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 December 31, 1997

            [   ] 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)

                           200 Baker Avenue, Suite 300
                                Concord, MA 01742
                     (Address of principal executive office)


                                 (978) 287-5888
                            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 February 13, 1998
                --------------                          -----------------------

         Common Stock, $.10 Par Value                           8,017,798

     Transitional Small Business Disclosure Format: Yes ___  No _X_

                            Exhibit Index on Page 15


                                  Page 1 of 17


<PAGE>


                            CELERITY SOLUTIONS, INC.
                                DECEMBER 31, 1997
                                   FORM 10-QSB
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

ITEM 1.  Condensed Consolidated Financial Statements:
         Condensed Consolidated Balance Sheets as of December 31, 1997
           and March 31,1997                                                  3
         Condensed Consolidated Statement of Operations for the
           three and nine months ended December 31, 1997 and 1996             5
         Condensed Consolidated Statements of Cash Flows for the
           nine months ended December 31, 1997 and 1996                       6
         Notes to Condensed Consolidated Financial Statements                 7
ITEM 2.  Management's Discussion and Analysis or Plan of
           Operation                                                         11



PART II  OTHER INFORMATION



ITEM 1.  Legal Proceedings                                                   16

ITEM 2.  Changes in Securities                                               16

ITEM 3.  Defaults Upon Senior Securities                                     16

ITEM 4.  Submission of Matters to a Vote of Security Holders                 16

ITEM 5.  Other Information                                                   16

ITEM 6.  Exhibits and Reports on Form 8-K                                    16

         Signatures                                                          17


                                  Page 2 of 17


<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS


                            Celerity Solutions, Inc.
                      Condensed Consolidated Balance Sheet

                                                     December 31     March 31
                                                        1997           1997
                                                     ---------------------------
                                                     (Unaudited)
Assets
Current assets:
   Cash and cash equivalents                         $ 2,692,759    $   760,065
   Short-term investments                                               997,036
   Accounts receivable, net                            2,030,881      1,027,307
   Notes and guaranteed royalties receivable           1,129,868        250,000
   Prepaid expenses and other current assets             125,675         76,602
                                                     --------------------------
Total current assets                                   5,979,183      3,111,010

Property and equipment:                                1,177,551      1,629,249
   Less: accumulated depreciation and amortization      (650,046)      (970,874)
                                                     --------------------------
                                                         527,505        658,375

Capitalized Software, net                                824,234        200,000
Notes and guaranteed royalties receivable                123,385      1,073,600
Goodwill, net                                          1,155,000        827,182
Other long-term assets                                    15,942         40,872
                                                     --------------------------
Total assets                                         $ 8,625,249    $ 5,911,039
                                                     ==========================


See accompanying notes.


                                  Page 3 of 17


<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS


                            Celerity Solutions, Inc.
                Condensed Consolidated Balance Sheet (continued)

<TABLE>
<CAPTION>
                                                                 December 31               March 31
                                                                    1997                     1997
                                                               --------------------------------------
                                                                (Unaudited)
<S>                                                            <C>                       <C>         
Liabilities and shareholders' equity 
Current liabilities:
   Accounts payable and accrued liabilities                    $  1,198,306              $    430,768
   Income taxes payable                                             381,635
   Deferred income tax                                              172,262
   Current portion of notes payable to related parties            1,072,604
   Unearned revenue and other current liabilities                   408,318                   395,382
                                                               --------------------------------------
Total current liabilities                                         3,233,125                   826,150

Notes payable to related parties                                  1,232,046                 1,552,069
Deferred rent and income tax                                        125,155                    83,328
                                                               --------------------------------------
Total liabilities                                                 4,590,326                 2,461,547
                                                               --------------------------------------

Shareholders' equity:
   Common stock, $.10 par value                                     884,289                   685,715
   Additional paid-in capital                                    18,900,290                16,747,202
   Accumulated deficit                                          (13,699,312)              (11,933,081)
                                                               --------------------------------------
                                                                  6,085,267                 5,499,836

Less treasury stock, at cost                                     (2,050,344)               (2,050,344)
                                                               --------------------------------------
Total shareholders' equity                                        4,034,923                 3,449,492
                                                               --------------------------------------
Total liabilities and shareholders' equity                     $  8,625,249              $  5,911,039
                                                               ======================================
</TABLE>


See accompanying notes.


                                  Page 4 of 17


<PAGE>


                            Celerity Solutions, Inc.
                 Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                         Three Months Ended                     Nine Months Ended
                                                             December 31                           December 31
                                                       1997              1996                1997               1996
                                                   ------------------------------        ------------------------------
                                                       -----(Unaudited)-----                  -----(Unaudited)-----
<S>                                                <C>                <C>                <C>                <C>        
Revenue:
  Services                                         $ 1,386,890        $   517,500        $ 3,183,811        $ 1,241,409
  Software licenses                                    108,889             10,255            369,936            626,056
  Hardware and other                                     3,236                                 3,236
                                                   ------------------------------        ------------------------------
Total revenue                                        1,499,015            527,755          3,556,983          1,867,465

Cost of sales
  Services                                             799,102                             1,902,184
  Amortization of Capitalized Software                  21,089                                41,088
                                                   ------------------------------        ------------------------------
Total cost of sales                                    820,191                             1,943,272
                                                   ------------------------------        ------------------------------
Gross Margin                                           678,824            527,755          1,613,711          1,867,465

Operating expenses:
  Research and development                             185,373            546,401            589,749          1,803,285
  General and administrative                           378,985            411,306          1,033,950          1,097,867
  Sales and marketing                                  215,995                               545,820
  Consolidation charges                                                                                         462,566
  Amortization of goodwill                              25,377                                66,737
  Purchased research and development                 3,094,527                             3,094,527
                                                   ------------------------------        ------------------------------
Total operating expenses                             3,900,257            957,707          5,330,783          3,363,718
                                                   ------------------------------        ------------------------------
Operating  loss                                     (3,221,433)          (429,952)        (3,717,072)        (1,496,253)

Other income (expense):
  Interest and other income, net                        55,148             82,710            191,185            218,379
  Interest expense                                     (52,830)                             (148,134)
  Gain on sale of assets                                                                   2,037,104
                                                   ------------------------------        ------------------------------
Loss before income taxes                            (3,219,115)          (347,242)        (1,636,917)        (1,277,874)
Income tax (expense) benefit                           (51,500)            19,679           (129,312)             5,279
                                                   ------------------------------        ------------------------------
Net loss                                           $(3,270,615)       $  (327,563)       $(1,766,229)       $(1,272,595)
                                                   ==============================        ==============================
Loss Per Common Share:
Net loss per share                                        (.50)              (.07)              (.29)              (.26)
                                                   ==============================        ==============================
Weighted average shares outstanding                  6,545,599          4,832,065          6,203,243          4,832,065
                                                   ==============================        ==============================
Loss Per Share-Assuming Dilution:
Net loss per share                                        (.50)              (.07)              (.29)              (.26)
                                                   ==============================        ==============================
Weighted average shares outstanding                  6,545,599          4,832,065          6,203,243          4,832,065
                                                   ==============================        ==============================
</TABLE>


See accompanying notes.


                                  Page 5 of 17


<PAGE>


                                                     CELERITY SOLUTIONS, INC.

                            Celerity Solutions, Inc.
                 Condensed Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                         Nine Months Ended
                                                                                            December 31
                                                                                   1997                    1996
                                                                               ------------------------------------
                                                                                  - - - - - (Unaudited)- - - - -
<S>                                                                            <C>                     <C>         
Operating Activities
Net (loss) income                                                              $(1,766,229)            $(1,272,595)
Adjustments to reconcile net income to net cash (used in)
     provided by operating activities:
     Depreciation of property and equipment                                        174,926                 146,432
     Amortization of goodwill and developed software                               107,825
     Write-off of purchased research and development                             3,094,527
     Gain on sale of assets                                                     (2,037,104)
     Changes in assets and liabilities (net of effect from
         disposition):
         Accounts receivable                                                      (165,291)               (509,549)
         Prepaid expenses and other current assets                                 268,499                  44,439
         Short-term notes, royalties and other assets                              250,000                 500,000
         Long-term notes, royalties, and other assets                             (162,364)                (67,660)
         Accounts payable and accrued liabilities                                  155,668                 455,559
         Income taxes payable                                                      152,669
         Unearned revenue and deferred rent                                         33,847                 (55,158)
                                                                               -----------------------------------
Net cash (used in) provided by operating activities                                106,973                (758,532)

Investing Activities
Purchases of short-term investments                                                                       (404,165)
Proceeds from sales of short-term investments                                      997,036                 518,829
Purchase of Somerset Automation, Inc. net of cash acquired                      (1,579,214)
Proceeds from sale of assets                                                     2,509,757
Capital expenditures                                                              (139,670)               (201,563)
                                                                               -----------------------------------
Net cash (used in) provided by investing activities                              1,787,909                 (86,899)

Financing Activities
Proceeds from sale of common stock                                                  37,812
                                                                               -----------------------------------
Net cash provided by financing activities                                           37,812                    --
                                                                               -----------------------------------

Net (decrease) increase in cash and cash equivalents                             1,932,694                (845,431)
Cash and cash equivalents at beginning of period                                   760,065               1,961,393
                                                                               -----------------------------------
Cash and cash equivalents at end of period                                     $ 2,692,759             $ 1,115,962
                                                                               ===================================
</TABLE>

Non-cash financing activities:

The Company  purchased all shares of Somerset  Automation,  Inc. for $5,557,918.
This  transaction was partially  financed by the issuance of 1,958,233 shares of
common  stock  and  with  seller  notes  payable  totaling  $  747,907.  See the
acquisition footnote for further information.


See accompanying notes.


                                  Page 6 of 17


<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, 1997 of Celerity  Solutions,  Inc. (the
"Company"),  as filed with the  Securities  and  Exchange  Commission  under the
Company's  former  name,  Capitol  Multimedia,  Inc.  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,  1997  Annual  Report on Form  10-KSB.  The March 31,  1997
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 December 31, 1996  Statement of Operations and Statement
of Cash  Flows  have been  reclassified  to conform  to the  December  31,  1997
presentation.

3.   Segment Reporting

On June 1997, the Financial Accounting Standards Board issued Statement No. 131,
Disclosure about Segments of an Enterprise and Related  Information,  which must
be adopted for fiscal years  beginning  after December 15, 1997.  This statement
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  FAS-131's  reporting
requirements.  The Company has not yet adopted this statement.  When adopted, it
will affect only the  presentation of financial  information and will not impact
the financial results.

4.   Subsequent Events

In  October  1997,  the  Accounting  Standards  Executive  Committee  issued its
Statement  of Position  (SOP) 97-2  providing  guidance  on  applying  generally
accepted accounting principles in recognizing revenue on software  transactions.
This SOP is effective for  transactions  entered into in fiscal years  beginning
after  December 15,  1997.  The Company has not yet adopted this SOP and has not
determined what effect it will have on the Company's results.


                                  Page 7 of 17


<PAGE>


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


5.   Loss Per Share

In February 1997, the Financial  Accounting Standards Board 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 primary 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  losses from  operations  and thus has not added  potential
common shares to the weighted average shares outstanding.

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

<TABLE>
<CAPTION>
                                                           Three Months Ended                Nine Months Ended
                                                      -------------------------------------------------------------
                                                              December 31                       December 31
                                                      -------------------------------------------------------------
                                                          1997            1996            1997             1996
                                                      -------------------------------------------------------------
<S>                                                   <C>               <C>            <C>              <C>         
Numerator:
Net loss                                              $(3,270,615)      $(327,563)     $(1,766,229)     $(1,272,595)
                                                      -------------------------------------------------------------
Numerator  for loss per  common  share and loss
per share-assuming dilution                           $(3,270,615)      $(327,563)     $(1,766,229)     $(1,272,595)
                                                      =============================================================
Denominator:
Denominator for loss per common  share-Weighted
average shares  outstanding                             6,545,599       4,832,065        6,203,243        4,832,065
Effect of Dilutive securities:                        *                *                *                *
                                                      -------------------------------------------------------------
Denominator   for   diluted   loss  per  share-
     Adjusted weighted average shares                   6,545,599       4,832,065        6,203,243        4,832,065
                                                      =============================================================
Loss per  common  share  and  loss  per  common
     share-assuming dilution                   
                                                           $(.50)           $(.07)           $(.29)           $(.26)
                                                      =============================================================
</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 348,282 and 307,465 shares as of the
three and nine months ended  December 31, 1997. In addition,  there were options
to purchase  663,211 shares at exercise  prices  between  $1.6689 and $4.660 per
share  outstanding  at December 31, 1997 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 80,000  shares at $8.25 which were  outstanding  at
December 31, 1997, 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.

Pro forma earnings per share do not include potential common shares for the same
reasons as stated  above for the actual  results.  The weighted  average  shares
outstanding  on the pro forma's  assume that  shares  issued for the  referenced
acquisitions were outstanding for the entire periods.


                                  Page 8 of 17



<PAGE>


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


6.   Acquisition  of Client Server  Technologies,  Inc.  (CSTI),  sale of select
     multimedia assets, and acquisition of Somerset Automation, Inc. (SAI)

On March 31, 1997, the Company acquired all of the outstanding stock of CSTI for
stock,  debt  securities and cash valued at  $3,853,060.  The purchase price was
composed of 1,200,000  unregistered  shares of the Company's common stock valued
at of $1,050,000,  non-interest  bearing convertible  long-term notes to sellers
totaling  $1,945,000  discounted  to a value of  $1,552,069,  and cash  payments
totaling  $1,250,991.  Holders of the debt securities  issued in the transaction
have the right to convert $945,000 of the notes into shares of common stock at a
$3.00 per share conversion price in December 1998. The transaction was accounted
for  under the  purchase  method of  business  combinations.  As a result of the
acquisition,  $827,182 of goodwill  was  recorded  which will be  amortized on a
straight  line basis over 10 years,  and  $2,200,000  of purchased  research and
development which was written off at March 31, 1997.

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 that were sold include machinery and capital  equipment  utilized in art,
animation and audio production in St. Petersburg, Russia, and Concord, Mass. 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.  The cash  portion  of the
purchase price was netted on the Condensed  Consolidated Statement of Cash Flows
against  $916,949 of cash held by SAI. SAI was merged into  Somerset  Solutions,
Inc.  (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  which will be  amortized on a straight  line
basis over 7 years,  $665,323 of  capitalized  software was recorded and will be
amortized on a straight  line basis over 5 years,  and  $3,094,527  of purchased
research and development was written off at December 8, 1997.


                                  Page 9 of 17


<PAGE>


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

Supplemental pro forma results of operations for the three and nine months ended
December 31, 1997 and 1996,  assuming the above  transactions  were  consummated
prior to April 1, 1996, are presented below.

<TABLE>
<CAPTION>
                                                                   Pro Forma Three Months                Pro Forma Nine Months 
                                                                      Ended December 31                    Ended December 31
                                                                   1997               1996               1997               1996
                                                               ------------------------------        ------------------------------
                                                                   -----(Unaudited)-----                  -----(Unaudited)-----
<S>                                                            <C>                <C>                <C>                <C>        
Revenue:
  Services                                                     $ 2,212,859        $ 1,480,536        $ 5,926,212        $ 4,408,085
  Software licenses                                                228,889            240,467            865,536          1,511,651
  Hardware and other                                                21,872             46,248            111,660            338,816
                                                               ------------------------------        ------------------------------
Total revenue                                                    2,463,620          1,767,251          6,903,408          6,258,552

Cost of sales
  Services                                                       1,280,848            904,102          3,337,332          2,947,158
  Amortization of Capitalized Software                              43,267             43,267            129,801            129,801
                                                               ------------------------------        ------------------------------
Total cost of sales                                              1,324,115            947,369          3,467,133          3,076,959
                                                               ------------------------------        ------------------------------
Gross Margin                                                     1,139,505            819,882          3,436,275          3,181,593
Operating expenses:
  Research and development                                         191,002            194,044            600,567            597,245
  General and administrative                                       674,952            663,598          1,939,082          1,727,753
  Sales and marketing                                              268,687            261,971            745,186            682,541
  Consolidation charges                                                                                                     462,566
  Amortization of goodwill                                          34,771             34,771            104,312            104,313
                                                               ------------------------------        ------------------------------
Total operating expenses                                         1,169,412          1,154,384          3,389,147          3,574,418
                                                               ------------------------------        ------------------------------
Operating income (loss)                                            (29,907)          (334,502)            47,128           (392,825)
Other income (expense):
  Interest and other income, net                                    51,861             93,523            143,528            248,052
  Interest expense                                                 (62,231)           (61,685)          (187,789)          (185,006)
                                                               ------------------------------        ------------------------------
Income (loss) before income taxes                                  (40,277)          (302,664)             2,867           (329,779)
  Income tax (expense) benefit                                                         15,156             (4,000)           (26,021)
                                                               ==============================        ==============================
Net loss                                                       $   (40,277)       $  (287,508)       $    (1,133)       $  (355,800)
                                                               ==============================        ==============================
Loss Per Common Share:
Net loss per share                                                    --                 (.04)              --                 (.05)
                                                               ==============================        ==============================
Weighted average shares outstanding                              7,992,988          7,990,298          7,991,195          7,990,298
                                                               ==============================        ==============================
Loss Per Share-Assuming Dilution:
Net loss per share                                                    --                 (.04)              --                 (.05)
                                                               ==============================        ==============================
Weighted average shares outstanding                              7,992,988          7,990,298          7,991,195          7,990,298
                                                               ==============================        ==============================
</TABLE>


                                 Page 10 of 17


<PAGE>


                            CELERITY SOLUTIONS, INC.


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

Business Developments

     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.
During the nine months ended December 31, 1997,  CSTI signed license and service
arrangements   with   Teleport   Communications   Group   Inc.   (TCG),   Nortel
Communications  (Nortel),  Methanex Methanol  Company,  a subsidiary of Methanex
Corporation, and several others valued at approximately two million five hundred
thousand dollars ($2,500,000).

     In April  1997,  the  Company  sold  certain  of its  multimedia  assets to
Davidson,  a division of Cendant,  Inc.  The Company  retained all rights to its
fourteen(14)  multimedia CD-ROM products  currently on the market,  three(3) new
CD-ROM  titles,  all  software  tools  and  engines,  and  software  development
capabilities  in the United  States and  Russia.  The Company has 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 has  retained  the services of 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  profitable  technology  leader in the  warehouse  management  software
market.  SAI had  approximately  $4.5  million in annual  revenues in 1997.  The
acquisition  of  Somerset  fills a  strategic  product  need  for  the  Company.
Somerset's  warehousing  product,  combined with the Company's  existing  supply
chain  management  product,  creates a more powerful  product line which enables
control of inventory  and  resources  not only  between  locations in the supply
chain but through warehouses as well. This new capability  positions the Company
to provide  integrated  warehouse and supply chain  management  software for the
middle market.  Somerset's  customers include Corporate Express,  Wesley Jessen,
Pleasant  Company,  Bugle Boy Industries,  and Columbia  Sportswear.  Somerset's
warehouse management software, WMS 4.0, is client-server based, highly flexible,
user  configurable,  and  supports  single and  multiple  facility  enterprises.
Modules include Inventory Control, Inventory Management, Inbound Processing, and
Workload Management.

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 its distribution
channels that were  established  prior to the  divestiture.  However  multimedia
revenue represents a small fraction of the Company's revenues.  Accordingly, the
discussion  and analysis of the  Company's  results of  operations  compares pro
forma results for the three and nine months ended December 31, 1997 to pro forma
results for the three and nine months ended  December  31, 1996.  This pro forma
presentation, which is included in the notes to condensed consolidated financial
statements,  assumes that the  transactions  had occurred on March 31, 1996. The
Company believes such comparison  provides a more meaningful analysis of current
and prior fiscal year results.


                                 Page 11 of 17


<PAGE>


                            CELERITY SOLUTIONS, INC.

Pro Forma Net Sales

     The  composition of pro forma net sales for the three and nine months ended
December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                           Three Months Ended                          Nine Months Ended
                                                               December 31                                December 31
                                                  1997            1996        % Change        1997            1996        % Change
                                                  ----            ----        --------        ----            ----        --------
<S>                                            <C>             <C>              <C>        <C>             <C>               <C> 
Business Software
     Supply Chain Management                   $1,154,106      $  879,620       31.2%      $3,060,477      $2,791,225        9.6%
     Warehouse Management                       1,265,139         877,376       44.2%       3,646,960       2,841,271       28.4%

Multimedia Software                                44,375          10,255      332.7%         195,971         626,056      (68.7)%
                                               ---------------------------------------------------------------------------------

 Total net sales                               $2,463,620      $1,767,251       39.4%      $6,903,408      $6,258,552       10.3%
                                               =================================================================================
</TABLE>

     Revenues  from  Supply  Chain  Management  increased  $274,486 or 31.2% and
$269,252  or 9.6% on a pro  forma  basis for the  three  and nine  months  ended
December 31, 1997 versus the same periods in 1996. This increase is attributable
to increases in  consulting  revenue  partially  offset by decreases in software
license and support maintenance revenues. License revenue recognition fluctuates
with customer  acceptance of the delivered  product and product sales to new and
existing  customers.  The  Company  continues  to expand all phases of sales and
marketing in order to generate  long-term  business  software sales growth.  The
Company  expects that actual and pro forma revenues in fiscal 1998 will increase
above the actual and pro forma revenues reported for fiscal 1997,  however there
can be no  assurances  as to the extent of such  increase  or if  revenues  will
increase at all.

     Revenues from Warehouse  Management  (WMS) increased  $387,763 or 44.2% and
$805,689  or 28.4% on a pro forma  basis for the  three  and nine  months  ended
December 31, 1997 versus the same periods in 1996. This increase is attributable
to increases in  consulting  revenue  partially  offset by decreases in software
license and support maintenance revenues. License revenue recognition fluctuates
with customer  acceptance of the delivered  product and product sales to new and
existing  customers.  The  Company  continues  to expand all phases of sales and
marketing in order to generate  long-term  business  software sales growth.  The
Company  expects that actual and pro forma revenues in fiscal 1998 will increase
above the actual and pro forma revenues reported for fiscal 1997,  however there
can be no  assurances  as to the extent of such  increase  or if  revenues  will
increase at all.

     Consumer  software  sales and  royalties  increased  $34,120  or 332.7% and
decreased  $ 430,085 or 68.7% on a pro forma basis for the three and nine months
ended December 31, 1997 versus the same periods in 1996.  During the nine months
ended December 31, 1996 the Company  recognized five hundred and twenty thousand
dollars  ($520,000) in guaranteed  prepaid  royalty  revenue from the release of
three foreign title  releases and one domestic  title  release.  The Company has
focused on the business  software market during fiscal 1998 and will continue to
do so.  The  Company  has no plans to develop  new  multimedia  products  in the
foreseeable  future.  With the Company's  decision to sell its multimedia assets
and to discontinue all development of multimedia titles, it expects that royalty
revenue will continue to decline in future periods.


                                 Page 12 of 17


<PAGE>


                            CELERITY SOLUTIONS, INC.


Pro Forma Net Sales, continued

     The  level  of  net  sales  realized  by the  Company  in  any  quarter  is
principally  dependent on the portion of projects  completed,  the number of new
software  licenses sold and the number of titles shipped for published  consumer
software titles. The purchase of supply chain and warehouse management solutions
require 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  recognition 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  fluctuate in the future as a result of the timing of new
orders, product development  expenditures,  the number and timing of new product
completions, and multimedia product shipments and returns. 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.

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  $376,746 or 41.67%
and  $390,174  or 13.2% on a pro forma  basis  during the three and nine  months
ended  December 31, 1997 versus  1996.  Cost of services as a percent of revenue
from  services  increased  only 1% for the three and nine months ended  December
1997 versus 1996. The Company has increased its consulting staff in anticipation
of growing  consulting  revenue.  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 on a pro forma,  as well as,  actual basis to increase in
absolute dollars, but not as a percent of sales during fiscal 1998 and 1999.

     Amortization  of  capitalized  software had no change  during the three and
nine months ended December 31, 1997. Software  capitalization  resulted from the
acquisitions  of CSTI and SAI,  and thus was  unchanged  because  the pro  forma
financials assume that these transactions occurred prior to the beginning of the
periods  presented.  On an actual basis these  expenses  will increase in fiscal
1998 over  fiscal 1997 and will also  increase in fiscal 1999 over fiscal  1998.
The actual capitalized software  amortization costs for fiscal 1998 are expected
to be approximately $84,000.

Research and Development

     Research  and  development  (R&D)  expense  decreased  $3,042  or 1.6%  and
increased  $3,322 or less than 1%on a pro forma basis  during the three and nine
months ended  December 31, 1997 versus the same periods in 1996.  R&D costs as a
percentage of total business software sales were 9% and 10% on a pro forma basis
for the nine-month  ended December 31, 1997 and 1996  respectively.  The Company
expects R&D costs to increase in absolute  dollars  during  fiscal year 1998 and
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 prior years,  reflecting utilization
of lower development  costs provided by Paragon.  There can be no assurance that
the  Company  will be able to  anticipate,  evaluate,  and adapt to  changes  in
platforms and evolving  technologies,  or to do so in a timely or cost effective
manner.


                                 Page 13 of 17


<PAGE>


                            CELERITY SOLUTIONS, INC.

Depreciation and Amortization

     Depreciation  and  amortization  only slightly  changed on a pro form basis
during the three and nine months ended December 31, 1997 versus the same periods
in 1996. The Company expects depreciation during fiscal year 1998 to approximate
the fiscal 1997 level.  On the actual  financial  statements the  acquisition of
CSTI and Somerset Automation will increase  depreciation and the amortization of
goodwill in fiscal 1999. The actual goodwill  amortization costs for fiscal 1998
are expected to be approximately $101,500.

General and Administrative

     General and administrative  expenses increased $11,354 or 1.7% and $211,329
or 12.2% on a pro forma basis  during the three and nine months  ended  December
31, 1997 versus the same periods in 1996. The increases came from administrative
position  increases at Somerset  necessitated by growth and was partially offset
by a decrease from the consolidation of the Company's  headquarters in Bethesda,
Maryland  into its new  facility  in  Concord,  Massachusetts  and a decrease in
administrative staff. General and administrative  expenses as a percent of sales
are up less than 1% for the nine months ended December 31, 1997 versus 1996 on a
pro forma basis. 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 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.
Given the Company's  recent  acquisitions,  the sale of certain assets,  and the
consolidation of operations in November of 1996, the Company expects general and
administrative  expenses on a pro forma, as well as, actual basis to increase in
absolute  dollars,  but to  decrease as a percent of sales in fiscal 1998 versus
1997. The Company expects similar  increases in absolute  dollars with decreases
as a percent of sales during fiscal 1999 over fiscal 1998.

Sales and Marketing

     Sales and marketing expense increased $6,716 or 2.6% and $62,645 or 9.2% on
a pro forma  basis  during the three and nine  months  ended  December  31, 1997
versus the same periods in 1996. This item includes  personnel related costs, as
well as, those costs related to facilities, travel, trade shows, advertising and
promotions. Somerset's sales and marketing effort was uniform over the pro forma
periods but is  expected to increase  for the  remainder  of fiscal  1998.  CSTI
expenditures on sales and marketing were substantially  below industry averages.
The Company is committed to an  investment  in sales and  marketing  efforts and
alliances.  This  investment  is  expected  to  generate  an  increase in future
revenue.  However,  the  benefits of such  expenditures  are not  expected to be
realized during fiscal 1998.  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  on a pro forma,  as well as,  actual  basis to  increase in
absolute dollars and as a percent of sales during fiscal 1998 and 1999.

Consolidation Charges

     There  are no  consolidation  charges  in  fiscal  1998,  the  $462,566  of
consolidation  charges in the second  quarter of 1996  relate to the closing and
relocation of the  Company's  offices in Bethesda MD into its offices at Concord
MA.

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,
Mass. This gain is excluded from the pro forma income statement.


                                 Page 14 of 17


<PAGE>


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  7% for fiscal year 1998. This rate differs
from the statutory rate due to anticipated  partial recognition of $4,888,000 in
deferred tax assets which were fully reserved at March 1996 and 1997.

Liquidity and Capital Resources

     The Company's primary sources of liquidity are cash, cash equivalents,  and
short-term  investments.  During the nine months ended December 1997, cash, cash
equivalents,  and investments  increased $ 935,658 or 34.7% to $2,692,759.  This
increase  relates to $2,510,000  in proceeds from the sale of select  multimedia
assets and cash provided by operating  activities of $107,000,  less  $1,579,214
for the  purchase of Somerset  Automation  ($2,496,163  net of cash  acquired of
$916,949),  and  $139,000  in capital  expenditures.  The  Company  will use its
working capital to finance ongoing  operations and fund the continued  expansion
of its sales and marketing  resources.  Management expects its existing cash and
short-term investments, and cash generated from operations will be sufficient to
meet the Company's expected liquidity and capital needs for fiscal 1998.

     At December  31,  1997,  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, 1998,  subject to  extension  by the Company.  Pursuant to the
redemption  provision  in the Warrant  Agreement,  the Company has the option 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.

Forward Looking Information

     Except for the historical  information  contained in this Form 10-QSB,  the
information  set forth  herein  includes  forward  looking  statements  that are
dependent on certain risks and uncertainties. Important factors that could cause
the actual results to differ  materially from the anticipated  results  include,
but are not limited to, the anticipated  growth of certain market segments;  the
positioning,   release  dates,   and  acceptance  of  Company  products  in  the
marketplace; quarterly fluctuations and seasonality; the competitive environment
and  technological   change  in  the  software   industry;   and  dependence  on
distribution  channels and key personnel,  all of which are difficult to predict
and many of which are beyond the control of the Company.  Additional information
on these and other factors which could affect the Company's  financial condition
and/or results of operations  are included in the Company's  March 31, 1997 Form
10-KSB filed with the Securities and Exchange  Commission,  and the 8-K filed by
the Company on February 11, 1998 with the Securities and Exchange Commission.


                                 Page 15 of 17


<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

Not Applicable.

ITEM 5.  OTHER INFORMATION

February 11, 1998 the Company filed a Form 8-K updating  risk factors  affecting
the Company.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

     3.1 Certificate of  Incorporation,  as amended  (incorporated  by reference
     herein to the  exhibit  filed  with the  Company's  Form 8K filed  with the
     Securities and Exchange Commission on September 5, 1997).

     3.2 Bylaws of the Company  (incorporated by reference herein to the exhibit
     filed with the Company's Form S-18 (or a Post-Effective  Amendment thereto,
     Registration No. 33-45725-A).

     27.1 Financial Data Schedule

(b)  Reports on Form 8-K:

     On  December  23,  1997,  the  Company  filed  a Form  8-K  disclosing  the
     acquisition of Somerset Automation, Inc.


                                 Page 16 of 17


<PAGE>


                            CELERITY SOLUTIONS, INC.


                                    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: February 12, 1998                       /s/  James P. Dore
                                              ------------------
                                            James P. Dore
                                            Controller (Principal Accounting
                                            Officer)

Date:  February 12, 1998                      /s/  Edward Terino
                                              ------------------
                                            Edward Terino
                                            Chief Financial Officer &
                                            Secretary / Treasurer


                                 Page 17 of 17