U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1998

             [ ] Transition Report Under Section 13 or 15(d) of the
                                  Exchange Act

                For the transition period from _______ to _______

                         Commission file number: 0-20102

                            CELERITY SOLUTIONS, INC.
        (Exact name of small business issuer as specified in its charter)


           Delaware                                       52-1283993
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
       incorporation)

                          270 Bridge Street, Suite 301
                                Dedham, MA 02026
                     (Address of principal executive office)


                                 (781) 329-1900
                            Issuer's telephone number


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

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest practicable date:

                                                Number Outstanding Shares
        Title of Class                          as of November 12, 1998
        --------------                          -------------------------

Common Stock, $.10 Par Value                          8,042,798

     Transitional Small Business Disclosure Format:    Yes [_]  No [X]

                            Exhibit Index on Page 21


                                  Page 1 of 22

<PAGE>

<TABLE>
<CAPTION>

                            CELERITY SOLUTIONS, INC.
                               SEPTEMBER 30, 1998
                                   FORM 10-QSB
                                TABLE OF CONTENTS

                                                                                        Page
                                                                                        ----
<S>                                                                                      <C>
PART I.  FINANCIAL INFORMATION

ITEM 1.  Condensed Consolidated Financial Statements
         Condensed Consolidated Balance Sheets as of September 30, 1998
           and March 31,1998                                                              3
         Condensed Consolidated Statement of Operations for the
           three and six months ended September 30, 1998 and 1997                         5
         Condensed Consolidated Statements of Cash Flows for the
           six months ended September 30, 1998 and 1997                                   6
         Notes to Condensed Consolidated Financial Statements                             7

ITEM 2.  Management's Discussion and Analysis or Plan of
           Operation                                                                     12

PART II  OTHER INFORMATION

ITEM 1.  Legal Proceedings                                                               20

ITEM 2.  Changes in Securities                                                           20

ITEM 3.  Defaults Upon Senior Securities                                                 20

ITEM 4.  Submission of Matters to a Vote of Security Holders                             20

ITEM 5.  Other Information                                                               21

ITEM 6.  Exhibits and Reports on Form 8-K                                                21

         Signatures                                                                      22
</TABLE>


                                  Page 2 of 22


<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                            Celerity Solutions, Inc.
                      Condensed Consolidated Balance Sheets
                                   (Unaudited)

                                                                  September 30               March 31
                                                                      1998                     1998
                                                                 -------------------------------------
<S>                                                              <C>                       <C>
Assets
Current assets:
   Cash and cash equivalents                                     $ 1,345,740               $ 1,347,246
   Short-term investments                                            520,334                   994,384
   Accounts receivable, net                                        3,137,764                 2,200,754
   Notes Receivable                                                  328,900                 1,159,893
   Prepaid expenses and other current assets                         190,136                   109,649
                                                                 -------------------------------------
Total current assets                                               5,522,874                 5,811,926

Property and equipment:                                            1,437,250                 1,266,250
   Less: accumulated depreciation and amortization                  (855,336)                 (697,577)
                                                                 -------------------------------------
                                                                     581,914                   568,673

Long term notes receivable                                            37,500
Notes receivable from related parties                                100,731                   117,999
Capitalized software, net                                            717,355                   803,887
Goodwill, net                                                      1,064,558                 1,134,100
Other long-term assets                                                 9,057                     9,057
                                                                 -------------------------------------
Total assets                                                     $ 8,033,989               $ 8,445,642
                                                                 =====================================
</TABLE>


See accompanying notes.

                                  Page 3 of 22

<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                            Celerity Solutions, Inc.
                Condensed Consolidated Balance Sheets (continued)
                                   (Unaudited)

                                                                  September 30               March 31
                                                                      1998                     1998
                                                                 --------------------------------------
<S>                                                              <C>                      <C>
Liabilities and shareholders' equity
Current liabilities:
   Accounts payable and accrued liabilities                      $  1,562,574             $  1,287,750
   Income taxes payable                                               427,877                  507,577
   Current portion of notes payable to related parties              1,072,604                1,100,797
   Unearned revenue and other current liabilities                     389,419                  494,640
                                                                 --------------------------------------
Total current liabilities                                           3,452,474                3,390,764

Notes payable to related parties                                      986,112                1,178,051
Deferred rent                                                          64,568                   70,688
                                                                 --------------------------------------
Total liabilities                                                   4,503,154                4,639,503
                                                                 --------------------------------------

Shareholders' equity:
   Common stock, $.10 par value                                       884,289                  884,289
   Additional paid-in capital                                      18,900,290               18,900,290
   Accumulated deficit                                            (14,203,400)             (13,928,096)
                                                                 --------------------------------------
                                                                    5,581,179                5,856,483

Less treasury stock, at cost                                       (2,050,344)              (2,050,344)
                                                                 --------------------------------------
Total shareholders' equity                                          3,530,835                3,806,139
                                                                 --------------------------------------
Total liabilities and shareholders' equity                       $  8,033,989             $  8,445,642
                                                                 ======================================
</TABLE>


See accompanying notes.

                                  Page 4 of 22

<PAGE>

<TABLE>
<CAPTION>

                            Celerity Solutions, Inc.
                 Condensed Consolidated Statements of Operations


                                                              Three Months Ended                 Six Months Ended
                                                                September 30                       September 30
                                                          1998              1997              1998               1997
                                                   ----------------------------------------------------------------------
                                                          -----(Unaudited)-----                -----(Unaudited)-----
<S>                                                  <C>                <C>                <C>                <C>
Revenue:
  Services                                           $ 2,189,742        $ 1,000,672        $ 4,123,313        $ 1,796,920
  Software licenses                                      761,049            138,327          1,292,185            261,048
  Hardware and other                                     105,810                             1,020,481
                                                     --------------------------------------------------------------------
Total revenue                                          3,056,601          1,138,999          6,435,979          2,057,968

Cost of sales
  Services                                             1,596,507            578,185          2,995,404          1,103,082
  Hardware and related                                    86,881                               868,277
  Amortization of capitalized software                    43,266             10,000             86,532             20,000
                                                     --------------------------------------------------------------------
Total cost of sales                                    1,726,654            588,185          3,950,213          1,123,082
                                                     --------------------------------------------------------------------
Gross Margin                                           1,329,947            550,814          2,485,766            934,886
Operating expenses:
  Research and development                               270,565            181,579            562,965            404,376
  General and administrative                             706,900            331,177          1,305,325            654,965
  Sales and Marketing                                    483,402            205,480            839,677            329,824
  Amortization of goodwill                                34,771             20,680             69,543             41,360
                                                     --------------------------------------------------------------------
Total operating expenses                               1,495,638            738,916          2,777,510          1,430,525

Operating loss                                          (165,691)          (188,102)          (291,744)          (495,639)

Other income (expense):
  Interest and other income                               22,443             67,241             87,888            136,038
  Interest expense                                       (60,572)           (47,652)          (124,450)           (95,304)
  Gain on sale of assets                                                                                        2,037,104
                                                     --------------------------------------------------------------------
Income (loss) before income taxes                       (203,820)          (168,513)          (328,306)         1,582,199
 Income tax (expense) benefit                             33,000                813             53,000            (77,813)
                                                     --------------------------------------------------------------------
Net income (loss)                                    $  (170,820)       $  (169,326)       $  (275,306)       $ 1,504,386
                                                     ====================================================================
Income (loss) Per Common Share:
Net income (loss) per share                                 (.02)              (.03)              (.03)               .25
                                                     ====================================================================
Weighted average shares outstanding                    8,017,798          6,032,065          8,017,798          6,032,065
                                                     ====================================================================
Income (loss) Per Share-Assuming Dilution:
Net income (loss) per share                                 (.02)              (.03)              (.03)               .24
                                                     ====================================================================
Weighted average shares outstanding                    8,017,798          6,032,065          8,017,798          6,368,403
                                                     ====================================================================
</TABLE>


See accompanying notes.

                                  Page 5 of 22

<PAGE>

<TABLE>
<CAPTION>

                            Celerity Solutions, Inc.
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                                                     Six Months Ended
                                                                                      September 30
                                                                                1998                1997
                                                                            --------------------------------
<S>                                                                         <C>                  <C>
Operating Activities
Net income (loss)                                                           $  (275,306)         $ 1,504,386
Adjustments to reconcile net income (loss) to net cash (used in)
     provided by operating activities:
     Depreciation of property and equipment                                     157,759              106,788
     Amortization of goodwill and developed software                            156,074               61,360
     Write-off of purchased research and development
     Gain on sale of assets                                                                       (2,037,104)
     Changes in assets and liabilities (net of effect from
         disposition):
         Accounts receivable                                                   (937,010)            (122,520)
         Prepaid expenses and other current assets                              (80,487)             (69,271)
         Short and long term notes receivable                                   793,493
         Long-term  notes  receivable  from  related  parties and
           other  assets                                                         17,268              (20,223)
         Accounts payable and accrued liabilities                               274,824              (71,479)
         Income taxes payable                                                   (79,700)
         Notes payable to related parties                                      (220,130)
         Unearned revenue, deferred rent and other current
           liabilities                                                         (111,341)              85,208
                                                                            --------------------------------
Net cash (used in) provided by operating activities                            (304,556)            (562,855)

Investing Activities
Purchase of Somerset Automation, Inc. net of cash acquired
Proceeds from sale of assets                                                                       2,509,757
Capital expenditures                                                           (171,000)            (110,287)
                                                                            --------------------------------
Net cash (used in) provided by investing activities                            (171,000)           2,399,470

Financing Activities
Purchases of short-term investments                                             (25,950)
Proceeds from sales of short-term investments                                   500,000              747,896
                                                                            --------------------------------
Net cash provided by financing activities                                       474,050              747,896
                                                                            --------------------------------

Net (decrease) increase in cash and cash equivalents                             (1,506)           2,584,511
Cash and cash equivalents at beginning of period                              1,347,246              760,065
                                                                            --------------------------------

Cash and cash equivalents at end of period                                  $ 1,345,740          $ 3,344,576
                                                                            ================================
</TABLE>


See accompanying notes.

                                  Page 6 of 22
<PAGE>


                            CELERITY SOLUTIONS, INC.
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (UNAUDITED)


1.   Statement of Information Provided

The accompanying unaudited condensed  consolidated  financial statements,  which
are for  interim  periods,  have been  prepared in  accordance  with Form 10-QSB
instructions  and  do  not  include  all  disclosures  provided  in  the  annual
consolidated  financial  statements.   These  unaudited  condensed  consolidated
financial  statements  should  be  read in  conjunction  with  the  consolidated
financial statements and the footnotes thereto contained in the Annual Report on
Form 10-KSB for the year ended March 31, 1998 of Celerity  Solutions,  Inc. (the
"Company"),  as filed with the  Securities  and Exchange  Commission on June 29,
1998.  These  results have been  determined  on the basis of generally  accepted
accounting  principles and practices applied consistently with those used in the
preparation  of the Company's  March 31, 1998 Annual Report on Form 10-KSB.  The
March 31, 1998 balance  sheet was derived from  audited  consolidated  financial
statements,  but does not include all disclosures required by generally accepted
accounting principles.

2.   Reclassifications

Certain  amounts in the September 30, 1997 Statement of Operations and Statement
of Cash  Flows have been  reclassified  to conform  to the  September  30,  1998
presentation.

3.   New Accounting Standards

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 131,  "Disclosure about Segments of an Enterprise and Related  Information",
which  establishes  standards  for the way public  business  enterprises  report
select information about operating  segments in annual financial  statements and
requires that those  enterprises  report  selected  information  about operating
segments in interim  financial  reports to shareholders.  This statement must be
adopted for fiscal years  beginning  after  December  15, 1997,  but need not be
applied to interim financial  statements in the initial year of its application.
Once this statement is adopted,  comparative  information  for previous years is
required to be restated to comply with the  reporting  requirements  of FASB No.
131.  This  Statement  becomes  effective  for the Company  with its annual Form
10-KSB  filing for the fiscal year ending March 31, 1999.  This  Statement  will
affect footnote disclosure but will not impact the Company's financial results.

4.   Income (loss) Per Share

In February 1997, the FASB issued Statement No. 128, "Earnings per Share", which
must be adopted for periods  ending  after  December 5, 1997  including  interim
periods.  The  Company  has  adopted  FASB No. 128 and has changed its method of
computing  earnings  per share and has  restated  prior  periods.  Under the new
requirements  for calculating  earnings per share,  the dilutive effect of stock
options will be excluded.  This  statement  also  prohibits the inclusion of any
potential  common  shares  from  any  computation  when a loss  from  continuing
operations exists. The effect would be antidilutive.  The Company is reporting a
loss from  operations  for the three and six month periods  ended  September 30,
1998,  and the three  months  ended  September  30,  1997 and thus has not added
potential  common shares to the weighted  average shares  outstanding  for those
periods.


                                  Page 7 of 22

<PAGE>

<TABLE>
<CAPTION>

                            CELERITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)



4.   Income (loss) Per Share, continued

     The following  table sets forth the computation of basic and diluted income
(loss) per share:


                                                       Three Months Ended                Six Months Ended
                                                          September 30,                    September 30,
                                                   -------------------------------------------------------------
                                                    1998               1997           1998              1997
                                                   -------------------------------------------------------------
<S>                                                <C>             <C>             <C>             <C>
Numerator:
Net income (loss)                                  $  (170,820)    $  (169,326)    $  (275,306)    $   1,504,386
                                                   =============================================================
Numerator for income (loss) per common
share and income (loss) per share-assuming
dilution                                           $  (170,820)    $  (169,326)    $  (275,306)    $   1,504,386
                                                   =============================================================

Denominator:
Denominator for income (loss) per common
share-Weighted average shares  outstanding           8,017,798       6,032,065       8,017,798         6,032,065

Effect of Dilutive securities:
                                                             *               *               *           336,338
                                                   -------------------------------------------------------------
Denominator for diluted income (loss) per
share- Adjusted weighted average shares              8,017,798       6,032,065       8,017,798         6,368,403
                                                   =============================================================
Income (loss)  per common share                    $      (.02)    $      (.03)    $      (.03)    $         .25
                                                   =============================================================
Income (loss) per common share-assuming
dilution                                           $      (.02)    $      (.03)    $      (.03)    $         .24
                                                   =============================================================
</TABLE>


*Potential  common shares are not included  because they would be  antidilutive.
Had the numerator been a profit the potential common shares would have increased
the weighted average shares outstanding by 351,579; and 381,126 shares as of the
three months ended  September  30, 1998 and 1997,  respectively,  and by 496,599
shares for the six months  ended  September  30, 1998.  In addition,  there were
options to purchase 1,193,000 shares at exercise prices between $2.469 and $4.66
per share  outstanding  at  September  30,  1998 that were not  included  in the
potential common share  computations  because their exercise prices were greater
than the average market price of the common shares.  There were also warrants to
purchase  599,621  shares  at  $3.57  and  2,500  shares  at  $2.47  which  were
outstanding  at September  30, 1998,  but not included in the  potential  common
share  computations  because their exercise prices were greater than the average
market price of common  shares.  These would have been  antidilutive,  even if a
profit had been reported in the numerator.


                                  Page 8 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)


5.   Notes receivable, current

Effective  July 31, 1998,  the Company  entered into an agreement with Henninger
Media Services,  Inc. ("HMSI")  amending its secured  promissory note dated June
30, 1993. The Company also entered into an agreement with Henninger Acquisition,
L.L.C.  ("HALLC")  and HMSI  whereby the Company  assigned  all rights under its
secured  agreement with HMSI,  other than rights to payments and benefits stated
below, to HALLC.

The  principal  and interest on the original  note totaled  $1,159,893 as of the
March 31,1998  Balance Sheet and  $1,211,759 as of the  amendment.  The original
note was amended as follows.  Upon  execution of the  agreements  HMSI and HALLC
paid  the  Company   $845,359  and  agreed  to  give  the  Company   $60,000  of
post-production  goods and  services.  HMSI also agreed to pay the Company  four
additional  separate  monthly  payments  of  Forty  Thousand  Dollars  ($40,000)
followed  by 12  separate  payments  of Twelve  Thousand  Five  Hundred  Dollars
($12,500).  The total payments to be received under these  agreements  including
interest are $1,215,359.  Payments under the above amendment and assignment have
been made as scheduled through September 30, 1998.

6.   Sale of select multimedia assets,  and acquisition of Somerset  Automation,
     Inc. (SAI)

On April 16, 1997, the Company sold certain of its multimedia assets to Davidson
& Associates  (Davidson) a division of Cendant, Inc. for $2,509,759 in cash. The
assets sold include machinery and capital equipment  utilized in art,  animation
and audio production in St. Petersburg, Russia, and Concord, Massachusetts.  The
net asset value of assets transferred was $472,655.  As part of the transaction,
the  Company   amended  its  software   development   contract   with   Blizzard
Entertainment (the Company was paid all related  receivables from the contract),
entered  into a  work-for-hire  agreement  with  Davidson  related  to  software
engineering  services,   and  assigned  and  transferred  its  present  Concord,
Massachusetts  office lease to Davidson.  The Gain on Sale  resulting  from this
transaction was $2,037,104.

On December 8, 1997, the Company  acquired all of the  outstanding  stock of SAI
for stock, debt securities and cash valued at $5,557,918. The purchase price was
composed of 1,958,233  unregistered  shares of the Company's common stock valued
at $2,313,848,  long-term notes,  with a stated interest rate of 7.5%,  totaling
$747,907, and cash payments totaling $2,496,163. SAI was merged into Somerset, a
wholly owned subsidiary of the Company,  at which time SAI's corporate existence
terminated.  The  transaction  was  accounted  for under the purchase  method of
business combinations. As a result of the acquisition;  $394,553 of goodwill was
recorded  and is being  amortized  on a straight  line  basis over seven  years,
$665,323 of  capitalized  software  was  recorded  and is being  amortized  on a
straight line basis over five years,  and  $3,094,527 of purchased  research and
development was written off at December 8, 1997.


                                  Page 9 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)


6.   Sale of select multimedia assets,  and acquisition of Somerset  Automation,
     Inc. (SAI), continued

SAI's  in-process  technology  involved  rewriting,  packaging and porting SAI's
software to Windows NT. The Company  expects to expend  $400,000 during the next
12  months  in order to  complete  these  projects.  Due to the high  levels  of
competition in the warehouse  management  software industry,  SAI is continually
working towards improving upon existing  capabilities through  implementation of
additional product enhancements. In addition, due to the nature of the industry,
SAI expects additional  product platforms and/or  functionalities to evolve that
are currently  not in  development.  There can be no assurance  that the Company
will be able to develop  and market new  products or product  enhancements  that
respond  to  technological  change  or  evolving  industry  standards,  that new
products will be released on schedule,  or that  released  products will achieve
any degree of market  acceptance.  The  inability,  for  technological  or other
reasons,  to  successfully   develop  and  introduce  new  products  or  product
enhancements  could have a material adverse effect on the Company's business and
its operating  results and financial  condition.  Supplemental pro forma revenue
and cost of sales for the three and six month periods  ended  Septemebr 30, 1998
and 1997,  assuming the above  transactions  were consummated  prior to April 1,
1997, are presented below.

<TABLE>
<CAPTION>

                                                         Three Months Ended                   Six Months Ended
                                                           September 30                          September 30
                                                      1998               1997              1998               1997
                                                     Actual            Proforma            Actual            Proforma
                                                  -------------------------------------------------------------------
                                                                         -----(Unaudited)-----
<S>                                               <C>                <C>                <C>                <C>
Revenue

  Services                                        $2,189,742         $1,993,943         $4,123,313         $3,713,353
  Software licenses                                  761,049            438,927          1,292,185            636,647
  Hardware and other                                 105,810             51,918          1,020,481             89,788
                                                  -------------------------------------------------------------------
Total revenue                                      3,056,601          2,484,788          6,435,979          4,439,788

Cost of sales
  Services                                         1,596,507          1,039,561          2,995,404          2,031,008
  Hardware and other                                  86,881             40,965            868,277             69,969
  Amortization of Capitalized Software                43,266             43,266             86,532             86,532
                                                  -------------------------------------------------------------------
Total cost of sales                                1,726,654          1,123,792          3,950,213          2,187,509
                                                  -------------------------------------------------------------------
Gross Margin                                      $1,329,947         $1,360,996         $2,485,766         $2,252,279
                                                  ===================================================================
</TABLE>


                                 Page 10 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)


7.   Licensing, Distribution, and Development Agreements

Licensing  and  Distribution  Agreement  with  Davidson &  Associates,  Inc. The
Company  entered into an agreement with Davidson & Associates,  Inc. on July 11,
1995  pursuant to which  Davidson was granted a worldwide  license to distribute
six software programs and related  materials  produced by the Company based upon
international  folktale storybooks in a CD-ROM for Macintosh and Windows format.
The  Company  retains  all  right  and title to all  copyrights  and  trademarks
contained in the works.  As  consideration  for the grant of license the Company
receives  one-half  (1/2) of the receipts  less agreed upon costs and  expenses.
Furthermore,  Davidson  agreed  to pay the  Company  a  non-refundable  advance,
against  future  payments  resulting from  localized  product,  in the amount of
$90,000 for each  localization kit accepted by Davidson.  There were no revenues
recognized  from this  agreement  during  the three or six month  periods  ended
September 30, 1998 or 1997. In March 1998, the Company  transferred and assigned
to  Davidson  any and all  rights in full,  which  the  Company  had under  this
agreement.

Publishing and Licensing  Agreement with Broderbund  Software,  Inc. The Company
entered  into an agreement  dated  February 9, 1996 with  Broderbund  granting a
worldwide  license  for two (2) titles in a CD-ROM  for  Macintosh  and  Windows
format. The Company retains all right and title to all copyrights and trademarks
contained  in the work.  As  consideration  for the grant of license the Company
will receive 30% of the receipts  less agreed upon costs and expenses for sales,
on-line  versions,  sequels,  foreign  language  adaptations  and conversions by
publisher,  and 50% of the receipts  less agreed upon costs and expenses for OEM
sales,  sequels,  foreign  language  adaptations and  conversions.  Furthermore,
Broderbund  agreed to pay the Company a non-refundable  advance,  against future
payments  in the amount of  $100,000  for each  title  accepted  by  Broderbund.
Broderbund  also agreed to pay the  Company a  non-refundable  advance,  against
future payments resulting from localized product,  in the amount of $150,000 for
each localization kit accepted by Broderbund.  There were no revenues recognized
from this  agreement  during the three or six month periods ended  September 30,
1998 or 1997.

Development  Agreement  with Blizzard  Entertainment  (Blizzard),  subsidiary of
Davidson  &  Associates,  Inc.  On April 1,  1996 the  Company  entered  into an
agreement  with  Blizzard  to develop a  computer  software  product  based upon
Blizzard's  WarCraft software series for the Windows 95 and Macintosh  operating
systems.  As part of the agreement the Company  agreed all rights,  titles,  and
interest in work conceived,  developed,  created,  obtained, or first reduced to
practice  for  Blizzard  under this  agreement.  Subject to certain  termination
provisions,  Blizzard  agreed to pay the Company a development fee of $1,250,000
to be paid out at the  accomplishment  of specified  milestones.  Blizzard  also
agreed to pay  royalties to the Company as follows;  5% on net receipts  from $5
million to $10 million,  7.5% on net receipts from 10 million to 15 million, and
10% on net  receipts  of $15 million and above.  This  agreement  was amended on
April 16,  1997 as part of the sale of certain  multimedia  assets to  Davidson.
Under this amendment,  the Company  discontinued all development work and agreed
to halve any subsequent  royalty receipts,  reflecting the fact that the Company
was only  responsible  for half of the  development.  The amounts payable to the
Company  for  future  milestone  attainments  under  this  agreement  was  $0 at
September  30,  1998 and 1997,  respectively.  There  were no costs or  revenues
generated  under  this  agreement  during the three or six month  periods  ended
September 30, 1998 or 1997.


                                 Page 11 of 22

<PAGE>


                           CELERITY SOLUTIONS, INC..


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     The following  discussion  should be read in conjunction with the condensed
unaudited financial  statements included elsewhere within this quarterly report.
Fluctuations in annual and quarterly  operating results may occur as a result of
certain  factors  such  as  the  size  and  timing  of  customer  contracts  and
competition.  Due  to  such  fluctuations,  historical  results  and  percentage
relationships  are not  necessarily  indicative  of the  results  for any future
period. Statements, which are not historical facts contained in this report, are
forward-looking statements that involve risks and uncertainties that could cause
actual  results  to  differ  materially  from  projected  results.  Readers  are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no  obligation  to  publicly  release  the  results  of any  revision  to  these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

Business Developments

     During  the  current  quarter  the  Company  announced  the  signing  of  a
multi-million dollar agreement to provide Distribution Dynamics, Inc. (DDI) with
its entire suite of supply chain  management  software  including  its real-time
Supply  Chain  Planner,  Sales  Order  Management,  Purchase  Order  Management,
Warehouse Management and Inventory Control modules.  This contract will generate
consulting  revenues  for both  CSTI and  Somerset  over the next two  years for
system  configuration and  implementation.  DDI is a leading  distributor of "C"
class  commodity  items,  including  fasteners  and  related  items to  original
equipment manufactures.  This product suite, along with DDI's efforts to improve
their business processes, will provide DDI with a comprehensive system to manage
their current business  divisions and the solid  foundation  required for future
growth.  The  professional  services and license  agreements  with DDI are being
filed, herewith, as Exhibit 10.56.

     The Company acquired CSTI on March 31, 1997 in a transaction  accounted for
under the purchase method of accounting.  This acquisition  provided the Company
an entry into the supply chain management (SCM) sector of the business  software
market.  SCM encompasses the planning and control of material and resources from
customer order entry through warehousing and logistics to customer delivery.  In
April 1997, the Company sold certain of its multimedia  assets to Davidson.  The
Company is focused on the business  software  market and has no plans to develop
new multimedia  products in the foreseeable  future. In August 1997, the Company
established Paragon, a limited liability company in St. Petersburg,  Russia as a
wholly owned  subsidiary.  Paragon  develops  software for the Company.  Paragon
employs 10  technical  personnel  some of whom were  employed  by the  Company's
subsidiary  AMI,  which was sold in April of 1997.  On  December  8,  1997,  the
Company  acquired  all of the  outstanding  stock of Somerset  Automation,  Inc.
(SAI), a privately held warehouse  management  software company based in Irvine,
California  by  means of a  merger  between  SAI and  Somerset  Solutions,  Inc.
(Somerset), a wholly owned subsidiary of the Company. SAI is a technology leader
in the warehouse management software market.


                                 Page 12 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.


Presentation

     Since  the  Company's  April  1997  sale of  select  multimedia  assets  to
Davidson,  the March 1997 acquisition of CSTI, and the December 1997 acquisition
of SAI, the Company has focused  principally  on the business  software  market.
Existing multimedia software titles continue to be sold through the distribution
channels that were  established  prior to the divestiture.  However,  multimedia
revenue  represents  a  small  fraction  of  the  Company's   revenues.   Actual
comparisons  are discussed  below.  The Company has also included a supplemental
discussion at the end of this section regarding pro forma revenue, a schedule of
which is included in the notes to the financial statements.

 Net Sales

     Revenues from services increased  $1,189,070 or 119% and $2,326,393 or 129%
for the three month and six month  periods  ended  September 30, 1998 versus the
same periods in 1997.  This increase is  attributable to the acquisition of SAI,
which added $1,380,941 and $2,362,076 in consulting revenue, partially offset by
decreases  in service  revenues at CSTI  totaling  $191,871  and $35,683 for the
three months and six months ended September 30, 1998, respectively. The decrease
in CSTI's revenue was  attributable  to the completion of several  projects that
incurred  non-billable time during the second quarter and the delay in the start
of new  projects.  Management  expects that service  revenues will increase over
fiscal 1998 levels for CSTI and  Somerset,  however there can be no assurance as
to the extent of such increase or if revenues will increase at all.

     Revenues  from  software  license  sales  increased  $622,722  or 450%  and
$1,031,137 or 395% for the three month and six month periods ended September 30,
1998 versus the same periods in 1997. This increase is attributable to increases
in license fee revenue at CSTI of  $361,288 or 336 % and  $593,918 or 300%,  and
the  acquisition  of SAI which  generated  $288,170  and $496,306 in license fee
revenue  partially offset by a decreases in multimedia  royalties of $26,736 and
$59,086  for  the  three  and  six  month  periods  ended   September   30,1998,
respectively.  CSTI's  increase is  attributable  in part to the  recognition of
license fees from a source code sale of $150,000.  License  revenue  recognition
fluctuates with customer  acceptance of the delivered product,  product sales to
new and existing  customers,  and the  percentage of completion  calculation  on
sales  involving  consulting  modifications  and  implementation.   The  Company
continues  to expand  all  phases of sales and  marketing  in order to  generate
long-term business software sales growth.

     Revenues from hardware and related sales increased  $105,810 and $1,020,481
for the three and six month  periods  ended  September  30, 1998 versus the same
periods in 1997.  These  increases are  attributable  to the acquisition of SAI,
which from time to time resells  third party  software and hardware with related
warehouse  management  system  installations.  Hardware  sales  during the first
quarter included two large sales totaling approximately $800,000. Hardware sales
fluctuate with the installation of new systems where the customer  requires that
the  Company's  software be integrated  with  hardware.  Hardware  sales are not
expected to attain this level in subsequent quarters for fiscal 1999.

     The  level  of  net  sales  realized  by the  Company  in  any  quarter  is
principally  dependent  on the portion of projects  completed.  The  purchase of
supply  chain  and  warehouse   management   solutions  requires  a  significant
commitment  of capital  and  resources  on the part of the  customer,  the sales
cycles are long and average  from six to nine  months.  As a result,  revenue is
subject to many risks such as  budgetary  cycles,  changes in the  business of a
customer and overall  economic trends that are not  controllable by the Company.
Quarterly results have varied significantly in the past and are likely to


                                 Page 13 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.


Net Sales, continued

fluctuate  in the  future  as a result  of the  timing  of new  orders,  product
development expenditures,  and the number and timing of new product completions.
A significant  portion of the Company's operating expenses are fixed and planned
expenditures  in any given  quarter  are based on sales and  revenue  forecasts.
Accordingly,  if net sales do not meet the Company's  expectations  in any given
quarter,  operating  results and  financial  condition  could be  adversely  and
disproportionately  affected.  As a  result  of these  and  other  factors,  the
Company's  results of  operations  and  financial  condition  for any period are
inherently  difficult to predict.  The Company continues to expand all phases of
sales and marketing in order to generate  long-term  sales  growth.  The Company
issued a press  release on  November 4, 1998  stating  that  management  expects
fiscal 1999 revenues to increase  over 100% from fiscal 1998,  however there can
be no  assurances as to the extent of such increase or if revenues will increase
at all.

Cost of Sales

     Cost of services are incurred in  connection  with the sale of supply chain
and warehouse management software.  Cost of services consists of costs primarily
associated with consulting and implementation  services that are sold as part of
a total supply chain and warehouse  management  solution,  and costs  associated
with providing  support to customers.  These costs increased  $1,018,322 or 176%
and  $1,892,322 or 172% during the three and six month  periods ended  September
30,  1998  versus the same  periods in 1997.  Cost of  services  as a percent of
revenue from services  increased  from 58% to 73% or an increase of 15% and from
62% to 73% or an  increase  of 11% for the  three and six  month  periods  ended
September 30,1998 versus the same periods in 1997. The Company has increased its
consulting  staff  and  engaged   subcontractors   in  anticipation  of  growing
consulting  revenue.  The  Company's  cost of sales as a percent  of sales  also
increased due to the completion of several  projects that incurred  non-billable
time during the second  quarter and the delay in the start of new  projects.  To
the extent that the Company's consulting revenues do not increase at anticipated
rates, the hiring of additional consultants could adversely affect the Company's
gross margins. The Company expects this expense to increase in absolute dollars,
but not as a percent of sales during fiscal 1999.

     Cost of sales  from  hardware  and  related  sales  increased  $86,881  and
$868,277 for the three and six month periods ended September 30, 1998 versus the
same periods in 1997.  This increase is  attributable to the acquisition of SAI,
which from time to time resells  third-party  software and hardware with related
warehouse  management  system  installations.  Hardware sales fluctuate with the
installation  of new systems  where the  customer  requires  that the  Company's
software be integrated with hardware.  Hardware sales are not expected to attain
this level in  subsequent  quarters  for fiscal 1999.  The Company  expects that
hardware  cost of sales as a  percentage  of  hardware  sales will  continue  to
average  approximately 86% during the remainder of fiscal 1999, but there can be
no assurance of this expectation.

     Amortization of capitalized  software increased $33,266 or 333% and $66,532
or 333% during the three and six month periods  ended  September 30, 1998 versus
the same period in 1997. This increase is attributable to the acquisition of SAI
on December 8, 1997. This  acquisition  resulted in the recording of capitalized
software,  which is being  amortized  over five  years.  The actual  capitalized
software  amortization  costs for fiscal 1999 are  expected to be  approximately
$173,000.


                                 Page 14 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.


Research and Development

     Research  and  development  (R&D)  expenses  increased  $88,986  or 49% and
$158,589 or 39% during the three and six month periods ended  September 30, 1998
versus the same periods in 1997.  R&D as a percent of sales  excluding  hardware
sales  decreased  from 16% to 9% for a decrease  of 7% and from 20% to 10% for a
decrease of 10% for the three and six month  periods  ended  September 30, 1998,
respectively.  The Company  expects  R&D costs to  increase in absolute  dollars
during  fiscal  1999 as a result of an  expansion  of  product  development  and
integration of its supply chain and warehouse management software packages.  The
Company  expects R&D as a percent of sales to be  consistent  with or lower than
prior years,  reflecting  the  realization  of lower  development  costs through
increased   utilization  of  the  Company's  St.  Petersburg,   Russia  software
development  facility.  The R&D projects are presented  below and are grouped by
each entity acquired.

     CSTI's in-process technology involves several projects.  Two large projects
involve a rewriting  and porting of the Continuum 6.0 software to Windows NT and
the  development  of applets for the Internet.  These  projects  have  estimated
completion  dates within the next twelve months.  The Company  expects to expend
$500,000 in order to complete these  projects.  Approximately  one-half of these
costs will be completed and billed to clients as part of consulting engagements.
For many implementations of its products,  CSTI performs a significant amount of
customization typically requiring six months and in some cases a year or more to
complete

     Somerset's in-process technology involves rewriting,  packaging and porting
software to Windows NT. The Company  expects to expend  $400,000 during the next
12  months  in order to  complete  these  projects.  Due to the high  levels  of
competition  in the  warehouse  management  software  industry,  the  Company is
continually  working  towards  improving  upon  existing   capabilities  through
implementation of additional product enhancement.

     Due to the nature of the industry,  the Company expects  additional product
platforms   and/or   functionalities   to  evolve  that  are  currently  not  in
development.  There can be no assurance that the Company will be able to develop
and market new products or product  enhancements  that respond to  technological
change or evolving  industry  standards,  that new products  will be released on
schedule,   or  that  released  products  will  achieve  any  degree  of  market
acceptance.  The inability,  for technological or other reasons, to successfully
develop and introduce new products or product enhancements could have a material
adverse effect on the Company's business and its operating results and financial
condition.

General and Administrative

     General and administrative expenses increased $375,723 or 113% and $650,360
or 99% during the three and six month  periods  ended  September 30, 1998 versus
the same period in 1997.  Approximately  $218,000 of the  increase for the three
month periods and $420,000 for the six month periods were due to the acquisition
of SAI and includes  operating  costs as well as increased costs incurred by the
Company for management and integration of Somerset.  Of the remaining  increase,
approximately  $33,000  and  $57,000  for  the  three  and  six  month  periods,
respectively,  resulted from an increase in investor  relations related activity
and  $101,000  and  $126,000,  respectively,  from CSTI.  The  increase  at CSTI
resulted  from  the  establishment  of  a  separate  infrastructure,  which  was
necessary for its continued  growth.  General and  administrative  expenses as a
percent  of sales  decreased  by 6% and 12% for the three and six month  periods
ended  September  30, 1998,  respectively.  The  exclusion of hardware  sales in
Fiscal 1998  results in  decreases  of 5% and 8%,  respectively.  A  significant
portion of the


                                 Page 15 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.

General and Administrative, continued

Company's  operating  expenses are fixed, and planned  expenditures in any given
quarter are based on sales and revenue forecasts.  Accordingly,  if products are
not completed and/or shipped on schedule and net sales do not meet the Company's
expectations  in any given quarter,  operating  results and financial  condition
could be adversely  affected.  The Company  expects  general and  administrative
expenses  to  increase  in  absolute  dollars,  but to continue to decrease as a
percent of sales in fiscal 1999 versus the same period in fiscal 1998.

Sales and Marketing

     Sales and marketing expense increased $277,922 or 135% and $509,853 or 155%
during the three and six month periods ended  September 30, 1998 versus the same
periods in 1997. This item includes  personnel  related costs, as well as, those
costs related to facilities,  travel,  trade shows,  advertising and promotions.
The  acquisition of SAI resulted in an increase of $226,800 and $404,996 for the
three and six month periods, respectively. CSTI's selling and marketing expenses
increased  by  $51,122  and  $104,857  for  the  three  and six  month  periods,
respectively.  The Company is committed to an  investment in sales and marketing
efforts and  alliances.  These  efforts are  expected to generate an increase in
future  revenue.  There can be no  assurance  that the  Company  will be able to
realize  the  benefits  from this  investment.  The  Company  expects  sales and
marketing  expenses to  increase  in absolute  dollars and as a percent of sales
during fiscal 1999.

Depreciation

     Depreciation  increased  $24,858 or 42% and $50,972 or 48% during the three
and six month periods ended  September 30, 1998 versus the same periods in 1997.
The  acquisition of SAI was responsible for increases of $31,385 and $54,674 for
the three and six month  periods,  respectively.  This was  partially  offset by
decreases in depreciation at CSTI of $6,527 and $3,702 for the same periods. The
Company  expects  depreciation to continue to increase during fiscal 1999 due to
this acquisition. The actual depreciation expense for fiscal 1999 is expected to
be approximately $300,000.

 Amortization of Goodwill

     Amortization of goodwill increased $14,091 or 68% and $28,183 or 68% during
the three and six month periods ended September 30, 1998 versus the same periods
in 1997. The  acquisition of SAI was responsible for all of the increase and the
Company  expects  amortization of goodwill to continue to increase during fiscal
1999 due to this acquisition.  The actual goodwill amortization costs for fiscal
1999 are expected to be approximately $139,000.

Gain on Sale of Assets

     The gain of $2,037,104  resulted from the sale of select  multimedia assets
to Davidson for $2,509,759 in cash. The assets sold include  equipment  utilized
in art, animation and audio production in St.  Petersburg,  Russia, and Concord,
Massachusetts.


                                 Page 16 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.


Provision for Income Taxes

     The  provision  for  income  taxes  represents   alternative   minimum  tax
liabilities  and state income  taxes on income  earned.  The Company  expects an
effective tax rate of approximately  16% for fiscal year 1999. This rate differs
from the statutory rate due to anticipated  partial recognition of $4,888,000 in
deferred tax assets which were fully reserved in March and September of 1998.

Liquidity and Capital Resources

     The Company's primary sources of liquidity are cash, cash equivalents,  and
short-term  investments.  During the six months ended September 30, 1998,  cash,
cash equivalents,  and investments decreased $475,556 or 20% to $1,866,074. This
decrease  relates to $ 304,556 of cash used in operating  activities (see below)
and $171,000 in capital  expenditures.  The Company will use its working capital
to finance its growth from ongoing  operations and fund the continued  expansion
of its sales and marketing resources.

     Accounts receivable increased $937,010 or 43% to $3,137,764.  Approximately
$317,000 and $620,000 of this increase  occurred at CSTI and Somerset during the
six months, respectively.  The increase is attributable to projects that started
near  the  end  of  the  quarter  which  required  large   deposits,   including
approximately $400,000 due from Distribution Dynamics, Inc.

     Notes receivable  decreased  $793,493 or 68% because of payments related to
the Henninger note receivable being received. This is discussed in Note 5 of the
Notes to the Financial Statements.

     Accounts  payable  and  accrued  liabilities  increased  $274,824 or 21% to
$1,562,574.  This  increase  includes  increases in accrued  payroll and related
costs as well as increases in amounts to subcontractors.

     Notes payable to related parties decreased $220,130,  reflecting  scheduled
payments  being made and the  subsequent  shifting  of other  payments  due from
long-term to current liabilities.

     Unearned  revenue  decreased  $111,341,  reflecting the net  recognition of
support  maintenance and license revenue fees that are greater than the receipts
taken in on new yet-to-be recognized license fees.

     In the opinion of management,  existing cash and cash equivalent  balances,
short-term investment balances,  and cash generated from operations will satisfy
the Company's working capital and capital expenditure  requirements for at least
the next twelve months.  However,  any material  acquisitions  of  complementary
business,   products  or  technologies  could  require  the  Company  to  obtain
additional sources of financing.

     The Company does not currently  have plans for major capital  expenditures,
but does have $994,927 in long-term  notes  payable to related  parties from the
acquisitions  of SAI and CSTI.  These notes are payable in various amounts which
began April 1, 1998 and end January 1, 2001. The Company  believes that existing
cash and cash equivalent balances,  short-term investment balances and potential
cash flow from operations will satisfy this long-term liability.

     At June 30, 1998, the Company had outstanding Series A Warrants to purchase
599,621 shares of Common Stock at $3.57 per share.  These warrants  expire March
31,  1999,  subject to  extension  by the  Company.  Pursuant to the  redemption
provision in the Warrant Agreement, the Company has the option


                                 Page 17 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.


Liquidity  and Capital Resources, continued

of redeeming  the warrants on an "all or nothing  basis," and,  given  favorable
market  conditions,  may  do so.  Exercise  of  these  warrants  would  generate
approximately $2,141,000 in cash.

     The  Company  continues  to  consider  investments  in or  acquisitions  of
compatible businesses.  However, there can be no assurance that the Company will
make investments in or enter into business  combinations with other entities. In
the  event  that  the  Company  engages  in such  transactions,  it may  require
additional financial resources.

Pro Forma Net Sales

     The following  discusses  the pro forma changes in the Company's  financial
results  assuming that the SAI  acquisition  and the multimedia  asset sale took
place prior to April 1, 1997. The Company believes that this comparison provides
a more meaningful analysis of current and prior quarter results.

     Pro forma revenues from services  increased $195,799 or 10% and $409,960 or
11% for the three and six month periods ended September 30, 1998 versus the same
periods in 1997.  Somerset had  increases of  approximately  $388,000 or 39% and
$446,000 or 23% for the three and six month  periods  ended  September 30, 1998.
CSTI had a decrease of approximately  $179,000 or 19% for the three months ended
September  30,  1998 but an  increase  of  $39,000  or 2% for six  months  ended
September  30,  1998  versus the same  periods in 1997.  The  decrease in CSTI's
revenue was  attributable  to the  completion of several  projects that incurred
non-billable  time  during the second  quarter and the delay in the start of new
projects.  Management  expects that service  revenues  will again  increase over
fiscal 1998 levels for CSTI and Somerset,  however there can be no assurances as
to the extent of such increase or if revenues will increase at all.

     Pro forma revenues from software  license sales  increased  $322,122 or 73%
and 655,538 or 11% for the three and six month periods ending September 30, 1998
versus the same  periods in 1997.  CSTI had  increases in license fee revenue of
$361,288 or 337% and $593,918 or 300%, respectively, for the three and six month
periods.  CSTI's  increase is attributable in part to the recognition of license
fees from a source code sale of  $150,000.  Somerset  experienced  a decrease in
license fee revenue in the second  quarter of fiscal 1999 versus  fiscal 1998 of
$12,430 or 4%, but an increase  for the six months ended  September  30, 1998 of
$120,706 or 32%. The exited multimedia  business  experienced  decreases in both
periods  of $26,736  and  $59,086,  respectively.  License  revenue  recognition
fluctuates with customer  acceptance of the delivered product,  product sales to
new and  existing  customers,  and the  percentage  completion  calculation  for
license contracts involving consulting modifications and implementation.

     Pro forma revenues from hardware and other sales increased  $53,892 or 104%
and $930,693 or 104% for the three and six month  periods  ended  September  30,
1998 versus the same periods in 1997.  This increase is attributable to Somerset
which  resells  third  party  software  and  hardware  with  related   warehouse
management system installations.  Hardware sales during the first quarter of the
year included two large sales totaling approximately $800,000.

Year 2000 Compliance Issues

     Many  older  computer  systems  and  software  products  in use today  were
programmed with a two -digit date code field. These systems or software products
need to be modified,  upgraded or replaced to distinguish the Year 2000 in order
to avoid the possibility of erroneous results or system failures. The


                                 Page 18 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.


Year 2000 Compliance Issues,  continued

effects of this issue and the efforts by companies to address it are  uncertain.
The risk for Celerity  exists in four areas:  systems used by the Company to run
its business, systems used by the Company's vendors, potential warranty or other
claims from the  Company's  customers,  and the  potential  reduced  spending by
others companies as a result of significant information systems spending on Year
2000 issues.

     The Company has inventoried and evaluated its internal systems,  equipment,
and facilities and established a schedule to replace or upgrade systems that are
known to be Year 2000 non-compliant.  The Company utilizes outside providers for
services such as payroll processing and 401(k) benefit administration, which may
or may not be Year 2000 compliant. The company has requested and received from a
majority of its vendors written  confirmation of their knowledge of or plans for
Year 2000 compliance. The Company has taken steps to make sure that its internal
systems  will   function  in  the  year  2000,   but  failure  of  any  critical
technological  component  to  operate  properly  may have an  adverse  impact on
business  operations or require the Company to incur  unanticipated  expenses to
remedy any  problems.  The Company does not expect Year 2000 related  compliance
costs  to  be   material,   but  can  not   assure   that  such  costs  will  be
inconsequential.  The Company has not identified alternative  contingency plans,
but will do so as it continues to assess the Year 2000 risk.

     The  Company's  software  products  have  been  modified  to be  Year  2000
compliant.  However,  the  Company's  products  are  complex  and might  contain
undetected  errors or failures even though  intended to be Year 2000  compliant.
There can be no assurance that the Company's  software  products contain or will
contain all necessary  date code changes or that errors will not be found in new
products  or  product  releases,  resulting  in  loss  of or  delay  in  product
acceptance.  If the Company is unable,  or is delayed in its efforts to make the
necessary date code changes,  there could be a material  adverse effect upon the
Company's business, operating results, financial condition and cash flows.

     Many  companies  are expending  significant  resources to modify or upgrade
their existing software and hardware for Year 2000 compliance. This might reduce
funds available to purchase other software products such as the Company's supply
chain  management  software.  Additionally,  Year 2000  problems in a customer's
other  software  products  might  significantly  limit the  customer's  realized
benefit from the supply chain management software.  These events could result in
a  material  adverse  effect  on  the  Company's  business,  operating  results,
financial condition and cash flows.

Future Operating results, (Statutory Safe Harbor Disclosure)

     This report  contains  forward-looking  statements.  For this purpose,  any
statement,  contained  herein that are not statements of historical  fact may be
deemed to be  forward-looking  statements.  Without limiting the foregoing,  the
words "believes", "anticipates", "plans", "expects", and similar expressions are
intended to identify forward-looking statements.

     Numerous  factors  may affect the  Company's  business  and its  results of
operations.  These factors include the potential for significant fluctuations in
quarterly results,  dependence on new products and rapid  technological  change,
risk of software  errors or failures,  the level and  intensity of  competition,
lack of product  diversification,  dependence on certain distribution  channels,
proprietary  intellectual  property  rights,  limited  operating  history in the
supply chain management software industry, integration of acquisitions,  loss of
key  employees,  lack of  profitability,  sustaining  a public  trading  market,
absence of dividends,  and international  operations.  For a discussion of these
and other factors that may affect the  Company's  future  results,  see the Form
10-KSB for March 31, 1998 filed by the Company with the SEC on June 1998 and the
S-3/A filed by the Company on July 17, 1998 with the SEC.


                                 Page 19 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.


PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

No Litigation.

ITEM 2. CHANGES IN SECURITIES

Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.


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

On August 25, 1998  registrant  held its 1998 Annual Meeting of  Stockholders at
the Company's corporate offices located at 200 Baker Avenue, Suite 300, Concord,
Massachusetts. The following voting matters were approved at the meeting:

<TABLE>
<CAPTION>

                                                                                        Against/                 Broker
                                                                           For          Withheld   Abstain       Non-Vote
                                                                           ---          --------   -------       --------
<S>                                                                      <C>            <C>           <C>           <C>
1.    Election of five  persons to the Board of  Directors
      to hold office until the next Annual  Meeting or until
      their  successors  have been elected and qualified or
      their earlier resignation or removal:
         Luda Kopeikina                                                  6,085,393      34,517        --            --
         Igor R. Razboff                                                 6,085,393      34,517        --            --
         Philip R. Redmond                                               6,085,393      34,517        --            --
         Richard Santigati                                               6,085,393      34,517        --            --
         Alan F. White                                                   6,085,393      34,517        --            --

2.    Ratification  and approval of an Amendment to the
      Company's  Amended and Restated 1992 Non-
      Qualified  Stock Option Plan for Non-Employee
      Directors to increase the number of stock options
      granted to purchase the Company's common stock
      as  compensation  for services as a Director from
      15,000 per year to 20,000 per year effective on
      August 25, 1998                                                    5,805,556     221,321      93,033          --

3.
      Ratification of the selection of Ernst & Young as the
      Company's outside auditors                                         6,101,410       3,500      15,000          --
</TABLE>


                                 Page 20 of 22

<PAGE>


                            CELERITY SOLUTIONS, INC.


ITEM 5. OTHER INFORMATION


On August 25, 1998 the Compensation Committee of the Board of Directors voted to
amend the Amended and  Restated  1991  Employee  Stock Option Plan to change the
purchase  price  calculation  of Common Stock under each Option granted to equal
the last trade price on the date of grant,  if higher than the Fair Market Value
of the Common Stock. The amended plan is attached as Exhibit 4.5.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

Number                     Description of Exhibits
------                     -----------------------


 4.5      Amended and  Restated  1991  Non-Qualified  Celerity  Solutions,  Inc.
          Employee Stock Option Plan

 4.6      Amended and Restate 1992 Non-Qualified Celerity Solutions,  Inc.
          Stock Option Plan for Non-Employee Directors

10.56     License  and  Professional   Service   agreements  with   Distribution
          Dynamics, Inc. dated September 1, 1998

27.1      Financial Data Schedule


(b) Reports on Form 8-K:


          None


                                 Page 21 of 22

<PAGE>


                                    SIGNATURE


     In accordance  with the  requirements  of the Exchange Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                              CELERITY SOLUTIONS, INC.
                                              ----------------------------------
                                                    (Registrant)


Date: November 13, 1998                       /s/ James P. Dore
                                              ----------------------------------
                                                James P. Dore
                                                Controller (Principal Accounting
                                                Officer)

Date: November 13, 1998                       /s/ Edward Terino
                                              ----------------------------------
                                                Edward Terino
                                                Chief Financial Officer &
                                                Secretary / Treasurer


                                 Page 22 of 22