U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

     (MARK ONE)

|X|    Quarterly Report Pursuant to Section 13 or 15(d) of Securities
       Exchange Act of 1934

                 For the quarterly period ended SEPTEMBER 30, 2001

|_|    Transition report under Section 13 or 15(d) of the Securities Exchange
       Act of 1934

                 For the transition period from _______ to _______.

                          Commission File No. 000-28321

                             CELERITY SYSTEMS, INC.
                 (Name of Small Business Issuer in Its Charter)

Delaware                                                   52-2050585
--------                                                   ----------
(State or Other Jurisdiction of Incorporation              (I.R.S. Employer
or Organization)                                           Identification No.)

122 Perimeter Park Drive, Knoxville, Tennessee             37922
----------------------------------------------             -----
(Address of Principal Executive Offices)                   (Zip Code)

                                 (865) 539-5300
                (Issuer's Telephone Number, Including Area Code)


         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,  and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No |_|



         There were 67,607,657 shares of Common Stock outstanding as of November
2, 2001.




                                       1


<PAGE>
<TABLE>
<CAPTION>
PART I

FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

CELERITY SYSTEMS, INC.
 Balance Sheets
                                                                                         September 30, 2001
                                                                                             (unaudited)       December 31, 2000
                                                                                     --------------------------------------------
<S>                                                                                            <C>                  <C>
 Assets
    Cash                                                                                       $     143,290        $     10,366
    Accounts receivable                                                                               88,800                   -
    Inventory, net                                                                                 2,853,637             400,157
                                                                                     --------------------------------------------
         Total current assets                                                                      3,085,727             410,523
 Property and equipment, net                                                                         824,319             100,375
 Debt offering costs, net of accumulated amortization of $260,383
   and $257,263, respectively                                                                      1,480,222              41,215
 Other assets                                                                                         27,060              56,930
                                                                                     --------------------------------------------
      Total assets                                                                            $    5,417,328       $     609,043
                                                                                     ============================================
 Liabilities, Redeemable Preferred Stock and Stockholders' Deficit
 Accounts payable                                                                             $    2,302,489       $     684,103
 Accrued wages and related taxes                                                                      77,022             187,642
 Accrued interest                                                                                     45,762             151,499
 Other accrued liabilities                                                                           442,198             176,925
 Notes payable                                                                                       134,177              92,943
 Equity warrant liability                                                                            322,270                   -
 Current maturities of long-term debt and capital lease obligations                                  150,000             570,000
                                                                                     --------------------------------------------
      Total current liabilities
                                                                                                   3,473,918           1,863,112
 Long-term debt and capital lease obligations, less current maturities                             2,594,887             530,425
                                                                                     --------------------------------------------
      Total liabilities                                                                            6,068,805           2,393,537
 Commitments and contingencies (Notes 7 and 8)
 Series A convertible  preferred stock, $.01 par value;  authorized 50 shares; 0
      and 13.715 shares issued and outstanding at
      September 30, 2001 and December 31, 2000,
      respectively                                                                                         -             168,357
 Series B convertible preferred stock, $.01 par value; authorized
      100 shares; 95 and 0 shares issued and outstanding at
      September 30, 2001 and December 31, 2000, respectively                                         258,042                   -
 Common stock, $.001 par value, 50,000,000 shares authorized,
     67,945,021 issued and 67,607,657 outstanding, and 24,640,649
      issued and 24,303,285 outstanding at September 30, 2001
      and December 31, 2000, respectively                                                             67,623              24,641


                                                                2
<PAGE>

 Additional paid-in capital                                                                       31,946,488          30,407,547
 Equity placement fee                                                                             (1,193,478)                  -
 Treasury stock, at cost, 337,364 shares at September 30, 2001                                      (227,500)           (227,500)
      and December 31, 2000
 Accumulated deficit                                                                             (31,502,652)        (32,157,539)
                                                                                     --------------------------------------------
      Total stockholders' deficit                                                                   (909,519)         (1,952,851)
                                                                                     --------------------------------------------
      Total liabilities, redeemable preferred stock and stockholders' deficit                 $    5,417,328       $     609,043
                                                                                     ============================================

The accompanying  notes are an integral part of these unaudited condensed financial statements.
</TABLE>






                                                              3
<PAGE>

<TABLE>
<CAPTION>
 CELERITY SYSTEMS, INC.
 Condensed Statements of Operations
 Unaudited
                                                                        Three Months Ended                Nine Months Ended
                                                                          September 30,                     September 30,
                                                           --------------------------------------------------------------------
                                                                      2001              2000            2001             2000
                                                                      -----             -----           -----            -----
<S>                                                              <C>                  <C>           <C>               <C>
   Revenues                                                      $     87,800         $    --       $   90,200        $     --

   Cost of revenues                                                   219,184              --          222,424         685,313
                                                           --------------------------------------------------------------------
           Gross margin                                              (131,384)             --         (132,224)       (685,313)


   Operating expenses                                               1,226,818         774,396        2,570,131       2,671,292
                                                           --------------------------------------------------------------------
           Loss from operations                                    (1,358,202)       (774,396)      (2,702,355)     (3,356,605)
      Interest expense                                                (29,870)        (92,093)        (258,561)       (838,146)
      Income on equity warrant liability (Note 8)                     815,602              --        1,306,652              --

      Other income                                                         --         (14,842)          18,380          (5,293)
                                                           --------------------------------------------------------------------
           Loss from continuing operations                           (572,470)       (881,331)      (1,635,884))    (4,200,044)

      Income on disposal of discontinued CD-ROM segment                    --          (1,218)              --          35,094

  Cumulative effect of change in
    Accounting method (Note 9)                                             --              --        2,598,813              --
                                                           --------------------------------------------------------------------
           Net income (loss)                                         (572,470)       (882,549)         962,929      (4,164,950)
Amortization of beneficial conversion feature and
accretion of redeemable convertible preferred stock
(Note 4)                                                             (163,708)       (357,912)        (308,042)       (357,912)

                                                           --------------------------------------------------------------------
           Net income (loss) applicable to common                 $  (736,178)    $(1,240,461)       $ 654,887    $ (4,522,862)
shareholders
                                                           ====================================================================
   Basic and diluted loss per common share (Note 2):
      Loss from continuing operations                              $    (0.01)      $   (0.10)       $   (0.04)      $   (0.45)

      Discontinued operations                                               -              --               --              --

      Cumulative effect of change in accounting method                      -              --             0.05              --
                                                           --------------------------------------------------------------------
      Net income (loss) per share to common shareholders           $    (0.01)      $   (0.10)        $   0.01       $   (0.45)
                                                           ====================================================================

             The accompanying notes are an integral part of these unaudited condensed financial statements.
</TABLE>


                                                              4
<PAGE>

<TABLE>
<CAPTION>
 CELERITY SYSTEMS, INC.
 Condensed Statements of Cash Flows
 Unaudited
                                                                                                         Nine Months Ended
                                                                                                       2001             2000
                                                                                                       ----             ----
<S>                                                                                                <C>            <C>
 Cash flows from operating activities:
    Net income (loss)                                                                              $  962,929     $ (4,164,950)
    Adjustments to reconcile net income (loss) to net
         cash used in operating activities:
             Depreciation and amortization                                                            551,228          477,484
             Provision for inventory obsolescence                                                      90,000          683,750
             Noncash interest expense related to beneficial
                  conversion feature of debt                                                          147,843          658,339
             Noncash interest expense related to notes payable                                         36,860                -
             Noncash operating expense related to consulting fees                                      85,231          567,197
             Noncash operating expense related to payroll
                and directors' fees                                                                    25,671          327,090
             Noncash income related to settlement of capital lease obligation                         (97,500)               -
             Noncash income related to equity warrant liability                                    (1,306,652)               -
             Noncash income related to change in accounting principle                              (2,598,813)               -
             Changes in current assets and liabilities:
                 Accounts receivable                                                                  (88,800)          31,500
                 Prepaid expenses                                                                           -           22,100
                 Inventory                                                                         (2,663,039)        (203,576)
                 Accounts payable                                                                   1,644,012         (421,561)
                 Other current liabilities                                                            183,101         (471,582)
                                                                                           -------------------------------------
                     Net cash used in operating activities                                         (3,027,929)      (2,494,209)
Cash flows from investing activities:
    Purchase of fixed assets                                                                         (653,647)         (48,567)
                                                                                           -------------------------------------
                     Net cash used in investing activities                                           (653,647)         (48,567)
Cash flows from financing activities:
    Proceeds from short-term borrowings                                                                54,000          200,000
    Payments on short-term borrowings                                                                 (35,000)        (100,000)
    Proceeds from long-term debt                                                                    3,986,000        1,179,980
    Principal payments on long-term debt and capital lease obligations                                (92,500)         (60,000)
    Proceeds from issuance of common stock                                                             30,000        1,060,000
    Proceeds from exercise of common stock warrants                                                         -          136,100
    Proceeds from exercise of common stock options                                                          -            2,775
    Proceeds from Series A preferred stock and warrant offering,
       net of offering costs                                                                                -          369,000
    Proceeds from Series B preferred stock and warrant offering,
       net of offering costs                                                                          859,654                -
    Financing and debt issue costs                                                                   (987,654)        (137,480)
                                                                                           -------------------------------------
                     Net cash provided by financing activities                                      3,814,500        2,650,375
 Net increase in cash and cash equivalents                                                            132,924          107,599
 Cash and cash equivalents, beginning of period                                                        10,366              383
                                                                                           -------------------------------------
 Cash and cash equivalents, end of period                                                         $   143,290    $     107,982
                                                                                            =====================================

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

</TABLE>



                                                              5
<PAGE>

                             CELERITY SYSTEMS, INC.


NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


1.       PRESENTATION OF UNAUDITED INTERIM FINANCIAL STATEMENTS

         The accompanying  interim condensed  financial  statements and notes to
the financial  statements  for the interim  periods as of September 30, 2001 and
for the three and nine months ended  September 30, 2001 and 2000, are unaudited.
The accompanying  interim unaudited  financial  statements have been prepared by
the Company in accordance  with  generally  accepted  accounting  principles for
interim  financial  statements and Item 310(b) of Regulation  S-B.  Accordingly,
they do not include all the  information  and  footnotes  required by  generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring items) considered
necessary for a fair presentation have been included.  Operating results for the
nine month period ended  September 30, 2001, are not  necessarily  indicative of
the results  that may be expected for the year ending  December  31,  2001.  The
condensed financial  statements should be read in conjunction with the financial
statements and notes thereto included in the 10-KSB of the Company as of and for
the year ended December 31, 2000.

         In June 1998,  the FASB  issued  SFAS 133,  Accounting  for  Derivative
Instruments  and  Hedging  Activities  and in July  1999  issued  SFAS 137 which
deferred  the  effective  date of SFAS 133, as it pertains  to the  Company,  to
fiscal year 2001. This statement has not had a material impact on the Company.

         In July 2001, the FASB issued SFAS 141, Business Combinations, and SFAS
142, Goodwill and Other Intangible  Assets.  SFAS 141 requires that the purchase
method be used for business combinations initiated after June 30, 2001. SFAS 142
requires  that  goodwill  no longer be  amortized  to  earnings,  but instead be
reviewed for  impairment.  The  amortization of goodwill ceases upon adoption of
the Statement  which will be January 1, 2002.  Adoption of these  statements has
not had a material impact on the Company.

         FASB Statement of Financial  Accounting  Standards No. 143  "Accounting
for Asset Retirement  Obligations"  ("SFAS 143") was issued in August 2001. SFAS
143 changes the accounting and reporting for asset retirement obligations.  SFAS
143 is effective for fiscal years  beginning after June 15, 2002. The Company is
currently  assessing  the  effect,  if  any,  on  its  financial  statements  of
implementing SFAS 143.

         The  Company's  financial  statements  have  been  prepared  on a going
concern basis,  which  contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. The Company has
had  recurring  losses and  continues  to suffer cash flow and  working  capital
shortages. Additionally, the lack of sales or a significant financial commitment
raises  substantial  doubt  about the  Company's  ability to continue as a going
concern.

         The Company has focused on attempting  to obtain the necessary  capital
to maintain  its  operations.  Additionally,  the Company has narrowed its sales
efforts to those which it  believes  have the best chance of closing in the near
term. In the first nine months of 2001, the Company received gross proceeds from
private  placements  of  convertible  debt  totaling  $3,986,000  and  Series  B
Convertible  Preferred Stock totaling  $1,000,000 and received  $30,000 from the
issuance of common stock.  These funds enabled the Company to produce  inventory
and to operate for the last few months.  The Company  believes  that some of the
funds needed for future operations will be available from the $10,000,000 Equity
Line of Credit Agreement established in June, 2001. (Note 8)

2.       INCOME (LOSS) PER SHARE

         Basic and diluted income (loss) per share were computed by dividing net
income (loss)  applicable to common stock by the weighted  average fully diluted
common shares outstanding during each period. Potential common equivalent shares
are not included in the  computation of per share amounts in the periods because
the Company reported a loss from continuing operations and their effect would be
anti-dilutive.  At September  30, 2001,  the number of shares  excluded from the
computation because of their anti-dilutive effect is approximately 102,000,000.



                                       6
<PAGE>

         Following is a reconciliation of the numerators and denominators of the
basic and diluted loss per share:

<TABLE>
                                                                 Three Months Ended                     Nine Months
                                                                   September 30,                      Ended September
                                                                                                            30,
                                                           -------------------------------    --------------------------------
                                                                2001            2000               2001            2000
                                                                ----            ----               ----            ----
<S>                                                         <C>            <C>                  <C>            <C>
Income (Loss)
     Basic and diluted:
         Income (loss) applicable to common stockholders     $(736,178)    $(1,240,461)           $654,887     $(4,522,862)

Shares
     Basic and diluted:
         Weighted-average common shares outstanding         54,825,103      12,497,652          48,897,446      10,069,568
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

3.       ISSUANCE OF CONVERTIBLE DEBENTURES

         The  Company  issued  $3,986,000   aggregate  principal  amount  of  4%
convertible  debentures  in the first  nine  months of 2001  under its  previous
Equity Line of Credit,  resulting in net proceeds of  approximately  $2,654,000.
The debentures have a term of five years and are convertible  into the Company's
common  stock at a  price,  at the  option  of the  holder,  equal to 75% of the
average  closing  bid  price  of the  common  stock  for the five  trading  days
immediately preceding conversion. The Company recognized a beneficial conversion
feature  for  the  convertible  debentures  as a  discount  on  the  convertible
debentures and as additional  paid-in capital.  This discount of $1,337,468 will
be amortized as a non-cash  interest  expense over the five year period from the
date of issuance to the stated redemption date of the debentures.

4.       ISSUANCE OF SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK

         In the  first  quarter  of 2001,  the  Company  consummated  a  private
placement  of 23 shares  of  Series B  Redeemable  Convertible  Preferred  Stock
resulting  in gross  proceeds  of  $230,000.  The  Series B Stock  provides  for
preferential  dividends  at an  annual  rate  of  8%.  The  preferred  stock  is
convertible  into shares of common stock at a  conversion  price equal to $0.025
per share,  subject to availability,  at any time during the two years following
execution of the subscription agreements. Should there be an insufficient number
of shares of common stock  available at the time the preferred  stock is offered
for  conversion,  the conversion  period shall be extended by the number of days
between the  conversion  date and the date common shares become  available.  Two
years from the original  issuance  date,  the Company shall offer to redeem such
preferred  shares then  outstanding  at a price equal to the  original  issuance
price plus  accrued  dividends.  The  Company  will record  accretion  up to the
redemption value until the redemption date. Accretion totaled $16,500 in the 3rd
quarter and $38,500 in the first nine months of 2001.  Warrants to purchase  one
share of common stock for each two shares of common stock issued upon conversion
of this tranche of Series B Preferred  Stock were  included.  These warrants are
exercisable for a two year period  following the date that the last share of the
Series B Redeemable  Convertible  Preferred Stock is converted into common stock
and have an exercise price of $.10 per share. The Company allocated  $132,000 of
the proceeds to the warrants based on their  relative fair value.  The resulting
$98,000  beneficial  conversion feature of the preferred stock will be reflected
as a dividend over the two year period until the stated  redemption  date of the
stock. Amortization of this beneficial conversion feature totaled $12,250 in the
3rd quarter and $28,583 in the first nine months of 2001.

         The Company also  consummated  an  additional  private  placement of 72
shares of Series B Redeemable  Convertible  Preferred  Stock  resulting in gross
proceeds  of  $720,000,  and  issued an  additional  5 shares  having a value of
$50,000 as payment for certain  accounts payable and accrued wages. The Series B
Stock provides for preferential dividends at an annual rate of 8%. The preferred
stock is convertible  into shares of common stock at a conversion price equal to
$0.025 per  share,  subject to  availability,  at any time  during the two years
following execution of the subscription  agreements.  The beneficial  conversion
feature of $679,654  will be  reflected  as a dividend  over the two year period
until the stated  redemption  date.  Amortization of this beneficial  conversion
feature  totaled  $134,958  in the 3rd  quarter  and  $240,959 in the first nine
months of 2001. Should there be an insufficient number of shares of common stock
available  at the time  the  preferred  stock is  offered  for  conversion,  the
conversion period shall be extended by the number of days between the conversion
date and the date common  shares become  available.  Two years from the original
issuance  date the  Company  shall offer to redeem  such  preferred  shares then
outstanding  at a price  equal  to the  original  issuance  price  plus  accrued
dividends.  The Company will record  accretion up to the redemption  value until
the redemption date.



                                       7
<PAGE>

5.       ISSUANCE OF COMMON STOCK

         In the first quarter of 2001,  the Company issued  1,000,000  shares of
common stock in a private placement for a value of $30,000.

6.       SUPPLEMENTAL CASH FLOW INFORMATION

         During the first nine months of 2000, the Company issued 802,580 shares
of common stock with a value of $1,288,994 as payment for certain consulting and
directors' fees and certain payroll expenses.

         During the first nine  months of 2001,  the  Company  issued  1,275,348
shares  of  common  stock  with a value  of  $110,901  as  payment  for  certain
consulting and directors' fees and certain payroll expenses.

         The  Company  also  issued 5 shares of Series B  convertible  preferred
stock with a value of  $50,000  as payment  for  certain  accounts  payable  and
accrued wages.

         In  the  first  nine  months  of  2000,  $956,793  of  the  convertible
debentures were converted into 1,971,609 shares of common stock.

         Also during the first nine months of 2001,  $939,679 of the convertible
debentures were converted into 34,071,296 shares of common stock.

         Additionally,  during the first nine  months of 2001,  $140,912  of the
Series A convertible  preferred  stock was converted  into  4,360,203  shares of
common stock.

         Also during the first nine months of 2001,  $22,190 of noncash interest
expense was incurred relating to notes payable.

         During  the 3rd  quarter of 2001,  $50,000 of the Series B  convertible
preferred stock was converted into 2,000,000 shares of common stock.

7.       COMMITMENTS AND CONTINGENCIES

         The Company is a defendant in a lawsuit brought by a financial  printer
for  non-payment of expenses.  The action was brought on January 30, 2001 and is
pending  before the Supreme Court of the State of New York,  County of New York.
In this action, the plaintiff, Merrill Corporation, has sued the Company for the
non-payment of financial printing fees and is seeking approximately  $118,000 in
damages,  plus  interest  and  certain  costs.  On  October  15,  2001,  Merrill
Corporation obtained a judgment for $136,435.27 against the Company. The Company
intends to seek to vacate this  judgment,  although no  assurances  can be given
that such efforts will be successful.

         On October 27, 2001, the Company defaulted on payments due of $150,000,
plus accrued  interest,  on certain  unsecured  notes.  Written  demand has been
received  from one of the two note  holders.  The  Company  is  seeking  to make
arrangements  with these note  holders.  In  addition,  certain  creditors  have
threatened  litigation if not paid. The Company is seeking to make  arrangements
with these creditors.  There can be no assurance that any claims,  if made, will
not have an adverse effect on the Company.

8.       EQUITY LINE OF CREDIT

         The Company had entered into a Line of Credit  Agreement,  that expires
on December 31, 2001,  under which a maximum amount of $10,000,000 of debentures
could  have been  issued.  As of  September  30,  2001,  the  Company  had drawn
$4,981,000 under the Line of Credit.

         On June 14,  2001,  the Company  entered  into an Equity Line of Credit
pursuant to which the Company may, at its discretion,  periodically  sell to the
Investor  shares  of  common  stock  for a total  purchase  price of up to $10.0
million.  For each share of common  stock  purchased  under the  Equity  Line of


                                       8
<PAGE>

Credit,  the  Investor  will pay 82% of the average of the 3 lowest  closing bid
prices on which our common stock is traded for the 5 days immediately  following
the notice date.  Unless waived by the  Investor,  the amount of each advance is
subject to a maximum  advance  amount  based on an average  daily  volume of the
Company's common stock.  Celerity may request an advance every ten trading days.
A  consulting  fee of 10% of each  advance will be paid upon closing each of the
sales  under this  agreement.  The  consultant  received  warrants  to  purchase
3,500,000  shares of common stock at an exercise  price of $0.10 The  $1,363,975
fair value of these  warrants was recorded as a cost of the  transaction.  These
warrants  expire in June 2006.  In accordance  with EITF 00-19,  the Company has
recorded an equity  warranty  liability of $1,363,975  in connection  with these
warrants.  As the number of shares  which may be issued upon  conversion  of the
convertible  debentures is  indeterminate,  a sufficient number of authorized by
unissued  shares may not be available.  As a result,  the Company has recorded a
mark-to-market  adjustment  of $632,967 in the three months ended  September 30,
2001,  and $1,124,015  for the nine months ended  September 30, 2001,  which has
been reflected as income on equity warrant liability.

         In October 2001, we issued  $665,000 of  convertible  debentures,  from
which we received  net  proceeds of  approximately  $400,000.  These  debentures
accrued  interest at 4% per year and are convertible into shares of common stock
at a  conversion  price  equal  to 75% of  the  average  closing  bid  price  of
Celerity's  common  stock  for the 5 days  prior to  conversion.  At  Celerity's
option,  these debentures may be paid in cash or converted into shares of common
stock on the fifth anniversary unless converted earlier by the holder.  Celerity
paid  consulting  fees of  $278,565 to  Yorkville  Advisors  Management,  LLC in
connection  with this  offering.  Also in October,  we sold 6 shares of Series C
Preferred  Stock for $60,000 in cash.  Each share of Series C Preferred Stock is
convertible into 250,000 shares of common stock at the holder's discretion.

         In September  2001,  Celerity  issued  warrants to Internet  Finance to
purchase  500,000  shares of Celerity  common stock.  One-half of these warrants
have an exercise price of $0.15 per share and one-half have an exercise price of
$0.25 per share. In addition, Celerity is obligated to issue to Internet Finance
warrants to purchase additional shares of common stock if Celerity is successful
in  obtaining  financing  arranged by  Internet  Finance.  For each  $500,000 of
capital received by Celerity, Internet Capital will receive warrants to purchase
250,000  shares of common stock at $0.15 per share.  Internet  Finance will also
receive cash  compensation  of 2.5% of all funds  received by Celerity under the
contract.

         In August 2001, we issued  $1,586,000 of convertible  debentures,  from
which  we  received  net  proceeds  of  approximately  $889,000.  Celerity  paid
consulting fees of $680,000 to Yorkville Advisors Management,  LLC in connection
with this offering.  Celerity issued a warrant to Yorkville Advisors to purchase
2,500,000 shares of common stock at $0.10 per share.  These  debentures  accrued
interest at 4% per year and are  convertible  into  shares of common  stock at a
conversion  price  equal to 75% of the average  closing bid price of  Celerity's
common stock for the 5 days prior to  conversion.  At Celerity's  option,  these
debentures  may be paid in cash or converted  into shares of common stock on the
fifth anniversary  unless converted earlier by the holder.

         In July 2001,  we issued  2,400,000  shares of common stock to Artesian
Direct for its  commitment to purchase $10 million of Celerity's  products or to
provide $10 million of financing. These shares were valued at $0.17 per share on
the date of issuance or $408,000. This amount will be amortized as a cost of the
related sale or financing. Ed Kidston, a member of our Board of Directors,  owns
30% of the outstanding capital stock of Artesian Direct.

9.       CHANGE IN ACCOUNTING PRINCIPLE

         Effective  June 30, 2001,  the Company  adopted the  provisions of EITF
00-19,   "Accounting  for  Derivative  Financial  Instruments  Indexed  to,  and
Potentially  settled  in, a  Company's  Own  Stock".  This issue  provides  that
warrants to  purchase  common  shares  which are  outstanding  and for which the
number of authorized but unissued  shares is insufficient to satisfy the maximum
number of shares that could be required upon the exercise of such warrants, then
the contract is reclassified from equity to an asset or liability. The effect of
the  application  of  this   pronouncement  that  requires  asset  or  liability
classification  for those contracts that existed as of September 20, 2000, would
be  calculated  as of June 30, 2001,  and presented on that date as a cumulative
effect of a change in accounting  principle.  At June 30, 2001,  $2,863,760  was
reclassified  from  equity  to a  liability  and  mark-to-market  adjustment  of
$2,598,813  was  recorded  as the  cumulative  effect of a change in  accounting
principle.  In  the  three  months  ended  September  30,  2001,  an  additional
mark-to-market  adjustment of $182,637 was recorded as income on equity  warrant
liability for those contracts that existed as of September 20, 2000.



                                       9
<PAGE>

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

         INTRODUCTORY STATEMENTS

         FORWARD-LOOKING  STATEMENTS AND ASSOCIATED  RISKS. THIS FILING CONTAINS
FORWARD-LOOKING STATEMENTS,  INCLUDING STATEMENTS REGARDING, AMONG OTHER THINGS,
(A) OUR COMPANY'S  PROJECTED SALES AND  PROFITABILITY,  (B) OUR COMPANY'S GROWTH
STRATEGIES,  (C) ANTICIPATED TRENDS IN OUR COMPANY'S INDUSTRY, (D) OUR COMPANY'S
FUTURE  FINANCING  PLANS AND (E) OUR  COMPANY'S  ANTICIPATED  NEEDS FOR  WORKING
CAPITAL.  IN  ADDITION,   WHEN  USED  IN  THIS  FILING,  THE  WORDS  "BELIEVES,"
"ANTICIPATES," "INTENDS," "IN ANTICIPATION OF," "EXPECTS," AND SIMILAR WORDS ARE
INTENDED  TO  IDENTIFY   FORWARD-LOOKING   STATEMENTS.   THESE   FORWARD-LOOKING
STATEMENTS ARE BASED LARGELY ON OUR COMPANY'S  EXPECTATIONS AND ARE SUBJECT TO A
NUMBER OF RISKS AND  UNCERTAINTIES,  INCLUDING  THOSE DESCRIBED IN THE "BUSINESS
RISK  FACTOR"  SECTION.  ACTUAL  RESULTS  COULD  DIFFER  MATERIALLY  FROM  THESE
FORWARD-LOOKING  STATEMENTS  AS A RESULT OF CHANGES IN TRENDS IN THE ECONOMY AND
OUR  COMPANY'S  INDUSTRY,  DEMAND  FOR  OUR  COMPANY'S  PRODUCTS,   COMPETITION,
REDUCTIONS IN THE  AVAILABILITY OF FINANCING AND  AVAILABILITY OF RAW MATERIALS,
AND OTHER FACTORS.  IN LIGHT OF THESE RISKS AND  UNCERTAINTIES,  THERE CAN BE NO
ASSURANCE THAT THE FORWARD-LOOKING  STATEMENTS  CONTAINED IN THIS FILING WILL IN
FACT OCCUR.

         OVERVIEW

         Prior to 1998, our major activity was selling  digital video servers in
the interactive video services market. All sales were in Korea,  Israel,  Taiwan
and China.  However,  beginning in 1998,  we focused our sales  efforts in North
America,  and developed and sold the first production units of a new digital set
top box, the T 6000.

         In  February  1998,  we decided  to scale back our CD-ROM  segment to a
maintenance  mode of  operations.  We  developed a formal plan of disposal  that
became  effective in May 1998. The segment had revenues of $-0- and $650 for the
three months ended September 30, 2001 and 2000, respectively.  In February 2001,
we sold the assets of our CD-ROM  segment for 20 preferred  shares of the buyer,
which are  convertible  into common shares on a scheduled  basis over a two-year
period.  As we had written the assets of this segment down to zero, and the fair
value of the shares of the buyer was not currently determinable, no gain or loss
on this sale was recorded.

         We have  continued  to focus  most of our  development  and  production
efforts during 2000 and into 2001 on the T 6000. In addition, we are seeking new
projects  using our digital  video  servers,  which could be deployed with the T
6000 or other  compatible set top boxes.  In 1999, we produced our initial trial
run of the T 6000 set top boxes,  which were manufactured by Taylor-White,  LLC,
of  Greeneville,  Tennessee.  In December 1999, we entered into a  manufacturing
agreement  with  Global PMX  Company,  Limited,  which was  terminated  by us in
November  2000.  We have since  entered into  agreements  with  Nextek,  Inc. in
Madison,  AL and IES in Gray,  TN under  which the T 6000  digital set top boxes
will be manufactured.

         Management  has also  focused on  attempting  to obtain  the  necessary
capital  to  maintain  our  operations.  We are  continuing  to seek  financing,
including possible strategic  investment  opportunities or opportunities to sell
some or all of our  assets  and  business,  while  continuing  to  pursue  sales
opportunities.  We have narrowed our sales  efforts to those which,  we believe,
have the best chance of closing in the near term.  We  continue  to  encounter a
longer and more complex sales cycle than  originally  contemplated.  The lack of
sales or a significant  financial  commitment raises substantial doubt about our
ability  to  continue  as a going  concern  or to resume a  full-scale  level of
operations.

         We had no revenues in 2000. We had one  interactive  video  educational
customer that represented 97% of our revenues in the first nine months of 2001.

         RESULTS OF OPERATIONS



                                       10
<PAGE>

         THREE MONTHS ENDED  SEPTEMBER  30, 2001  COMPARED TO THREE MONTHS ENDED
         SEPTEMBER 30, 2000

                  Revenues

         We had revenues  $87,800 for the quarter  ended  September  30, 2001 as
compared  to $-0- for the same  period in 2000.  These  revenues  in the current
period  resulted  from the  shipment of a digital  education  system to a school
district in Ohio.  The low level of  interactive  video sales is a result of the
constrained  sales and  marketing  activities  caused by our cash  shortage  and
delays associated with the production of the T 6000 set top box.

                  Costs of Revenues

         Costs of  revenues  were  $219,184  in the third  quarter  of 2001,  as
compared to $-0- in 2000. Costs of revenues in 2001 related to the shipment of a
digital  education system and the write down of certain finished goods inventory
to a lower of cost or market valuation. On October 31, 2001, Celerity received a
letter  notifying  it of an alleged  breach of its  agreement  with  nCUBE.  The
alleged breach is for failing to pay nCUBE  $174,000 for products  manufactured.
According to the letter,  if Celerity fails to pay these amounts by November 30,
2001,  then nCUBE  intends to terminate  the  agreement  and possibly seek legal
remedies against Celerity.


                  Operating Expenses

         Operating  expenses for the three months ending September 30, 2001 were
$1,226,818  as compared to $774,396 for the same period in 2000.  This  increase
results  primarily from  consulting  expense  incurred in the  development of an
updated  version of the T 6000 set top box, by  increased  contract  labor costs
incurred for the software to be used in our  interactive  digital  video system,
from increased  amortization of the costs related to the issuance of convertible
debentures and from increased payroll  expenses.  These increases were partially
offset by decreases in states tax expense incurred in the same period in 2000.

                  Interest Expenses

         Interest  expense in the third  quarter of 2001 was $29,870 as compared
to $92,093.  This  decrease  results  primarily  from a reduction in  liquidated
damages due to the delay in having an effective  registration  statement  during
the third quarter of 2000.

                  Equity Warrant Income

         Effective  June 30, 2001,  the Company  adopted the  provisions of EITF
00-19,   "Accounting  for  Derivative  Financial  Instruments  Indexed  to,  and
Potentially  settled  in, a  Company's  Own  Stock".  This issue  provides  that
warrants to  purchase  common  shares  which are  outstanding  and for which the
number of authorized but unissued  shares is insufficient to satisfy the maximum
number of shares that could be required upon the exercise of such warrants, then
the contract is reclassified from equity to an asset or liability. The effect of
the  application  of  this   pronouncement  that  requires  asset  or  liability
classification  for those contracts that existed as of September 20, 2000, would
be  calculated  as of June 30, 2001,  and presented on that date as a cumulative
effect of a change in accounting  principle.  At June 30, 2001,  $2,863,760  was
reclassified  from  equity  to a  liability  and  mark-to-market  adjustment  of
$2,598,813  was  recorded  as the  cumulative  effect of a change in  accounting
principle.  In  the  three  months  ended  September  30,  2001,  an  additional
mark-to-market  adjustment of $182,637 was recorded as income on equity  warrant
liability for those contracts that existed as of September 20, 2000.

                  Net Loss From Continuing Operations

         As a result of the above factors,  net loss from continuing  operations
for the quarter ended  September 30, 2001,  was $572,470 as compared to $881,331
for the same period in 2000.

                  NINE MONTHS ENDED  SEPTEMBER  30, 2001 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2000

                  Revenues

         We had revenues of $90,200 for the nine months ended September 30, 2001
as compared to $-0- for the same period in 2000.  These  revenues  resulted from
the shipment of a digital  education  system to a school  district in Ohio.  The
continuing low level of interactive  video sales is a result of the  constrained
sales and marketing activities caused by our cash shortage and delays associated
with the production of the T 6000 set top box.

                  Costs of Revenues

         Costs of revenues  for the nine months  ended  September  30, 2001 were
$222,424 as compared to $685,313 for the same period in 2000.  Costs of revenues
in 2001 relate to a shipment of a digital education system in the 3rd quarter of
2001 plus a writedown of finished  goods  inventory to a lower of cost or market
valuation.  Costs of revenues in 2000 were  related to an increase in  inventory
obsolescence.  During  the  second  quarter  of 2000,  the  Company  reached  an
agreement with nCUBE  Corporation  under which nCUBE agreed to  manufacture  the
Company's  updated  version of its  digital  video  server.  We have  received a
default  letter from nCUBE  terminating  our right to use their  software.  This
updated version rendered obsolete portions of the raw material inventory related
to the former  versions  of the digital  video  servers.

                  Operating Expenses

         Operating  expenses for the nine months ending  September 30, 2001 were
$2,570,131 as compared to $2,671,292  for the same period in 2000, or a decrease
of  approximately  $101,000.  This  decrease  includes a reduction  in legal and


                                       11
<PAGE>

professional  fees of  approximately  $490,000  primarily  from  lower  expenses
incurred to assist with investor relations and investment banking.  Compensation
expense  was down  approximately  $56,000 in the same nine month  period but was
offset  by  increased   contract  labor  incurred  in  the  development  of  our
interactive  digital video system and increased  consulting  expense incurred in
the development of an updated version of the T 6000 set top box and by increases
in insurance and telephone and other utility expenses.

                  Interest Expenses

         Interest  expense  for the first nine  months of 2001 was  $258,561  as
compared to $838,146 for the same period in 2000. Of these amounts, $147,846 and
$670,080 in 2001 and 2000,  respectively,  are non-cash  expenses related to the
beneficial   conversion  features  of  certain  debentures  and  account  for  a
significant  portion of the reduction between the two periods. In November 2000,
the  Emerging  Issues Task Force of the  Financial  Accounting  Standards  Board
reached a consensus  that the  discount  resulting  from  recording a beneficial
conversion  feature  is to  amortized  from the date of  issuance  to the stated
redemption date of the convertible  instrument,  regardless of when the earliest
conversion date occurs. As a result,  the beneficial  conversion  feature of the
convertible  debentures  issued after November 2000 are being amortized over the
life of the debentures, in most cases 60 months, versus an approximately 3 month
period generally used prior to the issuance of this pronouncement.

                  Equity Warrant Income

         Effective  June 30, 2001,  the Company  adopted the  provisions of EITF
00-19,   "Accounting  for  Derivative  Financial  Instruments  Indexed  to,  and
Potentially  settled  in, a  Company's  Own  Stock".  This issue  provides  that
warrants to  purchase  common  shares  which are  outstanding  and for which the
number of authorized but unissued  shares is insufficient to satisfy the maximum
number of shares that could be required upon the exercise of such warrants, then
the contract is reclassified from equity to an asset or liability. The effect of
the  application  of  this   pronouncement  that  requires  asset  or  liability
classification  for those contracts that existed as of September 20, 2000, would
be  calculated  as of June 30, 2001,  and presented on that date as a cumulative
effect of a change in accounting  principle.  At June 30, 2001,  $2,863,760  was
reclassified  from  equity  to a  liability  and  mark-to-market  adjustment  of
$2,598,813  was  recorded  as the  cumulative  effect of a change in  accounting
principle.  In  the  three  months  ended  September  30,  2001,  an  additional
mark-to-market  adjustment of $182,637 was recorded as income on equity  warrant
liability for those contracts that existed as of September 20, 2000.

                  Net Loss From Continuing Operations

         As a result of the above factors,  net loss from continuing  operations
for the nine  months  ended  September  30,  2001,  was  $1,635,884  compared to
$4,200,044 for the same period in 2000.

LIQUIDITY AND CAPITAL RESOURCES

         Our primary  source of financing  since our  inception has been through
the issuance of common and  preferred  stock and debt.  We had cash  balances on
hand as of September  30, 2001 of $143,290.  Our cash  position  continues to be
uncertain.  Our primary need for cash is to fund our operations  until such time
that the sale of our products generates enough revenue to fund operations, if at
all.  In  addition,  we  have a  judgment  of  $136,435  against  us to  Merrill
Corporation  for  non-payment  of  printing  fees.  We also owe  $150,000,  plus
interest  on two  unsecured  promissory  notes.  On October 31,  2001,  Celerity
received a letter from nCUBE  alleging  that  Celerity  owes nCUBE  $174,000 for
products manufactured by nCUBE. We do not currently have sufficient funds to pay
these  obligations.  We will  need  significant  new  funding  from  the sale of
securities to fund our  operations and to satisfy the above  obligations.  Other
than the Equity Line of Credit, we do not have any commitments for funding.

         In the first nine months of 2001, we received  gross  proceeds from the
first Line of Credit Agreement of $3,986,000,  $950,000 on the private placement
of 95 shares of our  Series B  Convertible  Preferred  Stock and  warrants,  and
$30,000  from the  issuance of common  stock.  We are  looking at several  other
options in terms of relieving our cash  shortage.  We are  continuing to seek to
arrange financing,  including possible strategic  investment or opportunities to
sell some or all of our assets and  business,  while  continuing to pursue sales
opportunities.  We have granted a security  interest in our personal property to
our former  legal  counsel.  Such  security  interest  may hinder our efforts to
obtain financing. The lack of sales or a significant financial commitment raises
substantial  doubt about our ability to continue as a going concern or to resume
a full-scale level of operations.

         As  of  September  30,  2001,  we  have  an   accumulated   deficit  of
$31,502,652. We expect to incur operating losses for the indefinite future as we
continue  to develop our  technology  and until we achieve  some sales  success.
Since  January 1, 2001,  we have  received  new  orders to install  and  operate
end-to-end interactive video systems in 3 multi-family developments with a total
of 749 units in Texas and  Arizona.  Our  ability  to  fulfill  these  orders is
contingent  upon funding the  investment  in the  equipment  required to operate
these  systems.  We  also  have  received  orders  for the  sale of our  Digital
Education  System to two Ohio  school  systems,  one of which was shipped in the
third  quarter  of 2001  and for the  sale of two  systems  to be  installed  in
separate condominium projects in Alabama..  There can be no assurance,  however,
as to  the  receipt  or  timing  of  revenues  from  operations,  including,  in
particular, revenues from products currently under development.

         As of  September  30,  2001 we had  negative  net  working  capital  of
approximately  $388,000.  We had no  significant  capital  spending  or purchase
commitments  at  September  30,  2001 other  than  certain  facility  leases and
inventory component purchase  commitments required in the ordinary course of our
business.

         The Company  entered  into a Line of Credit  Agreement  that expires on
December 31, 2001,  under which a maximum  amount of  $10,000,000  of debentures
would  have been  issued.  As of  September  30,  2001,  the  Company  had drawn
$4,981,000 under the Line of Credit.



                                       12
<PAGE>

         On June 14, 2001, the Company  entered into a new Equity Line of Credit
Agreement  pursuant to which the Company  may, at its  discretion,  periodically
sell to the Investor  shares of common stock for a total purchase price of up to
$10.0 million. For each share of common stock purchased under the Equity Line of
Credit,  the  Investor  will pay 82% of the average of the 3 lowest  closing bid
prices on the Over-the Counter Bulletin Board or other principal market on which
our common stock is traded for the 5 days immediately following the notice date.
Unless  waived by the  Investor,  the  amount of each  advance  is  subject to a
maximum advance amount based on an average daily volume of the Company's  common
stock.  Celerity may request an advance every ten trading days. A consulting fee
of 10% of each  advance will be paid to the agent upon closing each of the sales
under this agreement.  The agent received warrants to purchase  3,500,000 shares
of common stock at an exercise price of $0.10 The $1,364,000 fair value of these
warrants was recorded as a cost of the  transaction.  These  warrants  expire in
June 2006.

         In October 2001, we issued  $665,000 of  convertible  debentures,  from
which we received  net  proceeds of  approximately  $400,000.  These  debentures
accrued  interest at 4% per year and are convertible into shares of common stock
at a  conversion  price  equal  to 75% of  the  average  closing  bid  price  of
Celerity's  common  stock  for the 5 days  prior to  conversion.  At  Celerity's
option,  these debentures may be paid in cash or converted into shares of common
stock on the fifth anniversary unless converted earlier by the holder.  Celerity
paid  consulting  fees of  $278,565 to  Yorkville  Advisors  Management,  LLC in
connection  with this  offering.  Also in October,  we sold 6 shares of Series C
Preferred  Stock for $60,000 in cash.  Each share of Series C Preferred Stock is
convertible into 250,000 shares of common stock at the holder's discretion.

         In September  2001,  Celerity  issued  warrants to Internet  Finance to
purchase  500,000  shares of Celerity  common stock.  One-half of these warrants
have an exercise price of $0.15 per share and one-half have an exercise price of
$0.25 per share. In addition, Celerity is obligated to issue to Internet Finance
warrants to purchase additional shares of common stock if Celerity is successful
in  obtaining  financing  arranged by  Internet  Finance.  For each  $500,000 of
capital received by Celerity, Internet Capital will receive warrants to purchase
250,000  shares of common stock at $0.15 per share.  Internet  Finance will also
receive cash  compensation  of 2.5% of all funds  received by Celerity under the
contract.

         In August 2001, we issued  $1,586,000 of convertible  debentures,  from
which  we  received  net  proceeds  of  approximately  $889,000.  Celerity  paid
consulting fees of $680,000 to Yorkville Advisors Management,  LLC in connection
with this offering.  Celerity issued a warrant to Yorkville Advisors to purchase
2,500,000 shares of common stock at $0.10 per share.  These  debentures  accrued
interest at 4% per year and are  convertible  into  shares of common  stock at a
conversion  price  equal to 75% of the average  closing bid price of  Celerity's
common stock for the 5 days prior to  conversion.  At Celerity's  option,  these
debentures  may be paid in cash or converted  into shares of common stock on the
fifth anniversary  unless converted earlier by the holder.

         In July 2001,  we issued  2,400,000  shares of common stock to Artesian
Direct for its  commitment to purchase $10 million of Celerity's  products or to
provide $10 million of financing. These shares were valued at $0.17 per share on
the date of issuance or $408,000. This amount will be amortized as a cost of the
related sale or financing. Ed Kidston, a member of our Board of Directors,  owns
30% of the outstanding capital stock of Artesian Direct.

         We have no existing bank lines of credit.

BUSINESS RISK FACTORS

         WE HAVE HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE

         We have historically lost money. In the nine months ended September 30,
2001 and year ended  December 31,  2000,  we  sustained  losses from  continuing
operations  of $1.6 million and $5.3  million,  respectively.  Future losses are
likely to occur.  Accordingly,  we may experience significant liquidity and cash
flow  problems if we are not able to raise  additional  capital as needed and on
acceptable  terms.  No  assurances  can be given that we will be  successful  in
reaching or maintaining profitable operations.

         WE WILL NEED TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS

         Our  operations  have relied almost  entirely on external  financing to
fund our operations.  Such financing has historically come from a combination of
borrowings  from and sale of common stock to third parties and funds provided by
certain officers and directors. We will need to raise additional capital to fund
our anticipated  operating  expenses and future  expansion.  Among other things,
external  financing  will be required to cover our  operating  costs.  We cannot
assure you that financing  whether from external sources or related parties will
be available if needed or on  favorable  terms.  The sale of our common stock to
raise capital may cause dilution to our existing shareholders.  Our inability to
obtain  adequate   financing  will  result  in  the  need  to  curtail  business


                                       13
<PAGE>

operations.  Any of these events would be materially harmful to our business and
may result in a lower stock price.

         THERE IS  SUBSTANTIAL  DOUBT  ABOUT OUR  ABILITY TO CONTINUE AS A GOING
         CONCERN DUE TO RECURRING  LOSSES AND WORKING CAPITAL  SHORTAGES,  WHICH
         MEANS THAT WE MAY NOT BE ABLE TO CONTINUE  OPERATIONS  UNLESS WE OBTAIN
         ADDITIONAL FUNDING

         The report of our  independent  accountants  on our  December  31, 2000
financial statements included an explanatory  paragraph indicating that there is
substantial  doubt  about our  ability to  continue  as a going  concern  due to
recurring  losses and working  capital  shortages.  Our ability to continue as a
going concern will be determined  by our ability to obtain  additional  funding.
Our financial  statements do not include any adjustments  that might result from
the outcome of this uncertainty.

         WE INADVERTENTLY  FAILED TO FILE POST-EFFECTIVE  AMENDMENTS TO INCREASE
         THE NUMBER OF REGISTERED  SHARES OF COMMON STOCK  AVAILABLE FOR SALE IN
         CONNECTION WITH TWO EARLIER FILED  REGISTRATION  STATEMENTS,  WHICH MAY
         RESULT IN LIABILITY FOR VIOLATIONS OF SECURITIES LAWS

         Celerity  filed a  Registration  Statement on Form S-3 on April 6, 2000
and a Registration Statement on Form SB-2 on October 5, 2000. Subsequently,  the
SEC declared both Registration Statements effective.  The Registration Statement
on Form S-3 purported to register  2,321,511 shares of common stock on behalf of
selling  shareholders.  All of these  shares  were to be issued  to the  selling
shareholders upon exercise or conversion of outstanding warrants and debentures.
Due to a decline in Celerity's stock price,  Celerity actually issued 19,521,126
shares of common stock upon exercise and  conversion,  or  17,199,615  shares of
common stock in excess of that which was registered.

         The Registration Statement on Form SB-2 purported to register 4,646,548
shares  of  common  stock on  behalf of  selling  shareholders.  Of that  total,
1,131,000 shares of common stock were to be issued to selling  shareholders upon
conversion of  outstanding  indebtedness.  Due to a decline in Celerity's  stock
price,   Celerity  actually  issued  11,292,833  shares  of  common  stock  upon
conversion,  or  10,432,548  shares of common  stock in excess of that which was
registered.

         Celerity  believes  that all of the  shares  issued  upon  exercise  or
conversion have been sold in the public market. Pursuant to Rule 462 promulgated
under the Securities Act of 1933,  Celerity was required to file  Post-Effective
Amendments to these Registration Statements registering the additional shares of
common stock  issued in excess of that which was  originally  registered.  These
Post-Effective  Amendments  were to be filed prior to the sale of such shares by
the  selling  shareholders.   Celerity's   inadvertent  failure  to  file  these
Post-Effective  Amendments  may expose  Celerity to  potential  liability  for a
violation of Section 5 or other sections of the  Securities  Act. Such liability
may include  rescission  rights (I.E.,  obligating  Celerity to  repurchase  any
shares issued in excess of that which was registered).

         EFFECT  OF  PREVIOUSLY   ISSUED   OPTIONS,   WARRANTS  AND  CONVERTIBLE
         DEBENTURES

         As of September  30,  2001,  options to purchase an aggregate of 64,500
shares of common stock were outstanding  under our 1995 stock option plan. These
options are  exercisable at prices  ranging from $0.160 to $0.910 per share.  In
addition, options to purchase an aggregate of 184,983 shares of common stock are
outstanding  under our 1997 stock option plan.  These options are exercisable at
prices  ranging  from  $0.160 to $2.938 per share,  although a majority  of such
options are  exercisable  at $0.688 per share.  We also have options to purchase
3,596,000 shares of common stock  outstanding  under our 2001 Stock Option Plan.
These  options  are  exercisable  at $0.075 per share.  We also have  additional
outstanding options and warrants to purchase approximately  12,458,014 shares of
common  stock.  The  exercise  price of certain  warrants may be lower since the
holders of such warrants have certain anti-dilution rights, although we have not
made any adjustments.

         The  foregoing  is in  addition  to  shares  which  are  issuable  upon
conversion of certain convertible  debentures.  Based on the market price of the
common stock on September 30, 2001,  101,933,333 shares would have been issuable
upon  conversion  of the  convertible  debentures  and Series B preferred  stock
outstanding as of such date, of which the  debentures  are  convertible at a 25%
discount to the market price of the common stock and the Series B is convertible
at a fixed price of $0.025 per share.

         Additional shares are issuable for interest and liquidated  damages due
on the convertible debentures and as a result of the triggering of anti-dilution
provisions of other instruments and agreements.

         The outstanding options, warrants and convertible debentures may hinder
future  financings,  since the  holders of such  securities  may be  expected to
exercise them at a time when we will  otherwise be able to obtain equity capital
on more favorable terms.  The existence or exercise of the outstanding  options,


                                       14
<PAGE>

warrants and  convertible  debentures  and  subsequent  sale of the common stock
issuable  upon such  exercise  could  adversely  affect the market  price of our
securities.

         OUR COMMON  STOCK MAY BE  AFFECTED  BY LIMITED  TRADING  VOLUME AND MAY
         FLUCTUATE SIGNIFICANTLY

         Historically,  there has been a limited  public  market  for our common
stock and there can be no assurance that an active trading market for our common
stock will develop.  As a result,  this could adversely affect our shareholders'
ability to sell our common stock in short time periods,  or possibly at all. Our
common  stock  has  experienced,  and is  likely to  experience  in the  future,
significant  price and volume  fluctuations  which  could  adversely  affect the
market price of our common stock without regard to our operating performance. In
addition,  we  believe  that  factors  such  as  quarterly  fluctuations  in our
financial  results and changes in the overall  economy or the  condition  of the
financial  markets  could  cause  the  price of our  common  stock to  fluctuate
substantially.

         OUR COMMON STOCK IS DEEMED TO BE "PENNY  STOCK," WHICH MAY MAKE IT MORE
         DIFFICULT  FOR  INVESTORS  TO RESELL  THEIR  SHARES DUE TO  SUITABILITY
         REQUIREMENTS

         Our common stock is deemed to be "penny  stock" as that term is defined
in Rule 3a51-1  promulgated  under the  Securities  Exchange Act of 1934.  Penny
stocks are stock:

         o     With a price of less than $5.00 per share;

         o     That are not traded on a "recognized" national exchange;

         o     Whose  prices are not quoted on the  Nasdaq  automated  quotation
               system  (Nasdaq  listed stock must still have a price of not less
               than $5.00 per share); or

         o     In issuers  with net  tangible  assets less than $2.0 million (if
               the issuer has been in  continuous  operation  for at least three
               years) or $5.0 million (if in continuous  operation for less than
               three years),  or with average revenues of less than $6.0 million
               for the last three years.

         Broker/dealers   dealing  in  penny  stocks  are  required  to  provide
potential  investors  with a  document  disclosing  the  risks of penny  stocks.
Moreover,  broker/dealers  are required to determine  whether an investment in a
penny  stock  is  a  suitable  investment  for  a  prospective  investor.  These
requirements  may reduce the  potential  market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to sell shares to third  parties or to otherwise  dispose of
them. This could cause our stock price to decline.

         WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL

         Our  success  largely  depends  on the  efforts  and  abilities  of key
executives and consultants,  including Kenneth D. Van Meter, our Chief Executive
Officer,  President  and Chairman of the Board.  The loss of the services of Mr.
Van  Meter  could  materially  harm our  business  because  of the cost and time
necessary  to replace  and train a  replacement.  Such a loss would also  divert
management  attention away from operational issues. We do not have an employment
agreement  with Mr.  Van Meter.  We do not  presently  maintain  a key-man  life
insurance policy on Mr. Van Meter.

         OUR PROJECTS ARE EXPECTED TO REQUIRE SUBSTANTIAL  UP-FRONT COSTS BEFORE
         ANY REVENUES WILL BE REALIZED

         A  significant  portion of our  revenue is  expected  to continue to be
derived from substantial  long-term projects which require significant  up-front
expense to us. There can be no assurance  that revenues  will be realized  until
the  projects  are  completed  or certain  significant  milestones  are met. Our
failure, or any failure by a third-party with which we may contract,  to perform
services or deliver interactive video products on a timely basis could result in
a substantial loss to us.

         We have  had  difficulty  in  meeting  delivery  schedules,  which  has
resulted in customer  dissatisfaction.  In addition,  difficulty in completing a
project could have a material  adverse  effect on our  reputation,  business and
results of  operations.  In many  instances,  we are dependent on the efforts of
third parties to  adequately  complete our portion of a project and, even if our
digital video servers perform as required, a project may still fail due to other
components of the project supplied by third parties.




                                       15
<PAGE>

         LACK OF PATENT AND COPYRIGHT PROTECTION

         Although we have filed a provisional patent application with respect to
certain  technology,  we hold no patents  and have not  generally  filed  patent
applications. Our methods of protecting our proprietary knowledge may not afford
adequate  protection.  We cannot assure you that any patents applied for will be
issued,  or, if issued,  that such patents  would  provide them with  meaningful
protection from competition.

         RISK OF THIRD PARTY CLAIMS OF INFRINGEMENT

         Technology-based  industries,  such as ours,  are  characterized  by an
increasing  number of patents and frequent  litigation  based on  allegations of
patent  infringement.  From  time to time,  third  parties  may  assert  patent,
copyright  and  other  intellectual  property  rights to  technologies  that are
important to us. While there  currently are no outstanding  infringement  claims
pending by or against  us, we cannot  assure  you that  third  parties  will not
assert  infringement  claims against us in the future,  that  assertions by such
parties will not result in costly  litigation,  or that they will not prevail in
any such litigation.  In addition,  we cannot assure you that we will be able to
license  any valid and  infringed  patents  from third  parties on  commercially
reasonable  terms  or,  alternatively,   be  able  to  redesign  products  on  a
cost-effective  basis to avoid  infringement.  Any  infringement  claim or other
litigation against or by us could have a material adverse effect on us.

         NO ASSURANCE OF TECHNOLOGICAL SUCCESS

         Our  ability  to  commercialize   our  products  is  dependent  on  the
advancement  of our  existing  technology.  In order to obtain  and  maintain  a
significant  market share we will  continually  be required to make  advances in
technology.  Due to cash shortages,  we did not expend any money in research and
development  in 2000.  We cannot  assure you that our research  and  development
efforts will result in the  development of such  technology on a timely basis or
at all. Any failures in such  research and  development  efforts could result in
significant delays in product  development and have a material adverse effect on
us. We cannot assure you that we will not encounter unanticipated  technological
obstacles  which either delay or prevent us from  completing the  development of
our products.

         We believe there are certain technological  obstacles to be overcome in
order  to  develop  future  products.  These  obstacles  include  the lack of an
electronic data  interchange  server  interface (used for real-time  exchange of
data  between  servers)  and  enhancements  in the ability to access and utilize
information  stored on remote  servers.  In certain cases,  we will be dependent
upon  technological  advances  which  must be made by third  parties.  We cannot
assure  you that they or such third  parties  will not  encounter  technological
obstacles  which either delay or prevent us from  completing the  development of
our future products. Such obstacles could have a material adverse effect on us.

         CERTAIN OF OUR  PRODUCTS  AND  SERVICES  ARE  REGULATED  BY THE FEDERAL
         COMMUNICATIONS  COMMISSION,  WHICH MAY IMPOSE BURDENSOME REGULATIONS ON
         US

         The  Federal  Communications  Commission  and  certain  state  agencies
regulate  certain of our  products and services and certain of the users of such
products  and  services.  We are  also  subject  to  regulations  applicable  to
businesses  generally,  including  regulations  relating  to  manufacturing.  In
addition,  regulatory  authorities in foreign countries in which we may sell our
products may impose similar or more extensive governmental regulations.

         We rely upon, and  contemplate  that we will continue to rely upon, our
corporate   partners  or  interactive  video  system  sponsors  to  comply  with
applicable regulatory  requirements.  We cannot assure you that such regulations
will not materially adversely affect us by jeopardizing the projects in which we
are  participating,  by  imposing  burdensome  regulations  on the  users of our
products,  by imposing sanctions that directly affect us, or otherwise.  Changes
in the  regulatory  environment  relating to the  industries in which we compete
could have a material  adverse  effect on us. We cannot  predict the effect that
future regulation or regulatory changes may have on our business.

         WE DO NOT MAINTAIN ANY PRODUCT LIABILITY INSURANCE, WHICH MAY EXPOSE US
         TO THE EXPENSE OF DEFENDING ANY LIABILITY CLAIMS

         The  manufacture  and sale of our products  entails the risk of product
liability  claims.  In addition,  many of the  telephone,  cable and other large
companies with which we do or may do business may require  financial  assurances
of product reliability. At the present time we do not maintain product liability
insurance.



                                       16
<PAGE>

         WE MAY NOT BE ABLE TO ACCESS  SUFFICIENT FUNDS UNDER THE EQUITY LINE OF
         CREDIT WHEN NEEDED

         We are  dependent  on external  financing to fund our  operations.  Our
financing  needs are expected to be provided from the Equity Line of Credit,  in
large part. No assurances  can be given that such financing will be available in
sufficient  amounts  or at all when  needed,  in part,  because  the  amount  of
financing  available  will  fluctuate  with the price and  volume of our  common
stock. As the price and volume decline,  then the amount of financing  available
under the Equity Line of Credit will decline.




















                                       17
<PAGE>

PART II

OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         There is no pending litigation against Celerity, other than a claim for
non-payment of printing expenses. The action was brought on January 30, 2001 and
is pending before Supreme Court of the State of New York, County of New York. In
this action, the plaintiff,  Merrill  Corporation,  has sued the Company for the
non-payment of financial printing fees and is seeking approximately  $118,000 in
damages,  plus  interest  and  certain  costs.  On  October  15,  2001,  Merrill
Corporation  obtained a judgment for $136,435  against the Company.  The Company
intends to seek to vacate this  judgment,  although no  assurances  can be given
that its efforts will be successful.

         On October 27, 2001, the Company defaulted on payments due of $150,000,
plus accrued  interest,  on certain  unsecured  notes.  Written  demand has been
received  from one of the two note  holders.  The  Company  is  seeking  to make
arrangements  with these note  holders.  In  addition,  certain  creditors  have
threatened  litigation if not paid. The Company is seeking to make  arrangements
with these creditors.  There can be no assurance that any claims,  if made, will
not have an adverse effect on the Company.

         On October 31,  2001,  Celerity  received a letter  notifying  it of an
alleged breach of its agreement with nCUBE. The alleged breach is for failing to
pay nCUBE  $174,000  for  products  manufactured  according  to the  letter,  if
Celerity fails to pay these amounts by November 30, 2001,  then nCUBE intends to
terminate the agreement and possibly seek legal remedies against Celerity.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

         (a), (b) and (d)  None.

         (c)               SALES OF UNREGISTERED SECURITIES.

         In November 2001, we granted  options to purchase  3,596,000  shares of
common stock to employees and consultants  under our 2001 Stock Option Plan. All
options had an exercise  price of $0.075 per share and  terminate 10 years after
issuance.

         In October 2001, we issued  $665,000 of  convertible  debentures,  from
which we received  net  proceeds of  approximately  $400,000.  These  debentures
accrued  interest at 4% per year and are convertible into shares of common stock
at a  conversion  price  equal  to 75% of  the  average  closing  bid  price  of
Celerity's  common  stock  for the 5 days  prior to  conversion.  At  Celerity's
option,  these debentures may be paid in cash or converted into shares of common
stock on the fifth anniversary unless converted earlier by the holder.  Celerity
paid  consulting  fees of  $278,565 to  Yorkville  Advisors  Management,  LLC in
connection  with this  offering.  Also in October,  we sold 6 shares of Series C
Preferred  Stock for $60,000 in cash.  Each share of Series C Preferred Stock is
convertible into 250,000 shares of common stock at the holder's discretion.

         In September  2001,  Celerity  issued  warrants to Internet  Finance to
purchase  500,000  shares of Celerity  common stock.  One-half of these warrants
have an exercise price of $0.15 per share and one-half have an exercise price of
$0.25 per share. In addition, Celerity is obligated to issue to Internet Finance
warrants to purchase additional shares of common stock if Celerity is successful
in  obtaining  financing  arranged by  Internet  Finance.  For each  $500,000 of
capital received by Celerity, Internet Capital will receive warrants to purchase
250,000  shares of common stock at $0.15 per share.  Internet  Finance will also
receive cash  compensation  of 2.5% of all funds  received by Celerity under the
contract.

         In August 2001, we issued  $1,586,000 of convertible  debentures,  from
which  we  received  net  proceeds  of  approximately  $889,000.  Celerity  paid
consulting fees of $680,000 to Yorkville Advisors Management,  LLC in connection
with this offering.  Celerity issued a warrant to Yorkville Advisors to purchase
2,500,000 shares of common stock at $0.10 per share.  These  debentures  accrued
interest at 4% per year and are  convertible  into  shares of common  stock at a
conversion  price  equal to 75% of the average  closing bid price of  Celerity's
common stock for the 5 days prior to  conversion.  At Celerity's  option,  these
debentures  may be paid in cash or converted  into shares of common stock on the
fifth anniversary  unless converted earlier by the holder.

         In July 2001,  we issued  2,400,000  shares of common stock to Artesian
Direct for its  commitment to purchase $10 million of Celerity's  products or to
provide $10 million of financing. These shares were valued at $0.17 per share on


                                       18
<PAGE>

the date of issuance or $408,000. This amount will be amortized as a cost of the
related sale or financing. Ed Kidston, a member of our Board of Directors,  owns
30% of the outstanding capital stock of Artesian Direct.

         On June 14, 2001, the Company entered into a new Equity Line of Credit
Agreement  pursuant to which the Company  may, at its  discretion,  periodically
sell to the Investor  shares of common stock for a total purchase price of up to
$10.0 million. For each share of common stock purchased under the Equity Line of
Credit,  the  Investor  will pay 82% of the average of the 3 lowest  closing bid
prices on the Over-the Counter Bulletin Board or other principal market on which
our common stock is traded for the 5 days immediately following the notice date.
Unless  waived by the  Investor,  the  amount of each  advance  is  subject to a
maximum advance amount based on an average daily volume of the Company's  common
stock.  Celerity may request an advance every ten trading days. A consulting fee
of 10% of each  advance will be paid to the agent upon closing each of the sales
under this agreement.  The agent received warrants to purchase  3,500,000 shares
of common stock at an exercise price of $0.10 The $1,364,000 fair value of these
warrants was recorded as a cost of the  transaction.  These  warrants  expire in
June 2006.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

                  On October 27, 2001, the Company  defaulted on payments due of
$150,000,  plus accrued interest, on certain unsecured notes. Written demand has
been  received  from one of the two note  holders.  Celerity  is seeking to make
arrangements with these note holders.

         On October 31,  2001,  Celerity  received a letter  notifying  it of an
alleged breach of its agreement with nCUBE. The alleged breach is for failing to
pay nCUBE  $174,000  for  products  manufactured  according  to the  letter,  if
Celerity fails to pay these amounts by November 30, 2001,  then nCUBE intends to
terminate the agreement and possibly seek legal remedies against Celerity.

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

                  The  Company  held an annual  meeting of its  shareholders  on
August 23, 2001. At the annual meeting,  the shareholders voted to (i) elect the
board of directors and (ii) amend the Company's  Certificate of Incorporation to
increase the authorized  capital stock of the Company from 50,000,000  shares of
common stock to 250,000,000 shares of common stock. The directors elected at the
meeting were:  Kenneth D. Van Meter,  Fenton  Scruggs,  Bruce  Thompson,  Edward
Kidston and David Hultquist.

                  At  the  annual  meeting,  the  shareholders   re-elected  the
following  directors  named in the following table by the vote set forth in such
table.

<TABLE>
        NAME:                                FOR:              AGAINST:          ABSTAIN:
<S>                                      <C>                    <C>                 <C>
        Kenneth D. Van Meter             79,845,898             96,370              --

        Fenton Scruggs                   79,845,898             96,370              --

        Bruce Thompson                   79,845,898             96,370              --

        Edward Kidston                   79,816,398            125,870              --

        David Hultquist                  79,846,898             95,370              --
</TABLE>

                  At the annual  meeting,  the  shareholders  also  approved the
following matters by the vote set forth in such table.

<TABLE>
    MATTER:                                    FOR:               AGAINST:            ABSTAIN:
<S>                                         <C>                   <C>                  <C>
    Increase Authorize Capital Stock        79,189,936            1,766,529            103,580
</TABLE>

ITEM 5.  OTHER INFORMATION.

                  Not applicable.



                                       19
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      EXHIBITS.

<TABLE>
EXHIBIT NO.  DESCRIPTION                                                  LOCATION
-----------  -----------                                                  --------
<S>          <C>                                                          <C>
3.1          Certificate of Incorporation of Celerity Systems, Inc.       Incorporated by reference to Exhibit 3.1 to the
                                                                          Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

3.2          By laws of Celerity Systems, Inc.                            Incorporated by reference to Exhibit 3.2 to the
                                                                          Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

3.3          Certificate of Designation of Series C Preferred Stock       Provided herewith

4.1          Form of Underwriter's Warrant                                Incorporated by reference to Exhibit 4.1 to  Amendment
                                                                          No. 1 to Registration Statement on SB-2 filed with the
                                                                          SEC on October 8, 1997

4.2          1995 Stock Option Plan                                       Incorporated by reference to Exhibit 4.2 to the
                                                                          Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

4.3          1997 Stock Option Plan                                       Incorporated by reference to Exhibit 4.3 to the
                                                                          Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

4.4          Form of Stock Certificate                                    Incorporated by reference to Exhibit 4.4 to Amendment No.
                                                                          2 to Registration Statement on SB-2 filed with the SEC on
                                                                          October 28, 1997

4.5          Form of Bridge Warrant                                       Incorporated by reference to Exhibit 4.5 to the
                                                                          Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

4.6          Form of 1996 Warrant                                         Incorporated by reference to Exhibit 4.6 to Amendment No.
                                                                          2 to Registration Statement on SB-2 filed with the SEC on
                                                                          October 28, 1997

4.7          Form of Hampshire Warrant                                    Incorporated by reference to Exhibit 4.7 to Amendment No.
                                                                          1 to Registration Statement on SB-2 filed with the SEC on
                                                                          October 8, 1997

4.8          Form of 1995 Warrant                                         Incorporated by reference to Exhibit 4.8 to the
                                                                          Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

4.9          Letter Agreement dated July 15, 1997, between Celerity and   Incorporated by reference to Exhibit 4.9 to the
             Mahmoud Youssefi, including exhibits                         Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

4.10         Letter Agreement, dated July 11, 1997, between Celerity      Incorporated by reference to Exhibit 4.10 to the
             and Dr. Fenton Scruggs                                       Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

4.11         Form of 9% Convertible Debenture                             Incorporated by reference to Exhibit 4.11 to Amendment
                                                                          No. 1 to Form 10-KSB for the year ended December 31, 1998
                                                                          filed with the SEC on April 30, 1999



                                                               20
<PAGE>

EXHIBIT NO.  DESCRIPTION                                                  LOCATION
-----------  -----------                                                  --------

4.12         Form of 7% Promissory Note                                   Incorporated by reference to Exhibit 4.12 to Amendment
                                                                          No. 1 to Form 10-KSB for the year ended December 31, 1998
                                                                          filed with the SEC on April 30, 1999

4.13         Form of Registration Rights Agreement, between Celerity      Incorporated by reference to Exhibit 4.13 to Amendment
             and each of RNI Limited Partnership, First Empire            No. 1 to Form 10-KSB for the year ended December 31, 1998
             Corporation, Greg A. Tucker and Michael Kesselbrenner        as filed with the SEC on April 30, 1999

4.14         Form of Warrant issued April 27, 1999                        Incorporated by reference to Exhibit 4.2 to the
                                                                          Registration Statement on S-3 filed with the SEC on June
                                                                          18, 1999

4.15         Shareholders Agreement, dated August 10, 1999, between       Incorporated by reference to Exhibit 99.2 to the Form 8-K
             Celerity Systems, Inc., FutureTrak Merger Corp. and          filed with the SEC on September 14, 1999
             certain parties listed therein

4.16         Registration Rights Agreement, dated September 30, 1999,     Incorporated by reference to Exhibit 99.2 to the Form 8-K
             between Celerity and GMF Holdings                            filed with the SEC on October 8, 1999

4.17         Form of Debenture in connection with Line of Credit          Incorporated by reference to Exhibit 99.4 to the Form 8-K
             Agreement, dated September 30, 1999                          filed with the SEC on October 8, 1999

4.18         Form of Warrant issued September 30, 1999                    Incorporated by reference to Exhibit 4.10 to the
                                                                          Registration Statement on S-3 filed with the SEC on
                                                                          February 15, 2000

4.19         Form of 4% Convertible Debenture due 2002 between Celerity   Incorporated by reference to Exhibit 4.2 to the
             and each of John Bridges, John Faure, Loni Spurkeland,       Registration Statement on S-3 filed with the SEC on
             Robert Dettle, Michael Genta, Lennart Dallgren               February 15, 2000

4.20         Form of 8% Convertible Debenture due 2002 between Celerity   Incorporated by reference to Exhibit 4.3 to the
             and each of Richard T. Garrett, W. David McCoy, Dominick     Registration Statement on S-3 filed with the SEC on
             Chirarisi, Gilda R. Chirarisi, Joseph C. Cardella, Carl      February 15, 2000
             Hoehner

4.21         Form of 8% Convertible Debenture due 2003 between Celerity   Incorporated by reference to Exhibit 4.4 to the
             and John Bolliger                                            Registration Statement on S-3 filed with the SEC on
                                                                          February 15, 2000

4.22         Form of Registration Rights Agreement, between Celerity      Incorporated by reference to Exhibit 4.6 to the
             and each of John Bridges, John Faure, Loni Spurkeland,       Registration Statement on S-3 filed with the SEC on
             Robert Dettle, Michael Genta, Lennart Dallgren               February 15, 2000

4.23         Form of Registration Rights Agreement, between Celerity      Incorporated by reference to Exhibit 4.7 to the
             and each of Richard T. Garrett, W. David McCoy, Dominick     Registration Statement on S-3 filed with the SEC on
             Chirarisi, Gilda R. Chirarisi, Joseph C. Cardella, Carl      February 15, 2000
             Hoehner

4.24         Form of Registration Rights Agreement, between Celerity      Incorporated by reference to Exhibit 4.8 to the
             and John Bolliger                                            Registration Statement on S-3 filed with the SEC on
                                                                          February 15, 2000

4.25         Form of 8% Convertible Debenture due 2003 between Celerity   Incorporated by reference to Exhibit 99.7 to the Form 8-K
             and each of Sui Wa Chau, Qinu Guan, Peter Chenan Chen, K&M   filed with the SEC on March 23, 2000
             Industry, Inc., Michael Dahlquist, Denise and Vernon Koto
             and Rance Merkel



                                                               21
<PAGE>

EXHIBIT NO.  DESCRIPTION                                                  LOCATION
-----------  -----------                                                  --------

4.26         Form of Registration Rights Agreement, between Celerity      Incorporated by reference to Exhibit 99.8 to the Form 8-K
             and each of Sui Wa Chau, Qinu Guan, Peter Chenan Chen, K&M   filed with the SEC on March 23, 2000
             Industry, Inc., Michael Dahlquist, Denise and Vernon Koto
             and Rance Merkel

4.27         Securities Purchase Agreement, dated August 31, 2000,        Incorporated by reference to Exhibit 99.1 to the Form 8-K
             between Celerity and the Investors specified therein         filed with the SEC on September 5, 2000

4.28         Registration Rights Agreement, dated August 31, 2000,        Incorporated by reference to Exhibit 99.2 to the Form 8-K
             between Celerity and the Investors specified therein         filed with the SEC on September 5, 2000

4.29         Form of Warrant issued March 31, 2000                        Incorporated by reference to Exhibit 99.3 to the Form 8-K
                                                                          filed with the SEC on April 5, 2000

10.1         Employment Agreement, dated January 7, 1997, as amended,     Incorporated by reference to Exhibit 10.1 to Amendment
             between Celerity and Kenneth D. Van Meter                    No. 1 to Registration Statement on SB-2 filed with the
                                                                          SEC on October 8, 1997

10.2         Employment, Non-Solicitation, Confidentiality and            Incorporated by reference to Exhibit 10.2 to the
             Non-Competition Agreement, dated as of May 1, 1996,          Registration Statement on SB-2 filed with the SEC on
             between Celerity and Glenn West                              August 13, 1997

10.3         Termination Agreement, dated as of April 5, 1997, between    Incorporated by reference to Exhibit 10.3 to the
             Celerity and Mahmoud Youssefi                                Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

10.4         [Reserved]

10.5         Letter Agreement, dated March 13, 1997, between Celerity     Incorporated by reference to Exhibit 10.5 to Amendment
             and William Chambers                                         No. 1 to Registration Statement on SB-2 filed with the
                                                                          SEC on October 8, 1997

10.6         Letter Agreement, dated July 24, 1997, between Celerity      Incorporated by reference to Exhibit 10.6 to Amendment
             and Mark. C. Cromwell                                        No. 1 to Registration Statement on SB-2 filed with the
                                                                          SEC on October 8, 1997

10.7         Exclusive OEM/Distribution Agreement, dated March 10,        Incorporated by reference to Exhibit 10.7 to the
             1995, between Celerity and InterSystem Multimedia, Inc.      Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

10.8         Purchase Order Agreement, dated June 26, 1995, between       Incorporated by reference to Exhibit 10.8 to the
             Tadiran Telecommunications Ltd. and Celerity                 Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

10.9         License Agreement, dated as of September 26, 1996, between   Incorporated by reference to Exhibit 10.9 to the
             Celerity and En Kay Telecom Co., Ltd.                        Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

10.10        License Agreement, dated as of February 21, 1997, between    Incorporated by reference to Exhibit 10.10 to the
             Celerity and En Kay Telecom Co., Ltd.                        Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

10.11        Remarketer Agreement, dated as of June 15, 1997, between     Incorporated by reference to Exhibit 10.11 to the
             Celerity and Minerva Systems, Inc.                           Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

10.12        Memorandum of Understanding, dated April 25, 1996, between   Incorporated by reference to Exhibit 10.12 to the
             Integrated Network Corporation and Celerity                  Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997



                                                               22
<PAGE>

EXHIBIT NO.  DESCRIPTION                                                  LOCATION
-----------  -----------                                                  --------

10.13        Letter of Agreement, dated March 31, 1993, between           Incorporated by reference to Exhibit 10.13 to the
             Celerity and Herzog, Heine & Geduld, Inc. and Development    Registration Statement on SB-2 filed with the SEC on
             Agreement attached thereto                                   August 13, 1997

10.14        Subcontract Agreement, dated June 26, 1997, between Unisys   Incorporated by reference to Exhibit 10.14 to the
             Corporation and Celerity                                     Registration Statement on SB-2 filed with the SEC on
                                                                          August 13, 1997

10.15        Lease Agreement for Crossroad Commons, dated November 25,    Incorporated by reference to Exhibit 10.15 to Amendment
             1996, as amended, between Lincoln Investment Management,     No. 1 to Registration Statement on SB-2 filed with the
             Inc., as attorney in fact for the Lincoln National Life      SEC on October 8, 1997
             Insurance Company, and Celerity

10.16        Lease Agreement, dated November 25, 1997, between            Incorporated by reference to Exhibit 10.16 to the Form
             Centerpoint Plaza, L.P. and Celerity                         10-KSB for the year ended December 31, 1997 filed with
                                                                          the SEC on March 31, 1998

10.17        Letter Agreement, dated October 3, 1997, between Dennis      Incorporated by reference to Exhibit 10.17 to the Form
             Smith and Celerity                                           10-KSB for the year ended December 31, 1997 filed with
                                                                          the SEC on March 31, 1998

10.18        Letter Agreement, dated January 8, 1998, between James       Incorporated by reference to Exhibit 10.18 to the Form
             Fultz and Celerity                                           10-KSB for the year ended December 31, 1997 filed with
                                                                          the SEC on March 31, 1999

10.19        Amendment to Employment, Non-Solicitation, Confidentiality   Incorporated by reference to Exhibit 10.19 to the Form
             and Non-Competition Agreement, dated January 1, 1999,        10-KSB for the year ended December 31, 1997 filed with
             between Celerity and Glenn West                              the SEC on April 30, 1998

10.20        Form of Subscription Agreement, between Celerity and each    Incorporated by reference to Exhibit 10.20 to Amendment
             of RNI Limited Partnership, First Empire Corporation, Greg   No. 1 to Form 10-KSB for the year ended December 31, 1998
             A. Tucker and Michael Kesselbrenner                          filed with the SEC on April 30, 1999

10.21        Form of Subscription Agreement, between Celerity and each    Incorporated by reference to Exhibit 10.21 to Amendment
             of Donald Alexander, Leo Abbe, Centerpoint Plaza, L.P.,      No. 1 to Form 10-KSB for the year ended December 31, 1998
             William Chambers, Fenton Scruggs, Dennis Smith, Kenneth      filed with the SEC on April 30, 1999
             Van Meter, George Semb and Rodney Conard

10.22        Form of Royalty Agreement, between Celerity and each of      Incorporated by reference to Exhibit 10.22 to Amendment
             Donald Alexander, Leo Abbe, Centerpoint Plaza, LP, William   No. 1 to Form 10-KSB for the year ended December 31, 1998
             Chambers, Fenton Scruggs, Dennis Smith, Kenneth Van Meter,   filed with the SEC on April 30, 1999
             George Semb and Rodney Conard

10.23        Agreement and Plan of Merger, dated August 10, 1999,         Incorporated by reference to Exhibit 99.1 to the Form 8-K
             between Celerity Systems, Inc., FutureTrak Merger Corp.      filed with the SEC on September 14, 1999
             and FutureTrak International, Inc.

10.24        Line of Credit Agreement, dated September 30, 1999,          Incorporated by reference to Exhibit 99.1 to the Form 8-K
             between GMF Holdings, May Davis Group and Celerity           filed with the SEC on October 8, 1999

10.25        Termination Agreement, dated December 7, 1999, between       Incorporated by reference to Exhibit 99.1 to the Form 8-K
             Celerity, FutureTrak Merger Corp. and FutureTrak             filed with the SEC on December 8, 1999
             International, Inc.



                                                               23
<PAGE>

EXHIBIT NO.  DESCRIPTION                                                  LOCATION
-----------  -----------                                                  --------

10.26        Manufacturing Agreement, dated November 30, 1999, between    Incorporated by reference to Exhibit 99.2 to the Form 8-K
             Celerity, Primax Electronics, Ltd and Global Business        filed with the SEC on January 5, 2000
             Group, Ltd.

10.27        Lease, dated December 17, 1999, between Andy Charles         Incorporated by reference to Exhibit 99.1 to the Form 8-K
             Johnson, Raymond Perry Johnson, Tommy F. Griffin. and        filed with the SEC on January 5, 2000
             Celerity

10.28        Amendment to the Line of Credit Agreement between Celerity   Incorporated by reference to Exhibit 10.28 to the
             and GMF Holdings, Inc. dated October 16, 2000                Registration Statement on SB-2 filed with the SEC on
                                                                          October 27, 2000

10.29        Purchase Agreement, dated June 22, 2000, between Celerity    Incorporated by reference to Exhibit 99.2 to the Form 8-K
             and WIT Technologies Inc.                                    filed with the SEC on July 11, 2000

10.30        Manufacturing Service Agreement, dated January 4, 2001,      Incorporated by reference to Exhibit 99.1 to the
             between Celerity and Nextek, Inc.                            Registration Statement on SB-2 filed with the SEC on
                                                                          December 27, 2000

10.31        Broadband Services Agreement, dated January 4, 2001,         Incorporated by reference to Exhibit 99.2 to the Form 8-K
             between Celerity and DeserScape L.P.                         filed with the SEC on January 10, 2001

10.32        Cooperative Marketing Agreement, dated January 4, 2001,      Incorporated by reference to Exhibit 99.3 to the Form 8-K
             between Celerity and In4Structures LLC                       filed with the SEC on January 10, 2001

10.33        Equity Line of Credit Agreement dated as of June 14, 2001    Incorporated by reference to Exhibit 10.33 to the
             between Celerity Systems, Inc. and Cornell Capital           Registration Statement on Form SB-2 filed with the SEC on
             Partners, L.P.                                               October 17, 2001

10.34        Registration Rights Agreement dated as of June 14, 2001      Incorporated by reference to Exhibit 10.34 to the
             between Celerity Systems, Inc. and Cornell Capital           Registration Statement on Form SB-2 filed with the SEC on
             Partners, L.P.                                               October 17, 2001

10.35        Consulting Services Agreement dated as of June 14, 2001      Incorporated by reference to Exhibit 10.35 to the
             between Celerity Systems, Inc. and Cornell Capital           Registration Statement on Form SB-2 filed with the SEC on
             Partners, L.P.                                               October 17, 2001

10.36        Escrow Agreement dated as of June 14, 2001 among Celerity    Incorporated by reference to Exhibit 10.36 to the
             Systems, Inc. Meir Levin and Cornell Capital Partners, L.P.  Registration Statement on Form SB-2 filed with the SEC on
                                                                          October 17, 2001

10.37        Warrant to purchase 2,500,000 shares of common stock dated   Incorporated by reference to Exhibit 10.37 to the
             as of June 14, 2001 given by Celerity Systems to Cornell     Registration Statement on Form SB-2 filed with the SEC on
             Capital Partners, L.P.                                       October 17, 2001

10.38        Warrant to purchase 3,500,000 shares of common stock dated   Incorporated by reference to Exhibit 10.38 to the
             as of August, 2001 given by Celerity Systems to Cornell      Registration Statement on Form SB-2 filed with the SEC on
             Capital Partners, L.P.                                       October 17, 2001

10.39        Letter Agreement dated August, 2001 between Celerity         Incorporated by reference to Exhibit 10.39 to the
             Systems and Yorkville Advisors Management, LLC               Registration Statement on Form SB-2 filed with the SEC on
                                                                          October 17, 2001

10.40        Consulting Services Agreement dated as of August, 2001       Incorporated by reference to Exhibit 10.40 to the
             between Celerity Systems, Inc. and Yorkville Advisors, LLC.  Registration Statement on Form SB-2 filed with the SEC on
                                                                          October 17, 2001

10.41        Letter Agreement dated as of September, 2001 between         Incorporated by reference to Exhibit 10.41 to the
             Celerity Systems, Inc. and Yorkville Advisors, LLC.          Registration Statement on Form SB-2 filed with the SEC on
                                                                          October 17, 2001



                                                               24
<PAGE>

EXHIBIT NO.  DESCRIPTION                                                  LOCATION
-----------  -----------                                                  --------

10.42        Consulting Services Agreement dated as of September, 2001    Incorporated by reference to Exhibit 10.42 to the
             between Celerity Systems, Inc. and Yorkville Advisors, LLC.  Registration Statement on Form SB-2 filed with the SEC on
                                                                          October 17, 2001

10.43        Advisory Agreement dated September 6, 2001 between           Incorporated by reference to Exhibit 10.43 to the
             Celerity Systems, Inc. and Internet Finance International    Registration Statement on Form SB-2 filed with the SEC on
             Corporation                                                  October 17, 2001

10.44        Financing Agreement dated as of August, 2001 between         Incorporated by reference to Exhibit 10.44 to the
             Celerity Systems, Inc. and Artesian Direct Holdings          Registration Statement on Form SB-2 filed with the SEC on
             Corporation                                                  October 17, 2001

10.45        Partial Guaranty Agreement dated August, 2001 given by Ed    Incorporated by reference to Exhibit 10.45 to the
             Kidston to Celerity Systems, Inc.                            Registration Statement on Form SB-2 filed with the SEC on
                                                                          October 17, 2001
</TABLE>

         (b)      REPORTS ON FORM 8-K.

                  Not applicable.






















                                       25
<PAGE>

                                   SIGNATURES

         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.

Date:    November 19, 2001                    CELERITY SYSTEMS, INC.

                                              By: /s/ Kenneth D. Van Meter
                                                  ------------------------------
                                                      Kenneth D. Van Meter


























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