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 June 30, 1998

             [ ] Transition Report Under Section 13 or 15(d) of the
                                  Exchange Act
                       For the transition period from to 

                         Commission file number: 0-20102

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



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

                           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 July 13, 1998
                --------------                     -------------------

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

Transitional Small Business Disclosure Format:   Yes ___   No  _X_  

                            Exhibit Index on Page 18


                                  Page 1 of 19
<PAGE>

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


                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

ITEM 1.  Condensed Consolidated Financial Statements:
         Condensed Consolidated Balance Sheets as of June 30, 1998
             and March 31,1998                                                 3
         Condensed Consolidated Statement of Operations for the
             three months ended June 30, 1998 and 1997                         5
         Condensed Consolidated Statements of Cash Flows for the
             three months ended June 30, 1998 and 1997                         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                                                    18

ITEM 2.  Changes in Securities                                                18

ITEM 3.  Defaults Upon Senior Securities                                      18

ITEM 4.  Submission of Matters to a Vote of Security Holders                  18

ITEM 5.  Other Information                                                    18

ITEM 6.  Exhibits and Reports on Form 8-K                                     18
 
         Signatures                                                           19



                                  Page 2 of 19
<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS



                            Celerity Solutions, Inc.
                      Condensed Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                        June 30          March 31
                                                          1998            1998
                                                      ----------------------------
Assets                                                (Unaudited) 
Current assets:
<S>                                                  <C>               <C>        
   Cash and cash equivalents                         $   920,259       $ 1,347,246
   Short-term investments                                711,314           994,384
   Accounts receivable, net                            2,940,335         2,200,754
   Notes Receivable                                    1,203,500         1,159,893
   Prepaid expenses and other current assets             120,795           109,649
                                                      -----------------------------
Total current assets                                   5,896,203         5,811,926
                                                                    
Property and equipment:                                1,294,601         1,266,250
   Less: accumulated depreciation and amortization      (770,918)         (697,577)
                                                      -----------------------------
                                                         523,683           568,673
                                                                    
Notes receivable from related parties                    103,079           117,999
Capitalized software, net                                760,621           803,887
Goodwill, net                                          1,099,329         1,134,100
Other long-term assets                                     9,057             9,057
                                                      -----------------------------
Total assets                                         $ 8,391,972       $ 8,445,642
                                                      =============================
</TABLE>


See accompanying notes.



                                  Page 3 of 19
<PAGE>



PART I - FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS


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


<TABLE>
<CAPTION>
                                                              June 30           March 31
                                                               1998               1998
                                                            -----------------------------
                                                            (Unaudited) 
Liabilities and shareholders' equity 
Current liabilities:
<S>                                                        <C>               <C>         
   Accounts payable and accrued liabilities                $  1,685,838      $  1,287,750
   Income taxes payable                                         462,378           507,577
   Current portion of notes payable to related parties        1,096,737         1,100,797
   Unearned revenue and other current liabilities               298,672           494,640
                                                            -----------------------------
Total current liabilities                                     3,543,625         3,390,764

Notes payable to related parties                              1,078,260         1,178,051
Deferred rent                                                    67,241            70,688
                                                            -----------------------------
Total liabilities                                             4,689,126         4,639,503
                                                            -----------------------------

Shareholders' equity:
   Common stock, $.10 par value                                 884,289           884,289
   Additional paid-in capital                                18,900,290        18,900,290
   Accumulated deficit                                      (14,031,389)      (13,928,096)
                                                            -----------------------------
                                                              5,753,190         5,856,483

Less treasury stock, at cost                                 (2,050,344)       (2,050,344)
                                                            -----------------------------
Total shareholders' equity                                    3,702,846         3,806,139
                                                            -----------------------------
Total liabilities and shareholders' equity                 $  8,391,972      $  8,445,642
                                                            =============================
</TABLE>


See accompanying notes.

                                  Page 4 of 19
<PAGE>

                            Celerity Solutions, Inc.
                 Condensed Consolidated Statements of Operations

                                                     Three Months Ended
                                                          June 30
                                                    1998            1997
                                                ---------------------------
                                                   -----(Unaudited)-----
Revenue:
  Services                                     $ 1,933,570      $   796,248
  Software licenses                                531,136          122,721
  Hardware and other                               914,671
                                                ---------------------------
Total revenue                                    3,379,377          918,969

Cost of sales
  Services                                       1,398,234          524,897
  Hardware and related                             781,396
  Amortization of capitalized software              43,266           10,000
                                                ---------------------------
Total cost of sales                              2,222,896          534,897
                                                ---------------------------
Gross margin                                     1,156,481          384,072

Operating expenses:
  Research and development                         292,400          222,797
  General and administrative                       598,425          323,788
  Sales and marketing                              355,749          124,344
  Amortization of goodwill                          34,771           20,680
                                                ---------------------------
Total operating expenses                         1,281,345          691,609
                                                ---------------------------

Operating  loss                                   (124,864)        (307,537)
Other income (expense):
  Interest and other income, net                    65,444           68,797
  Interest expense                                 (63,877)         (47,652)
  Gain on sale of assets                                          2,037,104
                                                ---------------------------
Income (loss) before income taxes                 (123,297)       1,750,712
Income tax (expense) benefit                        20,000          (77,000)
                                                ===========================
Net income (loss)                              $  (103,297)     $ 1,673,712
                                                ===========================
Income (loss) Per Common Share:
Net income (loss) per share                    $    (.01)       $    .28
                                                ===========================
Weighted average shares outstanding              8,017,798        6,032,065
                                                ===========================
Income (loss) Per Share-Assuming Dilution:
Net income (loss) per share                    $    (.01)       $    .27
                                                ===========================
Weighted average shares outstanding              8,017,798        6,225,042
                                                ===========================

See accompanying notes.

                                  Page 5 of 19
<PAGE>


                            CELERITY SOLUTIONS, INC.

                            Celerity Solutions, Inc.
                 Condensed Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                                                          June 30
                                                                  1998              1997
                                                               ------------------------------
                                                                  -----(Unaudited)-----
<S>                                                            <C>              <C>        
Operating Activities
Net (loss) income                                              $  (103,297)     $ 1,673,712
Adjustments to reconcile net income to net cash (used in)
     provided by operating activities:
     Depreciation of property and equipment                         73,341           47,228
     Amortization of goodwill and developed software                78,037           30,680
     Gain on sale of assets                                                      (2,037,104)
     Changes in assets and liabilities (net of effect from
         disposition):
         Accounts receivable                                      (739,581)         (52,749)
         Prepaid expenses and other current assets                 (11,146)           2,581
         Short-term notes receivable                               (43,607)
         Long-term notes receivable and other assets                14,920           15,821
         Accounts payable and accrued liabilities                  395,590          (39,579)
         Income taxes payable                                      (45,199)
         Other current liabilities                                 (16,323)
         Notes payable to related parties                          (99,791)
         Unearned revenue and deferred rent                       (184,650)          93,588
                                                                ---------------------------
Net cash (used in) provided by operating activities               (681,706)        (265,822)

Investing Activities
Proceeds from sale of assets                                                      2,509,758
Capital expenditures                                               (28,351)         (36,745)
                                                                ---------------------------
Net cash (used in) provided by investing activities                (28,351)       2,473,013

Financing Activities
Purchases of short-term investments                                (16,930)
Proceeds from sales of short-term investments                      300,000          398,621
                                                                ---------------------------
Net cash provided by financing activities                          283,070          398,621
                                                                ---------------------------

Net (decrease) increase in cash and cash equivalents              (426,987)       2,605,812
Cash and cash equivalents at beginning of period                 1,347,246          760,065
                                                                ---------------------------
Cash and cash equivalents at end of period                      $  920,259      $ 3,365,877
                                                                ===========================
</TABLE>

See accompanying notes.

                                  Page 6 of 19
<PAGE>


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


1.  Statement of Information Provided

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

2.  Reclassifications

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

3.  Segment Reporting

In June 1997, the Financial Accounting Standards Board ("FASB") 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 the  reporting
requirements  of FASB No. 131. 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. Income (loss) Per Share

In February 1997, the FASB issued Statement No. 128,  Earnings per Share,  which
must be adopted for periods  ending  after  December 5, 1997  including  interim
periods.  The  Company  has  adopted  FASB No. 128 and has changed its method of
computing  earnings  per share and has  restated  prior  periods.  Under the new
requirements for calculating  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 a
loss from  operations  for the three months ended June 30, 1998 and thus has not
added  potential  common shares to the weighted  average shares  outstanding for
that period.



                                  Page 7 of 19
<PAGE>

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


4. Income (loss) Per Share, continued

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

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                       ---------------------------
                                                                June 30
                                                       ---------------------------
                                                       1998                1997
                                                       ---------------------------
Numerator:
<S>                                                    <C>            <C>        
Net income (loss)                                      $  (103,297)   $ 1,673,712
                                                       ---------------------------
Numerator  for income  (loss) per  common
share and income  (loss) per share-assuming dilution   $  (103,297)   $ 1,673,712
                                                       ===========================
Denominator:
Denominator  for  income  (loss)  per  common
share-Weighted average shares  outstanding               8,017,798      6,032,065
Effect of Dilutive securities:                                   *        192,977
                                                       ---------------------------
Denominator  for diluted  income  (loss) per share-
  Adjusted  weighted  average shares                     8,017,798      6,225,042
                                                       ===========================

Income (loss)  per common share                        $      (.01)   $       .28
                                                       ===========================

Income (loss) per common share-assuming dilution       $      (.01)   $       .27
                                                       ===========================
</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 597,285 shares as of the three months
ended June 30,  1998.  In  addition,  there were  options to purchase  1,195,026
shares at exercise prices between $2.42 and $4.66 per share  outstanding at June
30,  1998 that were not  included in the  potential  common  share  computations
because their exercise  prices were greater than the average market price of the
common shares.  There were also warrants to purchase 599,621 shares at $3.57 and
2,500 shares at $2.47 which were  outstanding at June 30, 1998, but not included
in the potential  common share  computations  because their exercise prices were
greater than the average  market price of common  shares.  These would have been
antidilutive, even if a profit had been reported in the numerator.

5. 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, 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.


                                  Page 8 of 19
<PAGE>

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


5. 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 was
composed of 1,958,233  unregistered  shares of the Company's common stock valued
at $2,313,848,  long-term notes,  with a stated interest rate of 7.5%,  totaling
$747,907, and cash payments totaling $2,496,163. SAI was merged into Somerset, a
wholly owned subsidiary of the Company,  at which time SAI's corporate existence
terminated.  The  transaction  was  accounted  for under the purchase  method of
business combinations. As a result of the acquisition,  $394,553 of goodwill was
recorded  which will be  amortized  on a straight  line basis over seven  years,
$665,323  of  capitalized  software  was  recorded  and will be  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.

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

<TABLE>
<CAPTION>
                                            Three Months Ended  June 30,
                                              1998           1997            $                %
                                             Actual        Proforma        Change           Change
                                           ---------------------------------------------------------
    Revenue                                                   -----(Unaudited)-----
<S>                                        <C>            <C>             <C>               <C>   
  Services                                 $1,933,570     $1,719,409        214,161           12.46%
  Software licenses                           531,136        197,721        333,415          168.63%
  Hardware and other                          914,671         37,870        876,801         2315.30%
                                           ---------------------------------------------------------
Total revenue                               3,379,377      1,955,000      1,424,377           72.86%

Cost of sales
  Services                                  1,398,234        946,953        451,281           47.66%
  Hardware and other                          781,396         29,004        752,392           96.29%
  Amortization of Capitalized Software         43,266         44,494         (1,228)          (2.76)%
                                           ---------------------------------------------------------
Total cost of sales                         2,222,896      1,020,451      1,202,445          117.83%
                                           ---------------------------------------------------------
Gross Margin                               $1,156,481     $  934,549        221,932           23.75%
                                           =========================================================
</TABLE>


                                  Page 9 of 19
<PAGE>

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


6. Licensing, Distribution, and Development Agreements

Licensing and Distribution Agreement with Davidson & Associates,  Inc. Agreement
entered  into on July 11,  1995  with a  worldwide  licensed  territory  for six
software  programs  and  related  materials  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 work.  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  shall
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 months ended June 30, 1998 or 1997. In March 1998, the Company transferred
and assigned to Davidson any and all rights in full, which the Company had under
this agreement.

Publishing and Licensing  Agreement with  Broderbund  Software,  Inc.  Agreement
dated  February 9, 1996  between  the Company as  developer  and  Broderbund  as
publisher for a worldwide  licensed territory 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  receives 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 shall pay the Company a non-refundable advance, against
future payments in the amount of $100,000 for each title accepted by Broderbund.
Broderbund shall also 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 months ended June 30, 1998 or 1997.

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


                                 Page 10 of 19
<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.

     In April  1997,  the  Company  sold  certain  of its  multimedia  assets to
Davidson &  Associates  (Davidson),  a division of Cendant,  Inc. The Company is
focused  on the  business  software  market  and has no  plans  to  develop  new
multimedia products in the foreseeable future.

     In August  1997,  the  Company  established  Paragon,  a limited  liability
company in St. Petersburg, Russia as a wholly owned subsidiary. Paragon develops
software for the Company.  Paragon  employs 10 technical  personnel some of whom
were employed by the Company's subsidiary AMI, which was sold in April of 1997.

     On December 8, 1997, the Company  acquired all of the outstanding  stock of
Somerset Automation,  Inc. (SAI), a privately held warehouse management software
company  based in  Irvine,  California  by means  of a  merger  between  SAI and
Somerset Solutions,  Inc. (Somerset),  a wholly owned subsidiary of the Company.
SAI is a technology leader in the warehouse management software market.

Presentation

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

Net Sales

     Revenues from services increased $1,137,322 or 142.85% for the three months
ended June 30,  1998  versus the same  period in 1997.  This  increase is mostly
attributable to increases in consulting and support maintenance revenues at CSTI
of  $140,550  or 18.39% and the  acquisition  of SAI,  which  added  $981,134 in
consulting revenue.

     Revenues from software  license sales increased  $408,415 or 332.8% for the
three months ended June 30, 1998 versus the same period in 1997.  This  increase
is  attributable  to  increases  in license  fee  revenue at CSTI of $232,630 or
257.4% and the  acquisition  of SAI which added  $208,136 in license fee revenue
less a decrease in multimedia royalties of $34,351.  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.

                                 Page 11 of 19
<PAGE>

                            CELERITY SOLUTIONS, INC.


Net Sales, continued

     Revenues from hardware and related sales  increased  $914,671 for the three
months  ended June 30,  1998 versus the same  period 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  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 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
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  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.  The Company  continues to expand all phases of sales and  marketing in
order to generate  long-term sales growth.  The Company expects that revenues in
fiscal 1999 will increase  above those  reported for fiscal 1998,  however there
can be no  assurances  as to the extent of such  increase  or if  revenues  will
increase at all.

Cost of Sales

     Cost of services are incurred in  connection  with the sale of supply chain
and warehouse management software.  Cost of services consists of costs primarily
associated with consulting and implementation  services that are sold as part of
a total supply chain and warehouse  management  solution,  and costs  associated
with providing support to customers.  These costs increased  $873,337 or 166.38%
during the three months ended June 30, 1998 versus the same period in 1997. Cost
of services as a percent of revenue from services  increased 6.39% for the three
months ended June 1998 versus the same period in 1997. 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 to increase in absolute dollars,
but not as a percent of sales during fiscal 1999.

     Cost of sales from  hardware and related  increased  $781,396 for the three
months  ended June 30,  1998 versus the same  period 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


                                 Page 12 of 19
<PAGE>

                            CELERITY SOLUTIONS, INC.


Cost of Sales, continued

hardware  cost of sales as a  percentage  of  Hardware  sales will  continue  to
average  approximately 86% during the remainder of fiscal 1999, but there can be
no assurance of this expectation.

     Amortization of capitalized  software  increased  $33,266 or 332.66% during
the three  months  ended  June 30,  1998  versus the same  period in 1997.  This
increase is  attributable  to the  acquisition of SAI on December 8, 1997.  This
acquisition  resulted in the recording of capitalized  software,  which is being
amortized over five years. The actual  capitalized  software  amortization costs
for fiscal 1999 are expected to be approximately $173,000.

Research and Development

     Research and development  (R&D) expenses  increased $69,603 or 31.2% during
the three months ended June 30, 1998 versus the same period in 1997. The Company
expects R&D costs to increase in absolute dollars during fiscal 1999 as a result
of an expansion of product  development  and integration of its supply chain and
warehouse management software packages.  The Company expects R&D as a percent of
sales to be consistent with or lower than prior years, reflecting utilization of
lower  development  costs  provided by Paragon.  The R&D projects are  presented
below and are grouped by each entity acquired.

     CSTI's in-process technology involves several projects.  Two large projects
involve a rewrite  and port of the  Continuum  6.0  software  to  Windows NT and
development applets for the Internet.  These projects have estimated  completion
dates  within the next twelve  months.  The Company  expects to expend  $600,000
during the next 12 months in order to  complete  these  projects.  Approximately
one-half  of these  costs  will be  completed  and  billed to clients as part of
consulting engagements. For each installation of its technology, CSTI performs a
significant amount of customization  typically  requiring six months and in some
cases a year or more to complete. 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.

     Somerset's in-process technology involves rewriting,  packaging and porting
the software to Windows NT. The Company  expects to expend  $400,000  during the
next 12 months in order to complete  these  projects.  Due to the high levels of
competition  in the  warehouse  management  software  industry,  the  Company is
continually  working  towards  improving  upon  existing   capabilities  through
implementation of additional product enhancement. In addition, 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 13 of 19
<PAGE>

                            CELERITY SOLUTIONS, INC.


Depreciation 

     Depreciation increased $26,113 or 55.29% during the three months ended June
30, 1998 versus the same period in 1997. The  acquisition of SAI was responsible
for $23,289 of the increase and the Company expects  depreciation to continue to
increase  during fiscal 1999 due to this  acquisition.  The actual  depreciation
expense for fiscal 1999 is expected to be approximately $300,000.

Amortization of Goodwill

     Amortization  of  goodwill  increased  $14,091  or 68.14%  during the three
months ended June 30, 1998 versus the same period 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  1998 are  expected  to be
approximately $139,000.

General and Administrative

     General and administrative  expenses increased $274,637 or 84.8% during the
three months  ended June 30, 1998 versus the same period in 1997.  Approximately
$230,000 of the increase is due to the  acquisition  of SAI and  includes  their
operating  costs  as  well  as  increased  costs  incurred  by the  Company  for
management  and  integration  of Somerset.  Of the remaining  increase,  $15,000
resulted  from an increase in investor  relations  related  activity and $25,000
from CSTI. General and administrative  expenses as a percent of sales were 17.7%
and 35.2% for the three months ended June 30, 1998 and 1997,  respectively.  The
exclusion  of  hardware  sales from the June 30, 1998  calculation  results in a
percentage of only 24.2% versus the 35.2% in 1997. 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.

Sales and Marketing

     Sales and marketing expense  increased  $231,405 or 186.1% during the three
months  ended June 30, 1998 versus the same period in 1997.  This item  includes
personnel related costs, as well as, those costs related to facilities,  travel,
trade shows,  advertising and promotions.  The acquisition of SAI resulted in an
increase of $178,000  while CSTI's selling and marketing  expenses  increased by
$54,000  or 43.5%.  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.  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.

Gain on Sale of Assets

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


                                 Page 14 of 19
<PAGE>

                            CELERITY SOLUTIONS, INC.


Provision for Income Taxes

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

Liquidity and Capital Resources

     The Company's primary sources of liquidity are cash, cash equivalents,  and
short-term investments.  During the three months ended June 30, 1998, cash, cash
equivalents,  and investments  decreased $ 710,057 or 30.3% to $1,631,573.  This
decrease  relates to $ 681,706 of cash used in operating  activities (see below)
and $28,351 in capital expenditures. The Company will use its working capital to
finance its growth from ongoing  operations and fund the continued  expansion of
its sales and marketing resources.

     Accounts   receivable   increased   $739,581   or  33.61%  to   $2,940,335.
Approximately  $590,000 of this increase  occurred at Somerset  during the three
months and represents  current  receivables that the company expects to receive,
and $150,000  represents  an unbilled  receivable  at CSTI which was received in
July 1998.

     Accounts payable and accrued  liabilities  increased  $395,590 or 30.72% to
$1,685,838. Most of this increase came from Somerset and resulted from increases
in sales of  third-party  hardware and  software,  which flow though the payable
process.

     Notes payable to related parties decreased  $99,791,  reflecting  scheduled
payments  being made and the  subsequent  shifting  of other  payments  due from
long-term to current liabilities.

     Unearned  revenue  decreased  $184,650,  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.

     The Company has a note  receivable  classified  as current  that was due on
July 31, 1998 totaling $1,203,500.  The Company has been in discussions with the
debtor and expects to receive payment within 90 days. However, any further delay
in the receipt of this receivable could require the Company to obtain additional
sources of financing.

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

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


                                 Page 15 of 19
<PAGE>


Liquidity and Capital Resources, continued

     At June 30, 1998, the Company had outstanding Series A Warrants to purchase
599,621 shares of Common Stock at $3.57 per share.  These warrants  expire March
31,  1999,  subject to  extension  by the  Company.  Pursuant to the  redemption
provision in the Warrant Agreement,  the Company has the option of redeeming the
warrants on an "all or nothing basis," and, given favorable  market  conditions,
may do so. Exercise of these warrants would generate approximately $2,141,000 in
cash.

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

Pro Forma Net Sales

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

     Pro forma revenues from services increased $214,161 or 12.46% for the three
months  ended June 30,  1998 versus the same  period in 1997.  This  increase is
mostly  attributable  to increases at CSTI and Somerset of $140,551 or 18.4% and
57,972 or 6.3%, respectively.

     Pro forma  revenues  from  software  license  sales  increased $ 333,415 or
168.63% for the three months ended June 30, 1998 versus the same period in 1997.
This  increase is  attributable  to increases in license fee revenue at CSTI and
Somerset  of $232,630 or 257.4% and  $133,136 or 177.52%,  respectively,  less a
decrease  in  multimedia  royalties  of  32,351.   License  revenue  recognition
fluctuates with customer  acceptance of the delivered  product and product sales
to new and existing customers.

     Pro forma  revenues  from  hardware and other sales  increased  $876,801 or
2,315% for the three  months ended June 30, 1998 versus the same period in 1997.
This increase is attributable to Somerset which resells third party software and
hardware with related warehouse management system installations.  Hardware sales
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.


                                 Page 16 of 19
<PAGE>


Year 2000 Compliance Issues, continued

     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.

     The  Company  utilizes  outside  providers  for  services  such as  payroll
processing and 401(k) benefit administration,  third party vendor equipment, and
various  software  products  which  may or may not be year 2000  compliant.  The
Company  has  addressed  the issue  and  taken  steps to make sure that all such
exposure is eliminated,  but failure of any critical technological  component to
operate  properly may have an adverse  impact on business  operations or require
the Company to incur unanticipated  expenses to remedy any problems. The Company
does not expect year 2000 related  compliance costs to be material,  but can not
assure that such costs will be inconsequential.

     The  Company'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.

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 17 of 19
<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:

     27.1 Financial Data Schedule

(b)  Reports on Form 8-K:

     On July 17,  1998,  the Company  filed a Form 8-K/A  amending  the Form 8-K
     filed December 23, 1998 for the acquisition of SAI. The Company amended the
     pro forma  financial  statements  in response  to a request for  additional
     information from the SEC.



                                 Page 18 of 19
<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: August 14, 1998                         /s/  James P. Dore
                                              ------------------
                                              James P. Dore
                                              Controller (Principal Accounting
                                              Officer)

Date:  August 14, 1998                        /s/  Edward Terino
                                              ------------------
                                              Edward Terino
                                              Chief Financial Officer &
                                              Secretary / Treasurer



                                 Page 19 of 19