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 31,1998

              [  ] 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 February 12, 1999
                  --------------                   -----------------------
          Common Stock, $.10 Par Value                    8,067,798

          Transitional Small Business Disclosure Format: Yes ___ No _X_

                            Exhibit Index on Page 21


                                  Page 1 of 22
<PAGE>

                            CELERITY SOLUTIONS, INC.
                                DECEMBER 31, 1998
                                   FORM 10-QSB
                                TABLE OF CONTENTS

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

ITEM 1.  Condensed Consolidated Financial Statements
                  Condensed Consolidated Balance Sheets as of December 31, 1998
                       and March 31,1998                                                          3
                  Condensed Consolidated Statement of Operations for the
                       three and nine months ended December 31, 1998 and 1997                     5
                  Condensed Consolidated Statements of Cash Flows for the
                       nine months ended December 31, 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                                                                       21

ITEM 2.  Changes in Securities                                                                   21

ITEM 3.  Defaults Upon Senior Securities                                                         21

ITEM 4.  Submission of Matters to a Vote of Security Holders                                     21

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



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

                                                      December 31     March 31
                                                         1998           1998
                                                     --------------------------
Assets
Current assets:
   Cash and cash equivalents                         $   814,095    $ 1,347,246
   Short-term investments                                 10,550        994,384
   Accounts receivable, net                            3,617,046      2,200,754
   Notes Receivable                                      245,800      1,159,893
   Prepaid expenses and other current assets             147,339        109,649
                                                     --------------------------
Total current assets                                   4,834,830      5,811,926

Property and equipment:                                1,564,902      1,266,250
   Less: accumulated depreciation and amortization      (938,734)      (697,577)
                                                     --------------------------
                                                         626,168        568,673


Notes receivable from related parties                     96,981        117,999
Capitalized software, net                                834,101        803,887
Goodwill, net                                          1,029,788      1,134,100
Other long-term assets                                    83,307          9,057
                                                     --------------------------
Total assets                                         $ 7,505,175    $ 8,445,642
                                                     ==========================


See accompanying notes.

                                  Page 3 of 22
<PAGE>



PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS


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

<TABLE>
<CAPTION>
                                                             December 31      March 31
                                                                1998            1998
                                                            ----------------------------
<S>                                                         <C>             <C>         
Liabilities and shareholders' equity 
Current liabilities:
   Accounts payable and accrued liabilities                 $  1,794,418    $  1,287,750
   Income taxes payable                                          358,627         507,577
   Current portion of notes payable to related parties         1,390,739       1,100,797
   Unearned revenue and other current liabilities                278,813         494,640
                                                            ----------------------------
Total current liabilities                                      3,822,597       3,390,764

Notes payable to related parties                                 317,399       1,178,051
Deferred rent                                                     46,243          70,688
                                                            ----------------------------
Total liabilities                                              4,186,239       4,639,503
                                                            ----------------------------

Shareholders' equity:
   Common stock, $.10 par value                                  884,289         884,289
   Additional paid-in capital                                 18,856,768      18,900,290
   Accumulated deficit                                       (14,433,902)    (13,928,096)
                                                            ----------------------------
                                                               5,307,155       5,856,483

Less treasury stock, at cost                                  (1,988,219)     (2,050,344)
                                                            ----------------------------
Total shareholders' equity                                     3,318,936       3,806,139
                                                            ----------------------------
Total liabilities and shareholders' equity                  $  7,505,175    $  8,445,642
                                                            ============================
</TABLE>


See accompanying notes.

                                  Page 4 of 22
<PAGE>


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

<TABLE>
<CAPTION>
                                              Three Months Ended            Nine Months Ended
                                                 December 31                   December 31
                                             1998           1997           1998           1997
                                         --------------------------------------------------------
<S>                                      <C>            <C>            <C>            <C>        
Revenue:
  Services                               $ 2,236,310    $ 1,386,890    $ 6,359,623    $ 3,183,811
  Software licenses                          346,577        108,889      1,638,762        369,936
  Hardware and other                           2,508          3,236      1,022,989          3,236
                                         --------------------------------------------------------
Total revenue                              2,585,395      1,499,015      9,021,374      3,556,983

Cost of sales
  Services                                 1,427,901        799,102      4,423,305      1,902,184
  Hardware and related                         5,594                       873,871
  Amortization of capitalized software        43,266         21,089        129,798         41,088
                                         --------------------------------------------------------
Total cost of sales                        1,476,761        820,191      5,426,974      1,943,272
                                         --------------------------------------------------------
Gross margin                               1,108,634        678,824      3,594,400      1,613,711
Operating expenses:
  Research and development                   255,408        185,373        818,373        589,749
  General and administrative                 582,905        378,985      1,888,230      1,033,950
  Sales and marketing                        509,322        215,995      1,348,999        545,820
  Amortization of goodwill                    34,770         25,377        104,313         66,737
  Purchased research & development                        3,094,527                     3,094,527
                                         --------------------------------------------------------
Total operating expenses                   1,382,405      3,900,257      4,159,915      5,330,783

Operating loss                              (273,771)    (3,221,433)      (565,515)    (3,717,072)

Other income (expense):
  Interest and other income                   30,404         55,148        118,292        191,185
  Interest expense                           (56,383)       (52,830)      (180,833)      (148,134)
  Gain on sale of assets                                                                2,037,104
                                         --------------------------------------------------------
Loss before income taxes                    (299,750)    (3,219,115)      (628,056)    (1,636,917)
 Income tax (expense) benefit                 69,250        (51,500)       122,250       (129,312)
                                         --------------------------------------------------------
Net loss                                 $  (230,500)   $(3,270,615)   $  (505,806)   $(1,766,229)
                                         ========================================================
Loss per common share:
Net loss per share                       $      (.03)   $      (.50)   $      (.06)   $      (.29)
                                         ========================================================
Weighted average shares outstanding        8,035,189      6,545,599      8,023,616      6,203,243
                                         ========================================================
Loss per share-assuming dilution:
Net loss per share                       $      (.03)   $      (.50)   $      (.06)   $      (.29)
                                         ========================================================
Weighted average shares outstanding        8,035,189      6,545,599      8,023,616      6,203,243
                                         ========================================================
</TABLE>

See accompanying notes.

                                  Page 5 of 22
<PAGE>

                            CELERITY SOLUTIONS, INC.

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

<TABLE>
<CAPTION>
                                                                                 Nine Months Ended
                                                                                    December 31
                                                                                1998          1997
                                                                            --------------------------
<S>                                                                         <C>            <C>         
Operating Activities
Net loss                                                                    $  (505,806)   $(1,766,229)
Adjustments to reconcile net loss to net cash (used in) provided by
     operating activities:
     Depreciation of property and equipment                                     241,157        174,926
     Amortization of goodwill and developed software                            234,110        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                                                 (1,416,292)      (165,291)
         Prepaid expenses and other current assets                              (37,690)       268,499
         Short and long term notes receivable                                   914,093        250,000
         Long-term notes receivable from related parties and other assets       (53,232)      (162,364)
         Accounts payable and accrued liabilities                               506,668        155,668
         Income taxes payable                                                  (148,950)       152,669
         Notes payable to related parties                                      (570,710)
         Unearned revenue, deferred rent and other cur. liabilities            (240,272)        33,847
                                                                            --------------------------
Net cash (used in) provided by operating activities                          (1,133,669)       106,973

Investing Activities
Purchase of Somerset Automation, Inc. net of cash acquired                                  (1,579,214)
Proceeds from sale of assets                                                                 2,509,757
Capitalized software costs                                                     (160,012)
Capital expenditures                                                           (298,652)      (139,670)
                                                                            --------------------------
Net cash (used in) provided by investing activities                            (401,919)       790,873

Financing Activities
Proceeds from sale of common stock                                               18,603         37,812
Proceeds from sales of short-term investments                                   983,834        997,036
                                                                            --------------------------
Net cash provided by financing activities                                     1,002,437      1,034,848
                                                                            --------------------------

Net (decrease) increase in cash and cash equivalents                           (533,151)     1,932,694
Cash and cash equivalents at beginning of period                              1,347,246        760,065
                                                                            --------------------------
Cash and cash equivalents at end of period                                  $   814,095    $ 2,692,759
                                                                            ==========================
</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 22
<PAGE>


                            CELERITY SOLUTIONS, INC.
              NOTES TO CONDENSED CONSOLIDATED 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 December 31, 1997  Statement of Operations and Statement
of Cash  Flows  have been  reclassified  to conform  to the  December  31,  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.   Loss Per Share

In February 1997, the FASB issued Statement No. 128, "Earnings per Share", which
must be adopted for periods  ending after  December 15, 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 as the effect would be antidilutive.  The Company is reporting
a loss from  operations  for the three and nine month periods ended December 31,
1998 and 1997 and thus has not added  potential  common  shares to the  weighted
average shares outstanding for those periods.


                                  Page 7 of 22
<PAGE>

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


4.   Loss Per Share, continued

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,
                                               ----------------------------------------------------------
                                                   1998           1997           1998             1997
                                               ----------------------------------------------------------
<S>                                            <C>            <C>            <C>            <C>           
Numerator:
Net loss                                       $  (230,500)   $(3,270,615)   $  (505,806)   $  (1,766,229)
                                               ==========================================================
Numerator for loss per common share and loss
per share-assuming dilution                    $  (230,500)   $(3,270,615)   $(3,270,615)   $  (1,766,229)
                                               ==========================================================
Denominator:
Denominator for loss per common
share-weighted average shares  outstanding       8,035,189      6,545,599      8,023,616        6,203,243

Effect of Dilutive securities:
                                                         *              *              *                *
                                               ----------------------------------------------------------
Denominator for diluted loss per share-
adjusted weighted average shares                 8,035,189      6,545,599      8,023,616        6,203,243
                                               ==========================================================
Loss  per common share                         $      (.03)   $      (.50)   $      (.06)   $        (.29)
                                               ==========================================================
Loss per common share-assuming dilution        $      (.03)   $      (.50)   $      (.06)   $        (.29)
                                               ==========================================================
</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 159,092 and 389,318 shares as of the
three months ended December 31, 1998 and 1997, respectively,  and by 398,613 and
301,336   shares  for  the  nine  months  ended  December  31,  1998  and  1997,
respectively.

In addition,  there were options to purchase 1,870,000 shares at exercise prices
between $1.16 and $4.66 per share outstanding at December 31, 1998 that were not
included in the potential  common share  computation  for the three months ended
December 31, 1998 because  their  exercise  prices were greater than the average
market  price of the common  shares.  There were  options to purchase  1,188,000
shares at  exercise  prices  between  $2.47 and $4.66 per share  outstanding  at
December  31,  1998  that  were  not  included  in the  potential  common  share
computation  for the nine months ended  December 31, 1998 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 December 31, 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 CONSOLIDATED 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 March
31,1998 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
December 31, 1998.

6.   Notes payable to employee stockholders.

In connection with the acquisition of Client Server Technologies, Inc. ("CSTI"),
the Company issued notes payable to various employee  stockholders.  These notes
called for a total of  $1,022,103  in payments to be made on December  31, 1998.
The Company paid  $265,828 of the amount due December 31, 1998 and  renegotiated
the payment of the balance over the subsequent four months.

7.   Capitalized Software Costs

The  Company  capitalized  $35,000 of third  quarter  Research  and  Development
("R&D") costs related to the  documentation of Continuum 6.1 software on Windows
NT and $125,012 of third quarter R&D costs related to the  documentation  of WMS
software on Windows NT. Both of the projects reached  technological  feasibility
in the third  quarter and will be available  for general  resale within the next
six months.

8.   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.


                                  Page 9 of 22
<PAGE>

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


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

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
consisted 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.

Somerset's  in-process  technology  currently  involves one project;  rewriting,
packaging  and porting  software  to Windows  NT. The Company  expects to expend
$150,000  during  the next 6 months in order to  complete  these  projects.  The
Unix/Oracle  port project which was  in-process at the time of  acquisition  has
been completed and has achieved technological feasibility within the acquisition
valuation  estimates.  There are no changes in our  expectations of this project
from the  original  valuation.  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 nine month  periods  ended  December  31, 1998 and 1997,
assuming the above  transactions  were  consummated  prior to April 1, 1997, are
presented below.

<TABLE>
<CAPTION>
                                            Three Months Ended        Nine Months Ended
                                                December 31              December 31
                                             1998        1997         1998         1997
                                            Actual     Proforma      Actual      Proforma
                                         -------------------------------------------------
<S>                                      <C>          <C>          <C>          <C>       
Revenue                                               -----(Unaudited)-----

  Services                               $2,236,310   $2,212,859   $6,359,623   $5,926,212
  Software licenses                         346,577      228,889    1,638,762      865,536
  Hardware and other                          2,508       21,872    1,022,989      111,660
                                         -------------------------------------------------
Total revenue                             2,585,395    2,463,620    9,021,374    6,903,408

Cost of sales
  Services                                1,427,901    1,280,848    4,423,305    3,337,332
  Hardware and other                          5,594                   873,871
  Amortization of Capitalized Software       43,266       43,267      129,798      129,801
                                         -------------------------------------------------
Total cost of sales                       1,476,761    1,324,115    5,426,974    3,467,133
                                         -------------------------------------------------
Gross Margin                             $1,108,634   $1,139,505   $3,594,400   $3,436,275
                                         =================================================
</TABLE>




                                 Page 10 of 22
<PAGE>


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


9.   Licensing, Distribution, and Development Agreements

Licensing  and  Distribution  Agreement  with  Davidson &  Associates,  Inc. The
Company entered into an agreement with Davidson & Associates,  Inc. ("Davidson")
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 nine month periods
ended  December 31, 1998 or 1997.  In March 1998,  the Company  transferred  and
assigned to Davidson  any and all rights in full for three out of the six titles
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 nine month periods ended  December 31,
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 to grant  Blizzard  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
were $0 at  December  31,  1998 and 1997,  respectively.  There were no costs or
revenues  generated under this agreement  during the three or nine month periods
ended December 31, 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

     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 and 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.

     During the quarter  ended  September  30, 1998,  the Company  announced the
signing of a multi-million  dollar agreement to provide  Distribution  Dynamics,
Inc. (DDI) with the Company's 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 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.

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.



                                 Page 12 of 22
<PAGE>

                            CELERITY SOLUTIONS, INC.


Net Sales

     Revenues from services increased $849,420 or 61% and $3,175,812 or 100% for
the three month and nine month periods  ended  December 31, 1998 versus the same
periods in 1997.  This increase is  attributable  to the  acquisition  of SAI on
December 8, 1997 which increased  service revenue  $960,037 and $3,322,113,  but
was partially offset by decreases in service revenues at CSTI totaling  $110,617
and  $146,301  for the three  months and nine months  ended  December  31, 1998,
respectively.  The decrease in CSTI's revenue was attributable to the completion
of several projects that incurred  non-billable time during the second and third
quarters  and the delay in the start of new  projects.  Management  expects that
service  revenues will continue to increase over fiscal 1998 levels for CSTI and
Somerset.  Management  also believe that revenue from  services will increase in
fiscal 2000 over fiscal 1999 levels, 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  $237,688  or 218%  and
$1,268,826 or 343% for the three month and nine month periods ended December 31,
1998 versus the same periods in 1997. This increase is attributable to increases
in license fee revenue at CSTI of $111,420 or 101% and $705,338 or 231%, and the
acquisition of SAI on December 8, 1997 which generated  increases of $127,407 or
43% and $623,713 or 210% in license fee revenue,  partially  offset by decreases
in  multimedia  royalties  of $1,139  and  $60,225  for the three and nine month
periods ended December 31,1998, respectively. CSTI's increase is attributable in
part to the  recognition  of license fees from a source code sale of $150,000 in
the second quarter and  percentage of completion  recognition of license fees in
the  third  quarter.   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,  however  there  can be no  assurance  as to the  extent  of such
increase or if revenues will increase at all.

     Revenues  from  hardware and related  sales  decreased  $728 or 23% for the
three months ended December 31, 1998 versus 1997,  but increased  $1,019,753 for
the nine  months  ended  December  31,  1998  versus  1997.  These  changes  are
attributable  to the  acquisition  of SAI, which from time to time resells third
party   software  and  hardware  with  related   warehouse   management   system
installations at the customer's request. Hardware sales during the first quarter
of  fiscal  1999  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
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





                                 Page 13 of 22
<PAGE>


                            CELERITY SOLUTIONS, INC.


Net Sales, continued

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.

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  $628,799 or 79% and
$2,521,121 or 133% during the three and nine month  periods  ended  December 31,
1998 versus the same  periods in 1997.  Cost of services as a percent of revenue
from services increased from 58% to 64% or an increase of 6% and from 60% to 70%
or an  increase  of 10% for the  three and nine  month  periods  ended  December
31,1998  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  and third  quarters  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 cost of these additional  consultants could adversely
affect the Company's gross margins. The Company expects this expense to increase
in absolute  dollars  but to  decrease as a percent of sales  during the quarter
ended March 31, 1999.  For the year ending March 31,  1999,  management  expects
this  expense to increase in absolute  dollars and as a percent of sales  versus
fiscal  1998.  In fiscal  2000,  management  believes  that  costs of sales will
increase in absolute dollars, but that it will decrease as a percentage of sales
when compare with fiscal 1999.

     Cost of sales from hardware and related sales increased $5,594 and $873,871
for the three and nine month  periods  ended  December  31, 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 $22,177 or 105% and $88,710
or 216% during the three and nine month periods  ended  December 31, 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  $70,035  or 38% and
$228,624 or 39% during the three and nine month periods ended  December 31, 1998
versus the same periods in 1997.  R&D as a percent of sales  excluding  hardware
sales  decreased  from 12% to 10% for a decrease of 2% and from 17% to 10% for a
decrease of 7% for the three and nine month  periods  ended  December  31, 1998,
respectively. The Company capitalized $35,000 of third quarter R&D costs related
to the  documentation  of  Continuum  6.1 software on Windows NT and $125,012 of
third  quarter R&D costs related to  documentation  of the Windows NT version of
the WMS software. Both of the projects reached technological  feasibility in the
third  quarter and will be  available  for general  resale  within the next nine
months.  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 for the fourth  quarter 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.  In fiscal 2000, management expects R&D costs to increase
as a percentage of sales over fiscal 1999.

In-process  R&D  projects  are  presented  below and are  grouped by each entity
acquired.

     CSTI's  in-process  technology  currently  involves one  project,  which is
rewriting  and porting of the  Continuum 6.0 software to Windows NT. The Company
expects to expend  $100,000 in order to complete this  project,  which is within
estimates  utilized  for  valuation  purposes at the time of  acquisition.  This
project is expected to be complete within three months.  Approximately  one-half
of these  costs will be  completed  and billed to clients as part of  consulting
engagements. The other three in-process projects at the time of acquisition have
been  completed.  The  development  of applets for the  Internet did not achieve
technological   feasibility  and  was  not  continued.   This  project  involved
approximately  $90,000 in development costs and is not considered material.  The
other two in-process  projects were the development of the DRP software  package
and the porting of the  software  onto the Sun Solaris  plarform.  Both of these
projects  were  completed  and  achieved  technological  feasibility  within the
original  estimates used in the acquisition  valuation.  There are no changes in
the Company's expectations of these projects from the original valuation.

     Somerset's in-process technology currently involves one project; rewriting,
packaging  and porting  software  to Windows  NT. The Company  expects to expend
$150,000  during  the next 6  months  in order to  complete  this  project.  The
Unix/Oracle  port project which was  in-process at the time of  acquisition  has
been completed and has achieved technological feasibility within the acquisition
valuation estimates.  There are no changes in the Company's expectations of this
project from the original  valuation.  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.




                                 Page 15 of 22
<PAGE>


                            CELERITY SOLUTIONS, INC.


General and Administrative

     General and  administrative(  "G&A") expenses increased $203,920 or 54% and
$854,280 or 83% during the three and nine month periods ended  December 31, 1998
versus the same  periods in 1997.  Approximately  $100,000  and  $551,000 of the
increases for the three and nine month periods ended  December  31,1998 were due
to the acquisition of SAI and include operating costs as well as increased costs
incurred by the Company for  management  and  integration  of  Somerset.  Of the
remaining  increase,  approximately  $8,000 and  $69,000  for the three and nine
month  periods,  respectively,  resulted from an increase in investor  relations
related activity and $96,000 and $234,000, respectively, from an increase in G&A
staffing  and  related  expenses,   including   recruiting  fees.   General  and
administrative  expenses  as a percent of sales  decreased  by 3% and 8% for the
three and nine month periods ended  December 31, 1998 versus the same periods in
fiscal 1998, respectively.  If you exclude hardware sales from total revenue the
decreases are 3% and 6%,  respectively.  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.  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.  Management  believes that
these costs will remain constant or slightly decrease in fiscal 2000 over fiscal
1999 in absolute dollars and as a percentage of sales.

Sales and Marketing

     Sales and  marketing  expenses  increased  $293,327 or 136% and $803,179 or
147% during the three and nine month periods ended  December 31, 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 increases in sales and marketing
of $181,679  and $586,675  for the three and nine month  periods,  respectively.
CSTI's selling and marketing expenses increased by $112,837 and $216,504 for the
three and nine month periods, respectively.  Sales and marketing as a percentage
of sales (excluding  hardware revenue)  increased from 14% to 20% and 15% to 17%
for the three and nine month  periods  ended  December  31,  1998  versus  1997,
respectively.  The Company is committed to an  investment in sales and marketing
efforts,  as well as the  development of third party  distribution  channels 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  $15,050 or 22% and $66,022 or 38% during the three
and nine month periods ended  December 31, 1998 versus the same periods in 1997.
The  acquisition of SAI was responsible for increases of $18,006 and $72,680 for
the three and nine month  periods,  respectively.  This was partially  offset by
decreases in depreciation at CSTI of $2,955 and $6,659 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 $320,000.


                                 Page 16 of 22
<PAGE>


                            CELERITY SOLUTIONS, INC.


Amortization of Goodwill

     Amortization of goodwill  increased $9,393 or 37% and $37,576 or 56% during
the three and nine month periods ended December 31, 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  in fiscal  1998  resulted  from the sale of select
multimedia  assets to Davidson for  $2,509,759 in cash. The assets sold included
equipment  utilized in art,  animation and audio  production in St.  Petersburg,
Russia, and Concord, Massachusetts.

Provision for Income Taxes

     The provision for income taxes is a benefit arising from the reconciliation
of current and deferred  income tax  liabilities on the books of Somerset at the
time  of  acquisition.  These  deferrals  and  liabilities  were  related  to an
amendment  to their  prior year  return,  as well as their  final short year tax
return.  This benefit was decreased by calculations  of alternative  minimum tax
liabilities and state income taxes. 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 December of 1998.

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 31, 1998,  cash,
cash equivalents,  and investments decreased $1,516,985 or 65% to $824,645. This
decrease relates to $1,076,924 of cash used in operating activities (see below),
$298,652 in capital  expenditures,  and $160,012 in capitalized  software costs,
partially  offset  from an  issuance of common  stock for  $18,603.  The Company
intends to 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   $1,416,292   or  64%   to   $3,617,046.
Approximately  $247,000 and  $1,169,000  of this  increase  occurred at CSTI and
Somerset,  respectively  during  the nine  months.  The CSTI  increase  reflects
license  fees and  support  contracts  billed at the end of December  1998,  and
increases  associated  with an increase in billings  related to the DDI project.
The Somerset increase is the result of outstanding  collections on several large
accounts.  As of December  31, 1998 the  company had  approximately  $797,000 in
receivables net of reserves over 90 days outstanding. Management is currently in
negotiations  to collect  these  balances  and  expects to collect  the  overdue
portions.  There can be no  assurance  that these  amounts  will be collected in
their entirety.

     Notes receivable  decreased  $914,093 or 79% because of payments related to
the  Henninger  note.  This is discussed in Note 5 of the Notes to the Condensed
Consolidated Financial Statements.




                                 Page 17 of 22
<PAGE>

                            CELERITY SOLUTIONS, INC.


Liquidity and Capital Resources, continued

Accounts payable and accrued liabilities  increased $506,668 or 39% to $506,668.
This increase includes  increases in accrued payroll and related costs,  accrued
interest  on  notes  to  related  parties,  and  increases  in  amounts  due  to
subcontractors.  Long term and short  term  notes  payable  to  related  parties
decreased $570,710, reflecting scheduled payments being made.

Unearned revenue decreased  $215,827,  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.  This  decrease was also  partially
caused  by  a  decrease  in  renewals  of  the  Company's  support   maintenance
agreements,  which were on its older platforms and are being replaced by the new
NT and UNIX versions.

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 needs,  investment in research and development and
sales and marketing needs, as well as its capital  expenditure  requirements for
the next twelve months.  However,  the Company has experienced a slowdown in the
collection  of certain  receivables,  which if not collected in the next quarter
would  adversely  affect the  Company's  liquidity.  The Company is currently in
negotiations to collect these past due receivables.  Further,  the Company is in
the  process of  establishing  a line of credit  secured by its  assets,  and it
anticipates  having  the  line in place in  sufficient  time to meet the  timing
issues of its working capital  requirements.  Neither, the collection of a major
portion of the past due receivables,  nor the  establishment of a line of credit
can be assured. If neither were to occur it would adversely affect the Company's
liquidity, and it would constrain the Company's ability to grow revenues, unless
other  alternatives  are  developed.  As  disclosed  in  "Note 6" on page 9, the
Company has already  renegotiated  a portion of the payments due on December 31,
1998 and may have to renegotiate these payments again. In addition, any material
acquisitions of complementary  business,  products or technologies would require
the Company to obtain additional sources of financing.

The Company does not currently  have plans for major capital  expenditures,  but
does have  $317,399  in  long-term  notes  payable to related  parties  from the
acquisitions  of SAI and  CSTI.  These  notes are  payable  in  various  amounts
beginning on April 1, 1998 and ending on January 1, 2001.  The Company  believes
that existing cash and cash equivalent balances,  short-term investment balances
and  potential  cash flow from  operations  will be  sufficient  to satisfy this
long-term liability.

As of 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 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 will require additional
financial resources.


                                 Page 18 of 22
<PAGE>


                            CELERITY SOLUTIONS, INC.


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 $23,451 or 1% and $433,411 or 7% for
the three and nine month periods ended December 31, 1998 versus the same periods
in 1997. Somerset had increases of approximately $134,000 or 12% and $580,000 or
19% for the three and nine month  periods  ended  December  31,  1998.  CSTI had
decreases of approximately  $101,000 or 10% and $139,685 or 5% for the three and
nine month  periods  ended  December  31, 1998 versus the same  periods in 1997,
respectively.  The decrease in CSTI's revenue was attributable to the completion
of several projects that incurred  non-billable time during the second and third
quarters  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  $117,688 or 51% and
773,226 or 89% for the three and nine month  periods  ending  December  31, 1998
versus the same periods in 1997. CSTI had  approximate  increases in license fee
revenue of $111,000 or 103% and  $705,000 or 230%,  respectively,  for the three
and  nine  month  periods.  CSTI's  increase  is  attributable  in  part  to the
recognition  of license  fees from a source  code sale of $150,000 in the second
quarter.  Somerset experienced  approximate  increases in license fee revenue of
$7,000 or 6% and  $128,000  or 26%  respectively,  for the three and nine  month
periods  ended  December 31, 1998 versus 1997.  The exited  multimedia  business
experienced  decreases  in both  periods of  approximately  $1,000 and  $60,000,
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  decreased  $19,364 or 89% for
the three months ended December 31, 1998, but increased $911,329 or 816% for the
nine month period ended December 31, 1998 versus the same periods in 1997.  This
decrease and increase are  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 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.


                                 Page 19 of 22
<PAGE>

                            CELERITY SOLUTIONS, INC.


Year 2000 Compliance Issues, continued

     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's  Year 2000 costs cost to date have not been
material.  The Company does not expect future 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 20 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

Not Applicable.

ITEM 5.  OTHER INFORMATION

Not Applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

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

27.1                       Financial Data Schedule


(b) Reports on Form 8-K:


       None



                                 Page 21 of 22
<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 16, 1999                     /s/ James P. Dore                  
                                           ------------------------------------
                                                James P. Dore
                                                Controller (Principal Accounting
                                                Officer)

Date:  February 16, 1999                   /s/ Edward Terino                    
                                           -------------------------------------
                                               Edward Terino
                                               Chief Financial Officer &
                                               Secretary / Treasurer


                                 Page 22 of 22