
backlog of contracts which caused decreased levels of utilization of among the
Companys client service personnel. Improvement in cost of sales as a
percentage of clinical research services revenues will be dependent upon
keeping client service personnel utilized as billable resources.

General and administrative expenses were $1.44 million for the 2001 period
compared to $2.04 million for the 2000 period. The Company does not anticipate
significant future reductions in general and administrative expenses as the
Company has in place the infrastructure necessary to support expanded service
offerings.

Interest income net of interest expense for the 2001 period was $37,000
compared to $88,000 for the 2000 period. The decrease is due to the Companys
cash and cash equivalents balance, including restricted funds, which decreased
to $4.07 million at June 30, 2001 from $5.74 million at June 30, 2000, due to
losses incurred related to the Companys continuing and discontinued
operations, as well as capital expenditures.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

The Company incurred a net loss of $1.43 million, or $0.43 per diluted share,
for the six months ended June 30, 2001 as compared to a net loss of $1.84
million, or $0.59 per diluted share, for the year earlier period.

Continuing Operations.Clinical research services revenues for the six months
ended June 30, 2001 were $4.55 million compared to $5.65 million for the year
earlier period, a decrease of 19.5%. This decrease in clinical research
services revenues is attributed to decreased volume of clinical research
services performed, in part due to delays in certain projects in the Companys
backlog of contracts. Given the Companys current size, management believes
that fluctuations in the timing of the performance of clinical research
services may impact revenue growth rates on a quarterly basis.

Cost of clinical research services revenues were $3.08 million for the 2001
period, or 67.7% of clinical research services revenues, compared to $3.85
million for the 2000 period, or 68.2% of clinical research services revenues.

6



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##### Table of Contents



General and administrative expenses were $2.99 million for the 2001 period
compared to $3.82 million for the 2000 period. The Company does not anticipate
significant future reductions in general and administrative expenses as the
Company has in place the infrastructure necessary to support expanded service
offerings.

Interest income net of interest expense for the 2001 period was $93,000
compared to $187,000 for the 2000 period. The decrease is due to the Companys
cash and cash equivalents balance, including restricted funds, which decreased
to $4.07 million at June 30, 2001 from $5.74 million at June 30, 2000, due to
losses incurred related to the Companys continuing and discontinued
operations, as well as capital expenditures.

Liquidity and Capital Resources

The Companys cash and cash equivalents, including restricted funds, totaled
$4.07 million as of June 30, 2001, a decrease of $1.17 million from December
31, 2000. As of June 30, 2001, the Company had net working capital of $4.19
million, compared to $5.41 million at December 31, 2000. This decrease
resulted primarily from net losses of $1.43 million incurred during the six
months ended June 30, 2001. Management anticipates the Company will continue
to experience operating losses into 2001, and as a result, it believes working
capital will continue to decline.

As of June 30, 2001, the Company had $1.73 million in accounts receivable, net
of bad debt allowance, compared to $1.87 million as of December 31, 2000. The
Company believes its current allowance of $244,000 for bad debts is adequate.
The Companys days sales outstanding in accounts receivable was 41 days at June
30, 2001 compared to 52 days at December 31, 2000. Days sales outstanding in
accounts receivable may fluctuate in future periods as the Companys mix of
business related to the expanded service offerings continues to evolve.

On June 1, 2001 the Company entered into a Loan and Security Agreement and
Revolving Credit Note with a lending institution, providing for a revolving
line of credit in the maximum principal amount of $1.5 million. The revolving
line of credit will become effective when the Company sets up a lock box
account as set forth in the Loan and Security Agreement. The revolving line of
credit is secured by all of the Companys receivables and has a term of two
years. Borrowings under the revolving line of credit will not exceed 80% of
qualified accounts as defined in the Loan and Security Agreement. Interest on
the revolving line of credit is prime plus 2.0%. In addition, there is a usage
fee of 0.50% per annum and a loan management fee of 1.0% per annum.

The Company discontinued its software business in June of 1998, and later sold
the assets of that business in December of 1998. Related to the disposal of
the software business, the Company retained certain liabilities, which totaled
$75,000 as of June 30, 2001. In addition, the Company, based on certain
inquiries, is evaluating the level of potential sales taxes related to certain
software product sales made prior to the disposal of the software business.
The Company has not determined the total amount that may be due, but is
currently assessing the scope of the matter.

The Companys Board of Directors has authorized a stock repurchase program
under which up to 666,667 shares of the Companys common stock may be
repurchased. From inception of the stock repurchase program in August 1997
through June 30, 2001, the Company has repurchased 439,867 shares of common
stock for approximately $3.05 million. As of June 30, 2001, there were
3,357,496 shares of the Companys common stock issued and outstanding.

As of June 30, 2001, the Company had approximately $424,000 subject to
withdrawal restrictions as a condition of certain lease agreements for office
space and equipment. The amount of cash restricted under the lease agreements
decreases over the term of the leases, which extend to December 2002.

The Company believes that continued expenditure of funds will be necessary to
support its future operations, and that cash and cash equivalents, including
restricted funds, of $4.07 million on hand at June 30, 2001 will be sufficient
to fund its operations, capital requirements, and expansion goals through 2001.
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 in or beyond 2001. If the Company cannot achieve
profitability or positive cash flow or 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.

7



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##### Table of Contents



The Company has experienced operating losses for each of the past five years.
Net losses for the year ended December 31, 2000 were $4.61 million and for the
six months ended June 30, 2001 were $1.43 million. The Company had an
accumulated deficit of $63.57 million as of June 30, 2001. The Companys
ability to increase revenue, and to achieve profitability and positive cash
flow will depend on a number of factors as summarized above under Safe Harbor
Statement under the Private Securities Litigation Reform Act of 1995 and under
Cautionary Statement and Risk Factors included in Item 1 of the Companys
Annual Report on Form 10-K, dated March 29, 2001.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents and restricted funds. The Company
invests its cash and cash equivalents and restricted funds in investment grade,
highly liquid investments 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.




Part II. Other Information




Item 1. Legal Proceedings

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




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

The Company held its annual meeting of shareholders on May 30, 2001. There
were 3,315,786 shares of common stock outstanding and entitled to vote at the
annual meeting and a total of 2,610,801 were represented at the meeting.
Matters voted on were the following:

1.     Proposal to elect six directors, each for a one year term:

|                       |  |     |           |                    |  |  |        | 
|---------------------- |  | --- | --------- | ------------------ |  |  | ------ | 
|                       |  | For |           | Withhold Authority
|Barbara A. Cannon      |  |     | 2,541,746 |                    |  |  | 69,055 | 
|                      
|                      
|                      
|                      
|W. Hudson Connery, Jr. |  |     | 2,550,240 |                    |  |  | 60,561 | 
|                      
|                      
|                      
|                      
|Richard B. Fontaine    |  |     | 2,549,949 |                    |  |  | 60,852 | 
|                      
|                      
|                      
|                      
|Peter T. Garahan       |  |     | 2,549,899 |                    |  |  | 60,902 | 
|                      
|                      
|                      
|                      
|John M. Nehra          |  |     | 2,549,041 |                    |  |  | 61,760 | 
|                      
|                      
|                      
|                      
|Andre G. Pernet, Ph.D. |  |     | 2,549,899 |                    |  |  | 60,902 | 

2.     Proposal to approve the first amendment to the Celeris Corporation
Employee Stock Purchase Plan:

|        |  |  |           | 
|------- |  |  | --------- | 
|For     |  |  | 2,534,689 | 
|       
|       
|       
|       
|Against |  |  | 69,091    | 
|       
|       
|       
|       
|Abstain |  |  | 7,021     | 

8



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##### Table of Contents






Item 5. Other Information

The Company has attached as Exhibits 99.1, 99.2 and 99.3 its press releases
dated May 9, 2001, May 22, 2001 and July 24, 2001, respectively.




Item 6. Exhibits and Reports on Form 8-K

|     |  |                                                                                                                                                                                                 
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)  |  | Exhibits                                                                                                                                                                                        
|    
|    
|    
|    
|3.1  |  | Articles of Incorporation of the Company
(incorporated by reference to Exhibits 3.1 and 3.2 of the
Companys Annual Report on Form 10-K for the year ended
December 31, 1998)                   
|    
|    
|    
|    
|3.2  |  | Bylaws of the Company (incorporated by reference
to Exhibit 3.3 of the Companys Annual Report on Form 10-K for
the year ended December 31, 1998)                                               
|    
|    
|    
|    
|3.3  |  | Amendment to Amended Articles of Incorporation of
the Company (incorporated by reference to Exhibit 3.3 of the
Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999)
|    
|    
|    
|    
|10.1 |  | Loan and Security Agreement, dated June 1, 2001,
between Celeris Corporation, its subsidiary C. L. McIntosh &
Associates, Inc. and Heller Healthcare Finance Inc.                               
|    
|    
|    
|    
|10.2 |  | Revolving Credit Note, dated June 1, 2001,
payable by Celeris Corporation and its subsidiary C. L.
McIntosh & Associates, Inc. to Heller Healthcare Finance Inc.                                
|    
|    
|    
|    
|10.3 |  | First Amendment to the Celeris Corporation 1995
Non-Employee Director Stock Option Plan.                                                                                                        
|    
|    
|    
|    
|99.1 |  | Press Release dated May 9, 2001                                                                                                                                                                 
|    
|    
|    
|    
|99.2 |  | Press Release dated May 22, 2001                                                                                                                                                                
|    
|    
|    
|    
|99.3 |  | Press Release dated July 24, 2001                                                                                                                                                               

(b)  Reports on Form 8-K

None.




SIGNATURES

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

Celeris Corporation

|                      |  |     |  |                                                                              
|--------------------- |  | --- |  | -----------------------------------------------------------------------------
|Date: August 10, 2001 |  | By: |  | s Barbara A. CannonBarbara A. Cannon
President and Chief Executive Officer 
|                     
|                      |  |     |  |                                                                              
|                     
|Date: August 10, 2001 |  | By: |  | s Paul R. JohnsonPaul R. Johnson
Vice President and Chief Financial Officer

9