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 JUNE 30, 2002

             |_| 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                            (I.R.S. Employer
of Incorporation 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 34,763,832 shares of Common Stock outstanding as of July 31,
2002.



                                       1
<PAGE>


PART I

FINANCIAL INFORMATION
---------------------

ITEM 1.  FINANCIAL STATEMENTS.

<TABLE>
<CAPTION>

CELERITY SYSTEMS, INC.
Balance Sheets                                                                       June 30, 2002       December 31, 2001
                                                                                      (unaudited)
                                                                                  --------------------  -------------------
<S>                                                                              <C>                  <C>
Assets
  Cash and cash equivalents                                                                    $ 7,362             $171,988
  Accounts receivable                                                                           23,930                4,282
  Inventory, net                                                                             1,639,184            2,184,334
                                                                                  --------------------- --------------------
    Total current assets                                                                     1,670,476            2,360,604

Property and equipment, net                                                                    216,200              252,286
Debt offering costs, net of accumulated amortization of $470,920 and $157,418,
  respectively                                                                                 759,035            1,076,187
Other assets                                                                                    20,900               20,900
                                                                                  --------------------- --------------------
    Total assets                                                                            $2,666,611           $3,709,977
                                                                                  ===================== ====================

Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Deficit
  Accounts payable                                                                         $ 1,807,326           $2,114,855
  Accrued wages and related taxes                                                               77,022               77,022
  Accrued interest                                                                           1,101,463              768,995
  Other accrued liabilities                                                                    469,299              277,764
  Notes payable                                                                                125,000              117,589
  Equity warrant liability                                                                           -              134,374
  Current maturities of long-term debt and capital lease obligations                           140,000              150,000
                                                                                  --------------------- --------------------
    Total current liabilities                                                                3,720,110            3,640,599

    Long-term debt and capital lease obligations, less current maturities                    2,576,530            2,830,168
                                                                                  --------------------- --------------------

    Total liabilities                                                                        6,296,640            6,470,767

Commitments and contingencies (Note 6)                                                               -                    -
Series B redeemable convertible preferred stock, $.01 par value; authorized 100
  shares; 76.5 and 95 shares issued and outstanding at June 30, 2002 and
  December 31, 2001                                                                            765,000              950,000
                                                                                  --------------------- --------------------
Series C redeemable convertible preferred stock, $.01 par value; authorized 100
  shares; 6 shares issued and outstanding at June 30, 2002 and December 31, 2001                60,000               60,000
                                                                                  --------------------- --------------------
Series D redeemable convertible preferred stock, $.01 par value;  authorized 100
  shares; 5.4 and 0 shares issued and outstanding at June 30, 2002 and December
  31, 2001, respectively                                                                        54,000                    -
                                                                                  --------------------- --------------------
Series E redeemable convertible preferred stock, $.01 par value;  authorized 100
  shares; 10 and 0 shares issued and outstanding at June 30, 2002 and December
  31, 2001, respectively                                                                       100,000                    -
                                                                                  --------------------- --------------------
Common stock, $.001 par value, 250,000,000 shares authorized, 20,795,069 and                    20,795                4,940
  4,939,766 issued and outstanding at June 30, 2002 and December 31, 2001,
  respectively
Additional paid-in capital                                                                  35,122,444           33,173,170
Accumulated deficit                                                                        (39,752,268)         (36,948,900)
                                                                                  --------------------- --------------------
    Total stockholders' deficit                                                             (4,609,029)          (3,770,790)
                                                                                  --------------------- --------------------

    Total liabilities, redeemable convertible preferred stock and stockholders'
      deficit                                                                               $2,666,611           $3,709,977
                                                                                  ===================== ====================

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

</TABLE>


                                       2
<PAGE>


CELERITY SYSTEMS, INC.
Condensed Statements of Operations
Unaudited

<TABLE>
<CAPTION>

                                                               Three Months Ended                        Six Months Ended
                                                                    June 30,                                  June 30,
                                                            2002               2001                     2002           2001
<S>                                                 <C>                  <C>                  <C>                <C>
Revenues                                             $      462,049       $           -        $       464,283     $        2,400
Cost of revenues                                            422,619                   -                422,619              3,240
                                                     ---------------      --------------       ----------------    ---------------
    Gross margin                                             39,430                   -                 41,664               (840)
Operating expenses                                          598,525             732,942              1,219,835          1,331,680
                                                     ---------------      --------------       ----------------    ---------------
    Loss from operations                                   (559,095)           (732,942)            (1,178,171)        (1,332,520)

  Interest expense                                         (617,547)           (213,111)            (1,580,283)          (337,820)
  Income on equity warrant liability                              -             491,048                104,745            491,048
  Other income                                                3,529              42,591                  4,341             44,015
                                                     ---------------      --------------       ----------------    ---------------
    Net (loss) before extraordinary items                (1,173,113)           (412,414)            (2,649,368)        (1,135,277)
Extraordinary item
  Gain on estinguishment of debt                                  -              71,864                      -             71,864
                                                     ---------------      --------------       ----------------    ---------------
    Loss before cumulative effect of change in
    accounting principle                                 (1,173,113)           (340,550)            (2,649,368)        (1,063,413)

 Cumulative effect of change in accounting
  method                                                          -           2,598,813                      -          2,598,813
                                                     ---------------      --------------       ----------------    ---------------
    Net income (loss)                                    (1,173,113)          2,258,263             (2,649,368)         1,535,400
  Amortization of beneficial conversion feature
  and accretion of redeemable convertible
  preferred stock                                                 -            (113,706)              (154,000)          (144,335)
                                                     ---------------      --------------       ----------------    ---------------
    Net income (loss) attributable to common
    shareholders                                     $   (1,173,113)      $   2,144,557        $    (2,803,368)    $    1,391,065
                                                     ===============      ==============       ================    ===============

Basic loss per common share (Note 2)
  Net loss before extraordinary item                 $        (0.10)      $       (0.17)       $         (0.28)    $        (0.49)
  Extraordinary item                                              -                0.03                      -               0.03
  Cumulative effect of change in accounting
  method                                                          -                1.04                      -               1.12
                                                     ---------------      --------------       ----------------    ---------------
    Net income (loss) per share                      $        (0.10)      $        0.90        $         (0.28)             (0.66)
  Armortization of beneficial conversion feature
   and accretion of redeemable convertible
   preferred stock                                                -               (0.04)                 (0.01)             (0.06)
                                                     ---------------      --------------       ----------------    ---------------
    Net (loss) per share attributable to common
    shareholders                                     $        (0.10)      $        0.86        $         (0.29)    $         0.60
                                                     ===============      ==============       ================    ===============



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

</TABLE>


                                       3
<PAGE>


CELERITY SYSTEMS, INC.
Condensed Statements of Cash Flows
Unaudited

<TABLE>
<CAPTION>

                                                                                                  Six Months Ended
                                                                                                       June 30
                                                                                           -------------------------------
                                                                                               2002             2001
                                                                                           --------------    -------------
<S>                                                                                       <C>                <C>
Cash flows from operating activities:
  Net income (loss)                                                                         $ (2,649,368)      $1,535,400
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization                                                                 47,671           51,553
    Noncash interest expense related to beneficial conversion feature of debt                    713,736           89,934
    Noncash interest expense related to debt offering costs                                      391,002          109,129
    Noncash interest expense related to notes payable                                                  -           36,860
    Noncash operating expense related to consulting fees                                               -            3,721
    Noncash operating expense related to payroll and directors' fees                                   -           19,396
    Noncash income related to settlement of capital lease obligation                                   -          (97,500)
    Noncash income related to equity warrant liability                                          (104,745)        (491,048)
    Noncash income related to change in accounting principle                                           -       (2,598,813)
  Changes in current assets and liabilities:
    Accounts receivable                                                                          (19,648)          (1,000)
    Inventory                                                                                    545,150       (1,346,530)
    Accounts payable                                                                           (251,928)          837,952
    Interest payable                                                                             357,468           31,455
    Other current liabilities                                                                    210,060          (46,553)
                                                                                           --------------    -------------
      Net cash used in operating activities                                                     (760,602)      (1,866,044)

Cash flows from investing activities:
  Purchase of fixed assets                                                                        (4,174)        (491,370)
                                                                                           --------------    -------------
    Net cash used in investing activities                                                         (4,174)        (491,370)

Cash flows from financing activities:
  Proceeds from short-term borrowings                                                                  -           15,000
  Payments on short-term borrowings                                                                    -          (15,000)
  Proceeds from long-term debt                                                                   775,000        1,800,000
  Principal payments on long-term debt and capital lease obligations                            (255,000)         (60,000)
  Proceeds from issuance of common stock                                                                           30,000
  Proceeds from redeemable convertible preferred stock and warrant offering,                     154,000          859,654
    net of offering costs
  Financing and debt issue costs                                                                 (73,850)        (228,153)
                                                                                           --------------    -------------
    Net cash provided by financing activities                                                    600,150        2,401,501

Net increase (decrease) in cash and cash equivalents                                            (164,626)          44,087
Cash and cash equivalents, beginning of period                                                   171,988           10,366
                                                                                           --------------    -------------
Cash and cash equivalents, end of period                                                       $   7,362        $  54,453
                                                                                           ==============    =============


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

</TABLE>


                                       4
<PAGE>


CELERITY SYSTEMS, INC.
Statement of Changes in Stockholders' Deficit
Unaudited

<TABLE>
<CAPTION>
                                                                                                                  Total
                                             Shares of                       Additional       Accumulated     Stockholders'
                                           Common Stock     Common Stock   Paid-In Capital      Deficit          Deficit
                                          ----------------------------------------------------------------------------------
<S>                                          <C>             <C>           <C>             <C>             <C>
Balances, December 31, 2001                   4,939,766       $    4,940    $ 33,173,170    $ (36,948,900)   $ (3,770,790)
Issuance of convertible debentures with
  beneficial conversion feature                      --               --         503,373               --         503,373
Issuance of redeemable convertible
  preferred stock with beneficial
  conversion feature                                 --               --         154,000               --         154,000
Issuance of common stock as payment of
  certain payroll and accounts payable
  items                                         224,779              225          73,902               --          74,127
Conversion of convertible debentures to
  shares of common stock                     15,260,524           15,260       1,003,740               --       1,019,000
Conversion of redeemable convertible
  preferred stock to shares of common
  stock                                         370,000              370         184,630               --         185,000
Close out of Equity Warrant Liability                --               --          29,629               --          29,629
Accretion of redeemable convertible
  preferred stock                                    --               --              --         (154,000)       (154,000)
Net loss                                             --               --              --       (2,649,368)     (2,649,368)
                                          --------------      -----------   -------------   --------------   -------------
Balances, June 30, 2002                      20,795,069       $   20,795    $ 35,122,444    $ (39,752,268)   $ (4,609,029)
                                          ==============      ===========   =============   ==============   =============


                     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 June 30, 2002 and for the
three  and six  months  ended  June  30,  2002  and  2001,  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
six month period  ended June 30, 2002,  are not  necessarily  indicative  of the
results  that may be  expected  for the  year  ending  December  31,  2002.  The
condensed financial  statements should be read in conjunction with the financial
statements  and notes  thereto  included in the Form 10-KSB of the Company as of
and for the year ended December 31, 2001. All amounts and share totals have been
restated to account for the  one-for-twenty  reverse stock split effective April
24, 2002.  Certain June 30, 2001 balances have been reclassified to conform with
the June 30, 2002 financial statement presentation.

2.    LOSS PER SHARE

      Basic and  diluted  loss per share  were  computed  by  dividing  net loss
attributable 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 net loss and their effect would be anti-dilutive. At June 30,
2002,  the  number of shares  excluded  from the  computation  because  of their
anti-dilutive effect is approximately 271,811,333. Following is a reconciliation
of the numerators and denominators of the basic earnings per share:

                                  Three Months Ended       Six Months Ended
                                       June 30,                June 30,
                             ------------------------- ------------------------
                                 2002          2001        2002        2001
                             ------------  ----------- -----------  -----------
Income(loss)
 Basic and diluted:
  Income (loss) applicable
   to common stockholders    $(1,173,113)  $2,144,557  $(2,803,368)  $1,391,065

Number of Shares
 Basic and diluted:
  Weighted-average common
   shares outstanding         12,009,559    2,492,923    9,550,406    2,307,732


3.    ISSUANCE OF CONVERTIBLE DEBENTURES

      The Company issued $775,000  aggregate  principal amount of 4% convertible
debentures  in the  first six  months  of 2002,  resulting  in net  proceeds  of
approximately  $701,000.  The  debentures  have a term  of  five  years  and are
convertible into the Company's  common stock, at the option of the holder,  at a
price equal to 75% of the average  closing bid price of the common stock for the
five trading days immediately preceding  conversion,  or in the case of $375,000
of the debentures, a maximum conversion price of $0.04. 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
$503,373  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. Upon conversion prior to the stated date of redemption the remaining
unamortized discount will be recognized as a non-cash interest expense.



                                       6
<PAGE>

4.    ISSUANCE OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

      SERIES D

      In the first half of 2002, the Company  consummated a private placement of
5.4 shares of Series D Redeemable Convertible Preferred Stock resulting in gross
proceeds of $54,000.  The Series D Stock provides for preferential  dividends at
an annual rate of 8%. The redeemable  convertible preferred stock is convertible
into  shares  of common  stock at a  conversion  price  equal to $0.01 per share
(which  conversion  price was adjusted to $0.20 per share for the reverse  stock
split on April 24, 2002),  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
redeemable convertible 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  if
permitted by applicable law.

      On the date of issuance of the Series D Redeemable  Convertible  Preferred
Stock,  the  effective  conversion  price was at a discount  to the price of the
common  stock  into which it was  convertible.  The  Company  recorded a $54,000
dividend relative to the beneficial  conversion feature. The Series D Redeemable
Convertible  Preferred  Stock is  considered  perpetual  redeemable  convertible
preferred  stock and,  therefore,  amortization of the $54,000 is reflected over
the period from the date of issuance to the earliest conversion date,  resulting
in full  accretion  during the first  quarter of 2002.  As no  preferred  shares
converted to shares of common stock,  5.4 shares  remaining  outstanding at June
30, 2002.

      SERIES E

      In the first quarter of 2002, the Company  consummated a private placement
of 10 shares of Series E Redeemable  Convertible  Preferred  Stock  resulting in
gross proceeds of $100,000.  The Series E Redeemable Convertible Preferred Stock
provides  for  preferential  dividends  at an annual rate of 8%. The  redeemable
convertible  preferred  stock is  convertible  into shares of common  stock at a
conversion price equal to $0.001 per share (which  conversion price was adjusted
to $0.02 per share for the reverse  stock split on April 24,  2002),  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 redeemable convertible 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 if  permitted by  applicable  law. As no preferred
shares converted to shares of common stock, 10 shares  remaining  outstanding at
June 30, 2002.

      On the date of issuance of the Series E Redeemable  Convertible  Preferred
Stock,  the  effective  conversion  price was at a discount  to the price of the
common  stock into which it was  convertible.  The  Company  recorded a $100,000
dividend relative to the beneficial  conversion feature. The Series E Redeemable
Convertible  Preferred  Stock is  considered  perpetual  redeemable  convertible
preferred stock and,  therefore,  amortization of the $100,000 is reflected over
the period from the date of issuance to the earliest conversion date,  resulting
in full accretion during the first quarter of 2002.

      The total  amount that would be required for  redemption  for the Series D
and Series E Redeemable Convertible Preferred Stock is as follows:

       2002                                                     $        --
       2003                                                              --
       2004                                                         154,000
                                                              ----------------
       Total required redemption for the Series D
       and Series E Redeemable Convertible Preferred Stock      $    154,000
                                                              ================

5.    SUPPLEMENTAL CASH FLOW INFORMATION

      During the first six months of 2002,  the Company issued 224,779 shares of
common stock with a value of $74,127 as payment for certain payroll and accounts
payable items.



                                       7
<PAGE>

      Also  during the first six  months of 2002,  convertible  debentures  with
outstanding  principal and interest of $1,019,000 were converted into 15,260,524
shares of common stock.

      Also  during  the first six  months of 2002,  $7,411 of  noncash  interest
expense was incurred  relating to amortization of warrants issued in conjunction
with certain notes payable.

6.    COMMITMENTS AND CONTINGENCIES

      In January 2002, the Company  terminated the Equity Line of Credit entered
into on June 14, 2001 due to delays in getting related shares  registered and in
order to pursue other types of financing arrangements.  As a result, the Company
does not have an effective  registration statement including common shares to be
issued  in  connection  with  certain  debentures  issued  in 2001 and the first
quarter of 2002 under the 1999 Line of Credit Agreement. The Company is required
to pay liquidated  damages in the form of increased  interest on the convertible
debentures  as a result of not filing an effective  registration  statement  for
these  debentures at a rate of 2% of the principle plus interest per month.  The
liability  for  liquidated  damages will continue to accrue until the earlier of
one year from the issuance date of the convertible  debentures or the date a new
registration  statement  becomes  effective.  The  Company  is  preparing  a new
registration  statement which it filed on June 27, 2002. The Company has accrued
$884,420 for liquidated damages at June 30, 2002.

      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 /New York Company,  sued the Company for
the non-payment of financial  printing fees. In 2002,  Merrill/New  York Company
obtained a judgment for $136,435  against the  Company.  Such  judgment has been
fully  accrued on the books of the  Company.  The Company  intends to appeal the
decision.

      In December, 2001, Veja Electronics, Inc. d/b/a Stack Electronics sued the
Company for breach of  contract  and is seeking  damages in excess of  $106,000.
This action relates to amounts alleged to be owed from the shipment of products.
The Company  intends to defend this action and no amounts  have been  accrued at
June 30, 2002.

      On February 14, 2002,  Metalade FL, Inc. sued the Company for a delinquent
account. The action was brought in the Circuit Court for Knox County,  Tennessee
and is styled as Metalade  Fl, Inc. v.  Celerity  Systems,  Inc.  The  plaintiff
alleges it is owed in excess of $103,000  related to the  shipment of  products.
The Company has accrued  approximately  $103,000 in accounts  payable related to
this action at June 30, 2002. The Company intends to defend this action.

      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.  These amounts are included in the Company's  accounts  payable and are
accruing applicable late fees and interest.


7.    RELATED PARTY TRANSACTIONS

      On April 24, 2002,  the Company  entered into a purchase  order  financing
arrangement with Kidston Communications. Kidston Communications is controlled by
Ed  Kidston,  a  director  and  shareholder  of the  Company.  Pursuant  to this
arrangement,  Kidston  Communications  will purchase products and materials from
the Company in sufficient  quantities to fill open purchase  orders  received by
the Company.  Upon such purchase,  title to the products and materials needed to
fill the open purchase orders vests in Kidston Communications and are segregated
from the Company's  products and materials.  The Company is then responsible for
production of the final  products to be shipped to the  customers.  The purchase
price  for these  products  and  materials  is the  amount of the open  purchase
orders,  less a 15%  discount.  If the order is filled after 10 months,  then an
interest  charge of 1.5% per month will apply.  This  discount will be accounted
for as an interest expense on the Company's financial  statements and amounts to
approximately  $102,555  as of June  30,  2002.  As of June  30,  2002,  Kidston
Communications has financed open purchase orders having a value of $680,705.

8.    SUBSEQUENT EVENTS

      In the third  quarter of 2002,  the  Company  issued  6,650,000  shares of
common stock in a private placement for a value of $66,500.

      In July and August 2002,  the Company issued 22,000 shares of common stock
for conversion of Series B Redeemable  Convertible preferred stock and 7,131,881
shares of common stock for  conversion of  convertible  debentures.  The Company
also issued  164,882  shares of common  stock as payment of certain  payroll and
accounts payable items.



                                       8
<PAGE>

9.    GOING CONCERN

      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.  Since  inception  in January,  1993 through June 30, 2002 the losses
total  $39,752,000.  As of June 30, 2002, the Company had a negative net working
capital of  approximately  $2,050,000.  These  factors  taken  together with the
minimal  amount of sales and the  absence of  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 focused its sales efforts
to those which it believes  have the best chance of closing in the near term. In
the first six months of 2002,  the Company  received gross proceeds from private
placements of convertible  debt totaling  $775,000 and Series D and E Redeemable
Convertible  Preferred Stock totaling $154,000.  These funds enabled the Company
to  operate  for the last few  months;  however,  additional  financing  will be
necessary to sustain its  operations  and achieve its business plan. The Company
is attempting to obtain such additional  financing.  Management is also actively
seeking one or more strategic investors. The Company has also received orders to
provide  five of its  DigiKnow  Digital  Education  Systems  to  schools  in the
Midwest.  However,  there can be no  assurance  as to the  receipt  or timing of
revenues  from  operations  including  revenues  from  these  contracts  or that
management  will be able to find a strategic  investor or secure the  additional
financing necessary to sustain operations or achieve its business plan.

         The ability of the Company to continue as a going  concern is dependent
upon its ability to successfully  accomplish the plan described in the preceding
paragraph  and  eventually  attain  profitable   operations.   The  accompanying
financial  statements do not include any adjustments  that might be necessary if
the Company is unable to continue as a going concern.


                                       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 "BUSINESS RISK
FACTORS" OF OUR FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2001. 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.

         We have  continued  to focus  most of our  development  and  production
efforts since 1999 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.  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 continue 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 focused 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.

         CRITICAL ACCOUNTING POLICIES

         The Company  recognizes  revenue in  accordance  with Staff  Accounting
Bulletin 101 whereby revenue is realized when all of the following  criteria are
met: 1) Persuasive evidence of an arrangement exits; 2) Delivery has occurred or
services  have been  rendered;  3) The  seller's  price to the buyer is fixed or
determinable; and 4) Collectibility is reasonably assured.

         Effective  June 30, 2001,  Celerity  Systems  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  for those contracts that existed as of June 30, 2001,  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 a  mark-to-market  adjustment  of
$2,598,813  was  recorded  as the  cumulative  effect of a change in  accounting
principle.

         Celerity  Systems  has  adopted  the  provisions  of  FASB  ("Financial
Accounting  Standards  Board" or "FASB")  Statement  No.  138,  "Accounting  for
Certain  Derivative  Instruments and Hedging  Activities,  (an amendment of FASB
Statement No. 133)." Because Celerity Systems had adopted the provisions of FASB
Statement No. 133,  prior to June 15, 2002,  this statement is effective for all
fiscal  quarters  beginning  after June 15, 2000. The adoption of this principle
had no material effect on Celerity Systems' financial statements.



                                       10
<PAGE>

         Celerity  Systems has adopted the provisions of FASB Statement No. 140,
"Accounting for Transfers and Servicing of Financial Assets and  Extinguishments
of  Liabilities  (a  replacement  of FASB  Statement No.  125)." This  statement
provides  accounting  and  reporting  standard for  transfers  and  servicing of
financial assets and  extinguishments of liabilities.  Those standards are based
on consistent  application  of a  financial-components  approach that focuses on
control.  Under that  approach,  Celerity  Systems  recognized the financial and
servicing  assets it controls and the liabilities it has incurred,  derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when   extinguished.   This   statement   provides   consistent   standards  for
distinguishing  transfers of financial assets that are sales from transfers that
are secured borrowings.  This statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after March 31,
2001.  This  statement is effective  for  recognition  and  reclassification  of
collateral  and for  disclosures  relating to  securitization  transactions  and
collateral for fiscal years ending after December 15, 2000.

         Celerity Systems has adopted the provisions of SFAS No. 141,  "Business
Combinations,"  and SFAS No. 142,  "Goodwill and Other Intangible  Assets." SFAS
No. 141 is  effective as to any business  combination  occurring  after June 30,
2001 and certain  transition  provisions  that affect  accounting  for  business
combinations  prior to June 30, 2001 are  effective as of the date that SFAS No.
142 is applied  in its  entirety,  which  will be  January 1, 2002 for  Celerity
Systems. SFAS No. 142 is effective,  generally,  in fiscal years beginning after
December  15,  2001,  which is the fiscal  year  ending  December  31,  2002 for
Celerity Systems.

         SFAS  No.  141  provides   standards   for   accounting   for  business
combinations.  Among other things,  it requires that only the purchase method of
accounting  be used and that certain  intangible  assets  acquired in a business
combination  (I.E.,  those that result from contractual or other legal rights or
are  separable)  be  recorded as an asset apart from  goodwill.  The  transition
provisions require that an assessment be made of previous business  combinations
and, if appropriate, reclassifications be made to or from goodwill to adjust the
recording of intangible  assets such that the criteria for recording  intangible
assets apart from goodwill is applied to the previous business combinations.

         SFAS  No.  142,  provides,   among  other  things,  that  goodwill  and
intangible  assets with  indeterminate  lives shall not be  amortized.  Goodwill
shall be assigned to a reporting  unit and  annually  assessed  for  impairment.
Intangible assets with determinate lives shall be amortized over their estimated
useful  lives,  with the  useful  lives  reassessed  continuously,  and shall be
assessed for impairment  under the provisions of SFAS No. 121,  "Accounting  for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
Of."  Goodwill is also  assessed for  impairment on an interim basis when events
and circumstances  warrant. Upon adoption of SFAS No. 142, Celerity Systems will
assess whether an impairment loss should be recognized and measured by comparing
the  fair  value  of the  "reporting  unit"  to the  carrying  value,  including
goodwill.  If the carrying value exceeds fair value,  then Celerity Systems will
compare the implied  fair value of the  goodwill (as defined in SFAS No. 142) to
the carrying  amount of the  goodwill.  If the  carrying  amount of the goodwill
exceeds  the  implied  fair  value,  then the  goodwill  will be adjusted to the
implied fair value.

         The  adoption of these new  accounting  pronouncements  had no material
effect on Celerity System's financial statements.

         On August 16, 2001,  the Financial  Accounting  Standards  Board issued
SFAS No. 143, "Accounting for Asset Retirement  Obligations," which is effective
for fiscal years  beginning  after June 15, 2002. It requires  that  obligations
associated with the retirement of a tangible  long-lived  asset be recorded as a
liability when those obligations are incurred,  with the amount of the liability
initially measured at fair value. Upon initially  recognizing a liability for an
accrued retirement obligation, an entity must capitalize the cost by recognizing
an increase in the carrying amount of the related  long-lived  asset. Over time,
the liability is accreted to its present value each period,  and the capitalized
cost is depreciated  over the useful life of the related asset.  Upon settlement
of the  liability,  an entity  either  settles the  obligation  for its recorded
amount or incurs a gain or loss upon settlement.  While Celerity Systems has not
completed  the  process  of  determining  the  effect  of  this  new  accounting
pronouncement on its financial  statements,  Celerity Systems  currently expects
that the effect of SFAS No. 143 on Celerity Systems' financial statements,  when
it becomes effective, will not be significant.

         On October 3, 2001, the FASB issued SFAS No. 144,  "Accounting  for the
Impairment  or Disposal of  Long-Lived  Assets" which is effective for financial
statements  issued for fiscal  years  beginning  after  December  15,  2001 and,
generally,  its  provisions  are  to be  applied  prospectively.  SFAS  No.  144
supersedes SFAS Statement No. 121 (FAS No. 121),  "Accounting for the Impairment
of Long-Lived  Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144
applies  to  all  long-lived  assets  (including  discontinued  operations)  and
consequently  amends  Accounting  Principles  Board  Opinion  No.  30 (APB  30),
"Reporting Results of Operations  Reporting the Effects of Disposal of a Segment
of a Business."



                                       11
<PAGE>

         SFAS No. 144 develops one accounting  model (based on the model in SFAS
No. 121) for  long-lived  assets that are to be disposed of by sale,  as well as
addresses  the  principal  implementation  issues.  SFAS No. 144  requires  that
long-lived  assets that re to be disposed of by sale be measured at the lower of
book value or fair  value less cost to sell.  That  requirement  eliminates  the
requirement of APB 30 that discontinued operations be measured at net realizable
value or that entities include under "discontinued  operations" in the financial
statements amounts for operating losses that have not yet occurred.  Additional,
FAS No.  144  expands  the  scope of  discontinued  operations  to  include  all
components of an entity with operations that can be distinguished  from the rest
of the entity and will be eliminated  from the ongoing  operations of the entity
in a disposal transaction.

         The  adoption  of this new  accounting  pronouncement  had no effect on
Celerity Systems' financial statements.

         RESULTS OF OPERATIONS

                  THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS
                  ENDED JUNE 30, 2001

                  REVENUES

         We had  revenues  of  $462,049  for the  quarter  ended June 30,  2002,
compared to $-0- for the same period in 2001. These revenues in 2002 result from
deliveries  of our  DigiKnow  Digital  Education  System to  schools in Ohio and
Pennsylvania. In that regard, we have made progress in the education markets. In
the three  months  ended June 30,  2002,  we received  orders for  approximately
$67,000 of products, which leaves a remaining backlog of orders of approximately
$285,000.  These  orders are not  considered  sales until we ship the  products.
Shipments  are  expected to occur in the third and fourth  quarters of 2002.  We
market our product for the education  market as the DigiKnow  Digital  Education
System.  Partial  financing  for the purchase of inventory  and payment of final
assembly has been provided by Kidston Communications, a company controlled by Ed
Kidston, a director and shareholder of our company. A discussion about the terms
of this financing is set forth below under the "Liquidity and Capital Resources"
section.

                  COSTS OF REVENUES

         Costs of revenues were $422,619 in the second quarter of 2002, compared
to $-0- in 2001. We had a gross margin of $39,430 in the second quarter of 2002,
compared to a gross margin of $-0- in the same period of 2001. Gross margins are
impacted  by the mix of  product  sold  between  lower  margin set top boxes and
higher  margin  services,  video  servers  and other  equipment  included in our
DigiKnow Digital Education System.  The second quarter of 2002 reflects a higher
mix of set top boxes to other items.

                  OPERATING EXPENSES

         Operating  expenses  for the three  months  ending  June 30,  2002 were
$598,525,  compared  to  $732,942  for the same  period in 2001.  This  decrease
results  primarily from a reduction of approximately  $231,000 in contract labor
costs  incurred for the  development  of software to be used in our  interactive
digital video system as these  contractors  were  replaced by  employees.  These
costs were partially offset by an increase of $129,000 due to an increase in the
number  of  employees  needed  to  perform  the  work  previously  performed  by
contractors.  Also,  tax  expense  was higher in the  second  quarter of 2001 by
approximately $30,000 as the result of a property tax audit.

                  INTEREST EXPENSES

         Interest  expense in the second quarter of 2002 was $617,547,  compared
to $213,111 in the same period of 2001. Of these amounts,  amortization  of debt
offering  costs  totaled  $190,303 in the second  quarter of 2002 as compared to
$52,914 in the same period of 2001. Additionally, the second quarter of 2002 was
impacted by $86,458 over 2001 from liquidated  damages  recorded due to the lack
of having an effective  registration  statement relating to certain  convertible
debentures.  The balance of the  increase is comprised of $20,000 of interest on
debentures,  the amount of which  increased  by $3.0 million  subsequent  to the
second  quarter of 2001 and interest of $102,000 on the  financing  arrangements
with Kidston Communications which did not exist in the prior year.

         We recognized a beneficial  conversion feature for various  convertible
debentures  outstanding  at  June  30,  2002  as  discount  on  the  convertible
debentures and as additional paid-in capital. The unamortized discount remaining
at June 30, 2002,  $1,395,470,  will be amortized as a non-cash interest expense


                                       12
<PAGE>

over the five  year  period  between  the date of  issuance  of the  convertible
debentures to the stated redemption date of the debentures. For the three months
ended June 30, 2002 and 2001, we had an  amortization  of beneficial  conversion
feature of $102,298  and $43,933,  respectively.  Upon  conversion  prior to the
stated date of redemption the remaining  unamortized discount will be recognized
as a non-cash interest expense.

                  EQUITY WARRANT INCOME

         For the three  months  ended  June 30,  2002,  we had  income on equity
warrant  liability  of $-0- as  compared to 491,048 for the same period in 2001.
This amount  represents a mark-to-market  adjustment in connection with warrants
to purchase common stock which are outstanding (see Cumulative  Effect of Change
in  Accounting  Principle).  The  value  of  these  warrants  and the  resulting
mark-to-market   adjustment  at  June  30,  2001,  was   determined   using  the
Black-Scholes  Option  Pricing Model with the following  assumptions:  risk-free
interest rate of 6.77%,  expected  dividends of zero,  volatility of 253.92% and
expected lives ranging from 1 month to 4 1/2 years.

                  GAIN ON EXTINGUISHMENT OF DEBT

          In April 1998,  the Company  incurred  capital  lease  obligations  of
approximately $259,000 for certain equipment.  Monthly payments of principal and
interest of $9,541 were due through  2001 with  $82,628 past due at December 31,
1999.  The equipment was returned to the lessor as part of the relocation of the
Company's  facilities.  The Company  agreed to a final  settlement in the second
quarter of 2001 which resulted in a gain from cancellation of debt in the amount
of $71,864.  This item is reflected as an extraordinary item on the Statement of
Operation.

                  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

         Effective June 30, 2001, Celerity 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.

                  NET LOSS

         As a result of the above  factors,  we had a net loss of  $1,173,113 or
$0.10 per share, for the quarter ended June 30, 2002,  compared to a net loss of
$2,649,368, or $0.28 per share, for the same period in 2001.

                  SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED
                  JUNE 30, 2001

                  REVENUES

         Revenues were $464,283 for the six months ended June 30, 2002, compared
to $2,400  for the same  period in 2001.  These  revenues  in 2002  result  from
deliveries  of our  DigiKnow  Digital  Education  System to  schools in Ohio and
Pennsylvania. In that regard, we have made progress in the education markets. In
the six months  ended  June 30,  2002,  we  received  orders  for  approximately
$632,000 of products  and have a  remaining  backlog of orders of  approximately
$285,000.  These  orders are not  considered  sales until we ship the  products.
Shipments  are  expected to occur in the third and fourth  quarters of 2002.  We
market our product for the education  market as the DigiKnow  Digital  Education
System.  Partial  financing  for the purchase of inventory  and payment of final
assembly has been provided by Kidston Communications, a company controlled by Ed
Kidston, a director and shareholder of our company. A discussion about the terms
of this  financing  are  set  forth  below  under  the  "Liquidity  and  Capital
Resources" section.

                  COSTS OF REVENUES

         Costs of revenues  were $422,619 for the six months ended June 30, 2002
compared to $3,240 in 2001.  We had a gross  margin of $41,664 in the first half
of 2002,  compared  to a negative  gross  margin of $(840) in the same period of
2001. Gross margins are impacted by the mix of product sold between lower margin
set top boxes and higher  margin  services,  video  servers and other  equipment


                                       13
<PAGE>

included in our DigiKnow Digital Education  System.  Sales during the first half
of 2002 reflects a higher mix of set top boxes to other items.

                  OPERATING EXPENSES

         Operating  expenses  for the six  months  ending  June  30,  2002  were
$1,219,835,  compared to $1,331,680  for the same period in 2001.  This decrease
resulted primarily from a reduction of approximately  $290,000 in contract labor
costs  incurred for the  development  of software to be used in our  interactive
digital  video system as these  contractors  were  replaced by  employees  and a
reduction in legal costs of  approximately  $106,000  primarily as a result of a
change in the Company's legal counsel. These reductions were partially offset by
higher shareholder  relation costs of approximately  $24,000 associated with the
annual meeting held in the second quarter of 2002 and an increase of $277,000 in
employee costs due to additional employees needed to perform the work previously
performed by contractors. Also, tax expense was higher in the first half of 2001
by approximately $30,000 as the result of a property tax audit.

                  INTEREST EXPENSES

         Interest  expense  for  the  six  months  ending  June  30,  2002  were
$1,580,283,  compared to $337,820 for the same period in 2001. Of these amounts,
amortization of debt offering costs totaled  $391,002 in the first six months of
2002 as compared to $109,129 in the same period of 2001. Additionally, the first
half of 2002 was impacted by  approximately  $190,000 over 2001 from  liquidated
damages recorded due to the lack of having an effective  registration  statement
relating  to certain  convertible  debentures.  The  balance of the  increase is
comprised of interest or debentures, the amount of which increased subsequent to
the first half of 2001,  and interest of $102,000 on the  financing  arrangement
with Kidston Communications, which did not exist in the comparable period in the
prior year.

         We recognized a beneficial  conversion feature for various  convertible
debentures  outstanding  at  June  30,  2002  as  discount  on  the  convertible
debentures and as additional paid-in capital. The unamortized discount remaining
at June 30, 2002,  $1,395,470,  will be amortized as a non-cash interest expense
over the five  year  period  between  the date of  issuance  of the  convertible
debentures to the stated  redemption date of the debentures.  For the six months
ended June 30, 2002 and 2001, we had an  amortization  of beneficial  conversion
feature of $713,735  and $87,786,  respectively.  Upon  conversion  prior to the
stated date of redemption the remaining  unamortized discount will be recognized
as a non-cash interest expense.

                  EQUITY WARRANT INCOME

         For the three  months  ended  June 30,  2002,  we had  income on equity
warrant  liability  of $-0- as compared to $491,048 for the same period in 2001.
This amount  represents a mark-to-market  adjustment in connection with warrants
to purchase common stock which are outstanding (see Cumulative  Effect of Change
in  Accounting  Principle).  The  value  of  these  warrants  and the  resulting
mark-to-market   adjustment  at  June  30,  2001,  was   determined   using  the
Black-Scholes  Option  Pricing Model with the following  assumptions:  risk-free
interest rate of 6.77%,  expected  dividends of zero,  volatility of 253.92% and
expected lives ranging from 1 month to 4 1/2 years.

                  GAIN ON EXTINGUISHMENT OF DEBT

          In April 1998,  the Company  incurred  capital  lease  obligations  of
approximately $259,000 for certain equipment.  Monthly payments of principal and
interest of $9,541 were due through  2001 with  $82,628 past due at December 31,
1999.  The equipment was returned to the lessor as part of the relocation of the
Company's  facilities.  The Company  agreed to a final  settlement in the second
quarter of 2001 which resulted in a gain from cancellation of debt in the amount
of $71,864.  This item is reflected as an extraordinary item on the Statement of
Operation.

                  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

         Effective June 30, 2001, Celerity 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.


                                       14
<PAGE>

                  NET LOSS

         As a result of the above factors,  we had a net loss of $(2,649,368) or
$(0.28)  per share,  for the six months  ended June 30,  2002,  compared  to net
income of $1,535,400, or $0.66 per share, for the same period in 2001.

                  AMORTIZATION OF BENEFICIAL CONVERSION FEATURE AND ACCRETION OF
                  REDEEMABLE CONVERTIBLE PREFERRED STOCK

         In addition, we had outstanding redeemable convertible preferred stock.
At issuance during the first quarter of 2001, the conversion price of the Series
B Redeemable  Convertible  Preferred Stock was at a discount to the price of our
common stock. The Series B Redeemable  Convertible Preferred Stock is considered
perpetual  redeemable  convertible  preferred stock. As a result,  we recorded a
$144,335 dividend relative to the beneficial  conversion feature of the Series B
Redeemable Convertible Preferred Stock in the first six months of 2001.

         At issuance  during the first quarter of 2002, the conversion  price of
the Series D  Redeemable  Convertible  Preferred  Stock was at a discount to the
price of our common stock. The Series D Redeemable  Convertible  Preferred Stock
is considered perpetual redeemable  convertible preferred stock. As a result, we
recorded a $54,000 dividend relative to the beneficial conversion feature of the
Series  D  Redeemable  Convertible  Preferred  Stock.  At  issuance  during  the
conversion price of the Series E Redeemable Convertible preferred stock was at a
discount to the price of our common stock.  The Series E Redeemable  Convertible
preferred stock is considered perpetual redeemable  convertible preferred stock.
As a  result,  we  recorded  a  $100,000  dividend  relative  to the  beneficial
conversion feature of the Series E Redeemable Convertible preferred stock.

         LIQUIDITY AND CAPITAL RESOURCES

         The primary  source of financing  for us since our  inception  has been
through the issuance of common and redeemable  convertible  preferred  stock and
debt. We had cash balances on hand of $7,362 as of June 30, 2002 and $171,988 as
of December 31, 2001. Our cash position  continues to be uncertain.  Our primary
need for cash is to fund our ongoing operations until such time that the sale of
our  products  generates  enough  revenue  to  fund  operations.  These  ongoing
operations include the purchase of parts used in the production of our products.
In  addition,  our need for cash  includes  satisfying  current  liabilities  of
$3,720,110,  consisting  primarily of accounts  payable of  $1,807,326,  accrued
wages and  related  taxes of $77,022,  accrued  interest  of  $1,101,463,  other
accrued  liabilities of $469,299,  notes payable of $125,000 and current portion
of long-term  debt and capital  lease  obligations  of $140,000.  These  current
liabilities  include a judgment of $136,435 obtained by Merrill  Corporation for
non-payment of printing fees. We also have  outstanding  redeemable  convertible
preferred stock. The preferred stock is redeemable as follows:

         YEAR                                        $ AMOUNT
         ---------------------------------------   ---------------
         2002                                        $         --
         2003                                             825,000
         2004                                             154,000
         Total Required to Redeem Redeemable       ---------------
           Convertible Preferred Stock                $   979,000
                                                   ===============

         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
ongoing  operations and to satisfy the above  obligations.  Except for financing
from  Kidston  Communications,  we  currently  do not have any  commitments  for
funding.

         During the six months ended June 30, 2002, we issued $775,000 principal
amount of 4% convertible  debentures  resulting in net proceeds of approximately
$701,000,  and  consummated  a  private  placement  of 5.4  shares  of  Series D
Redeemable Redeemable  Convertible Preferred Stock and a private placement of 10
shares of Series E Redeemable  Redeemable  Convertible Preferred Stock resulting
in gross proceeds of $54,000 and $100,000,  respectively.  On April 24, 2002, we
entered into a purchase order financing arrangement with Kidston Communications.
Kidston  Communications is controlled by Ed Kidston,  a director and shareholder
of our  company.  Pursuant  to this  arrangement,  Kidston  Communications  will
purchase  products and materials  from us in sufficient  quantities to fill open
purchase orders. Upon such purchase,  title to the products and materials needed
to fill  the  open  purchase  orders  vests in  Kidston  Communications  and are
segregated  from  our  products  and  materials.  We are  then  responsible  for
production of the final  products to be shipped to the  customers.  The purchase
price  for these  products  and  materials  is the  amount of the open  purchase
orders,  less a 15%  discount.  If any order is filled after 10 months,  then an


                                       15
<PAGE>

interest  charge of 1.5% per month will apply.  This  discount will be accounted
for as an interest  expense on our  financial  statements.  As of June 30, 2002,
Kidston  Communications  has financed  open  purchase  orders  having a value of
$680,705.

         We are looking at several  other options in terms of improving our cash
shortage.  We are continuing to seek to arrange  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
granted a security  interest  in our  property  to our  landlord  and  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.

         During the quarter  ended June 30, 2002,  we had a net decrease in cash
and cash equivalents of $164,626. Our sources and uses of funds were as follows:

         CASH USED IN OPERATING ACTIVITIES.  We used net cash of $760,602 in our
operating  activities  in the six months ended June 30,  2002.  Net cash used in
operating  activities  resulted  primarily  from a net  loss of  $2,649,368  and
non-cash  income  related to the equity  warrant  liability of  $104,745,  and a
decrease  in  accounts  payable  of  $251,928.  Our net cash  used in  operating
activities was partially  offset by depreciation  and  amortization  expenses of
$47,671,  non-cash  expenses of $1,104,738,  a decrease in inventory of $545,150
and an increase in interest payable of $357,468 and other current liabilities of
$210,060.  The  increase in other  current  liabilities  includes  $51,000  from
deposits  on new orders  received  and  $96,200  from  deferral of wages due the
Company's  president.  Accounts  payable  are  expected  to  remain  high  until
inventory levels can be reduced through sales.

         CASH  USED IN  INVESTING  ACTIVITIES.  We used  net cash of  $4,174  in
investing  activities in the six months ended June 30, 2002. This relates to the
purchase of software for use in projects for the education market.

         CASH PROVIDED BY FINANCING ACTIVITIES. We received $600,150 in net cash
from financing activities,  consisting primarily of proceeds from long-term debt
of $775,000 and redeemable  convertible  preferred  stock of $154,000.  This was
partially  offset by  principal  payments on  long-term  debt and capital  lease
obligations of $255,000 and financing and debt issue costs of $73,850.

         Since our  inception in January 1993 and through June 30, 2002, we have
an accumulated  deficit of $39,752,268.  We expect to incur operating losses for
the indefinite future as we continue to develop and market our technology. Since
January 1, 2002,  we have  received  four new orders for the sale of our Digital
Education  System to school  systems in addition to one  delivered in the second
quarter of 2002  ordered in 2001.  As of June 30,  2002 our  backlog of unfilled
orders is approximately $285,000. We are currently bidding on nearly 40 schools,
almost all in Ohio, and are working to add distributors nationwide. There can be
no assurance as to the receipt or timing of revenues from operations, including,
in particular, revenues from products currently under development.

         As of  June  30,  2002,  we  had a  negative  net  working  capital  of
approximately  $2,049,634.  We have ceased  purchasing  any  material  amount of
inventory until inventory levels can be reduced.  We had no significant  capital
spending or purchase  commitments  at June 30, 2002 other than a facility  lease
and inventory component purchase  commitments required in the ordinary course of
its business.

         We have no existing bank lines of credit.


                                       16
<PAGE>


PART II

OTHER INFORMATION
-----------------

ITEM 1.  LEGAL PROCEEDINGS.

         There is no pending  litigation  against  us,  other than those  claims
described below:

         o    We have a judgment  against  us for the  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/New York Company,
              has sued us for the  non-payment  of financial  printing  fees. In
              2002,  Merrill/New  York Company  obtained a judgment for $136,435
              against us. We intend to appeal this decision.

         o    On December 2001, Veja  Electronics,  Inc. d/b/a Stack Electronics
              sued us for breach of contract and is seeking damages in excess of
              $106,000.  This action relates to amounts  alleged to be owed from
              the order of products not received by us. We intend to defend this
              action.

         o    On February 14, 2002,  Metalade FL, Inc.  sued us for a delinquent
              account.  The action was  brought  in the  Circuit  Court for Knox
              County,  Tennessee  and is styled as Metalade Fl, Inc. v. Celerity
              Systems,  Inc.  The  plaintiff  alleges  it is owed in  excess  of
              $103,000 related to the shipment of products.  We intend to defend
              this action.

         o    On October 27,  2001,  we  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. We are seeking
              to make arrangements with these note holders. In addition, certain
              creditors have  threatened  litigation if not paid. We are seeking
              to  make  arrangements  with  these  creditors.  There  can  be no
              assurance  that  any  claims,  if made,  will not have an  adverse
              effect on us.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

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

         (c)               SALES OF UNREGISTERED SECURITIES.

         In May and June 2002,  we issued  $375,000 of  convertible  debentures,
from which we received net proceeds of approximately $259,900.  These debentures
accrue interest at 4% per year and are  convertible  into shares of common stock
at a conversion price, at the option of the holder,  equal to 75% of the average
closing bid price of our common stock for the 5 days prior to conversion, or the
price of $0.04. At our 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 the second  quarter of 2002, we  consummated a private  placement of
5.4 shares of Series D Redeemable Convertible Preferred Stock resulting in gross
proceeds of $54,000.  The Series D Stock provides for preferential  dividends at
an annual rate of 8%. The redeemable  convertible preferred stock is convertible
into  shares of common  stock at a  conversion  price  equal to $0.01 per share,
(which  conversion  price was adjusted to $0.20 per share for the reverse  stock
split on August 24, 2002),  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
redeemable convertible 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, we will offer to redeem such preferred  shares then outstanding at a price
equal to the  original  issuance  price plus  accrued  dividends if permitted by
applicable law.

         On  the  date  of  issuance  of the  Series  D  Redeemable  Convertible
Preferred Stock,  the effective  conversion price was at a discount to the price
of the  common  stock  into  which it was  convertible.  We  recorded  a $54,000
dividend relative to the beneficial  conversion feature. The Series D Redeemable
Convertible  Preferred  Stock is  considered  perpetual  redeemable  convertible
preferred  stock and,  therefore,  amortization of the $54,000 is reflected over
the period from the date of issuance to the earliest conversion date,  resulting
in full accretion during the second quarter of 2002.



                                       17
<PAGE>

         In the second quarter of 2002, we consummated a private placement of 10
shares of Series E Redeemable  Convertible  Preferred  Stock  resulting in gross
proceeds  of  $100,000.  The Series E  Redeemable  Convertible  Preferred  Stock
provides  for  preferential  dividends  at an annual rate of 8%. The  redeemable
convertible  preferred  stock is  convertible  into shares of common  stock at a
conversion price equal to $0.001 per share (which  conversion price was adjusted
to $0.02 per share for the reverse  stock split on April 24,  2002),  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 redeemable convertible 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,  we will  offer to  redeem  such
preferred  shares then  outstanding  at a price equal to the  original  issuance
price plus accrued dividends if permitted by applicable law.

         On  the  date  of  issuance  of the  Series  E  Redeemable  Convertible
Preferred Stock,  the effective  conversion price was at a discount to the price
of the  common  stock  into  which it was  convertible.  We  recorded a $100,000
dividend relative to the beneficial  conversion feature. The Series E Redeemable
Convertible  Preferred  Stock is  considered  perpetual  redeemable  convertible
preferred stock and,  therefore,  amortization of the $100,000 is reflected over
the period from the date of issuance to the earliest conversion date,  resulting
in full accretion during the first quarter of 2002.

         In July,  2002, we issued  6,650,000 shares of common stock for $66,500
and issued  164,882  shares of common stock for payment for $3,825 of consulting
services.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         On October 27, 2001,  we  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. We are seeking to make arrangements with these
note holders. In addition,  certain creditors have threatened  litigation if not
paid. We are seeking to make arrangements with these creditors.  There can be no
assurance that any claims, if made, will not have an adverse effect on us.

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

         Our  company  held an annual  meeting of its  shareholders  on April 9,
2002. At the annual meeting,  the  shareholders  voted to (i) elect the board of
directors  and  (ii)  amend  the  Certificate  of   Incorporation  to  effect  a
one-for-twenty  reverse stock split of the issued and outstanding  common stock,
whereby each twenty shares outstanding would thereafter represent a single share
of stock and (iii)  amend the  Certificate  of  Incorporation  to  increase  the
authorized  capital  stock to  250,000,000  shares of common stock (after taking
into account the  one-for-twenty  reverse stock split). The directors elected at
the meeting were: Kenneth D. Van Meter, Fenton Scruggs, 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.


         NAME:                         FOR:           AGAINST:       ABSTAIN:
         ----------------------  --------------    -------------- --------------

         Kenneth D. Van Meter     180,667,077            --             --

         Fenton Scruggs           180,667,077            --             --

         Edward Kidston           180,667,077            --             --

         David Hultquist          180,667,077            --             --


                                       18
<PAGE>


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


         MATTER:                                   FOR:       AGAINST:  ABSTAIN:
         -----------------------------------  -------------  --------- ---------
         One-for-Twenty Reverse Stock Split    180,667,077       --        --

         Increase Authorize Capital Stock      179,826,278    840,799      --


ITEM 5.  OTHER INFORMATION.

         Not applicable.


                                       19
<PAGE>


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

         (A)      EXHIBITS.

<TABLE>
<CAPTION>


EXHIBIT NO.       DESCRIPTION                                         LOCATION
------------      --------------------------------------------------  -------------------------------------------------
<S>               <C>                                                 <C>
3.1               Certificate of Incorporation of Celerity Systems,   Incorporated by reference to Exhibit 3.1 to the
                  Inc.                                                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 Redeemable   Incorporated by reference to the Registration
                  Convertible preferred stock                         Statement on Form SB-2 filed with the SEC on
                                                                      October 18, 2001

3.4               Certificate of Designation of Series D Redeemable   Incorporated by reference to Exhibit 3.4 to the
                  Convertible preferred stock                         Form 10-KSB for the year ended December 31, 2001
                                                                      filed with the SEC on March 27, 2002

3.5               Certificate of Designation of Series E Redeemable   Incorporated by reference to Exhibit 3.5 to the
                  Convertible preferred stock                         Form 10-KSB for the year ended December 31, 2001
                                                                      filed with the SEC on March 27, 2002

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



                                       20
<PAGE>

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

4.10              Letter Agreement, dated July 11, 1997, between      Incorporated by reference to Exhibit 4.10 to the
                  Celerity 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

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      Incorporated by reference to Exhibit 4.13 to
                  Celerity and each of RNI Limited Partnership,       Amendment No. 1 to Form 10-KSB for the year
                  First Empire Corporation, Greg A. Tucker and        ended December 31, 1998 as filed with the SEC on
                  Michael Kesselbrenner                               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,      Incorporated by reference to Exhibit 99.2 to the
                  between Celerity Systems, Inc., FutureTrak Merger   Form 8-K filed with the SEC on September 14, 1999
                  Corp. and certain parties listed therein

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

4.17              Form of Debenture in connection  with Line of       Incorporated by reference to Exhibit 99.4 to the
                  Credit  Agreement, dated  September  30,  1999      Form 8-K 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   Incorporated by reference to Exhibit 4.2 to the
                  Celerity and each of John Bridges, John Faure,      Registration Statement on S-3 filed with the SEC
                  Loni Spurkeland, Robert Dettle, Michael Genta,      on February 15, 2000
                  Lennart Dallgren

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

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

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

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

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



                                       21
<PAGE>


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

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

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

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

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

4.29              Form of Warrant issued June 30, 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     Incorporated by reference to Exhibit 10.1 to
                  amended, between Celerity and Kenneth D. Van Meter  Amendment 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,       Registration Statement on SB-2 filed with the
                  1996, between Celerity and Glenn West               SEC on August 13, 1997

10.3              Termination Agreement, dated as of April 5, 1997,   Incorporated by reference to Exhibit 10.3 to the
                  between 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     Incorporated by reference to Exhibit 10.5 to
                  Celerity and William Chambers                       Amendment 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      Incorporated by reference to Exhibit 10.6 to
                  Celerity and Mark. C. Cromwell                      Amendment No. 1 to Registration Statement on
                                                                      SB-2 filed with the SEC on October 8, 1997

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

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

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

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

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



                                       22
<PAGE>



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

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

10.13             Letter of Agreement, dated June 30, 1993, between   Incorporated by reference to Exhibit 10.13 to
                  Celerity and Herzog, Heine & Geduld, Inc. and       the Registration Statement on SB-2 filed with
                  Development Agreement attached thereto              the SEC on August 13, 1997

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

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

10.16             Lease Agreement, dated November 25, 1997, between   Incorporated by reference to Exhibit 10.16 to
                  Centerpoint Plaza, L.P. and Celerity                the Form 10-KSB for the year ended December 31,
                                                                      1997 filed with the SEC on June 30, 1998

10.17             Letter Agreement, dated October 3, 1997, between    Incorporated by reference to Exhibit 10.17 to
                  Dennis Smith and Celerity                           the Form 10-KSB for the year ended December 31,
                                                                      1997 filed with the SEC on June 30, 1998

10.18             Letter Agreement, dated January 8, 1998, between    Incorporated by reference to Exhibit 10.18 to
                  James Fultz and Celerity                            the Form 10-KSB for the year ended December 31,
                                                                      1997 filed with the SEC on June 30, 1999

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

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

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

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

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

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



                                       23
<PAGE>


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

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

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

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

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

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

10.30             Manufacturing Service Agreement, dated January 4,   Incorporated by reference to Exhibit 99.1 to the
                  2001, 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,      Incorporated by reference to Exhibit 99.2 to the
                  2001, between Celerity and DeserScape L.P.          Form 8-K filed with the SEC on January 10, 2001

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

10.33             Equity Line of Credit Agreement dated as of         Incorporated by reference to the Registration
                  June 14, 2001 between Celerity Systems, Inc. and    Statement on Form SB-2 filed with the SEC on
                  Cornell Capital Partners, L.P.                      October 18, 2001

10.34             Registration Rights Agreement dated as of           Incorporated by reference to the Registration
                  June 14, 2001 between Celerity Systems, Inc. and    Statement on Form SB-2 filed with the SEC on
                  Cornell Capital Partners, L.P.                      October 18, 2001

10.35             Consulting Services Agreement dated as of           Incorporated by reference to the Registration
                  June 14, 2001 between Celerity Systems, Inc. and    Statement on Form SB-2 filed with the SEC on
                  Cornell Capital Partners, L.P.                      October 18, 2001

10.36             Escrow Agreement dated as of June 14, 2001 among    Incorporated by reference to the Registration
                  Celerity Systems, Inc. Meir Levin and Cornell       Statement on Form SB-2 filed with the SEC on
                  Capital Partners, L.P.                              October 18, 2001

10.37             Warrant to purchase 2,500,000 shares of common      Incorporated by reference to the Registration
                  stock dated as of June 14, 2001 given by Celerity   Statement on Form SB-2 filed with the SEC on
                  Systems to Cornell Capital Partners, L.P.           October 18, 2001

10.38             Warrant to purchase 3,500,000 shares of common      Incorporated by reference to the Registration
                  stock dated as of August, 2001 given by Celerity    Statement on Form SB-2 filed with the SEC on
                  Systems to Cornell Capital Partners, L.P.           October 18, 2001

10.39             Letter Agreement dated August, 2001 between         Incorporated by reference to the Registration
                  Celerity Systems and Yorkville Advisors             Statement on Form SB-2 filed with the SEC on
                  Management, LLC                                     October 18, 2001

10.40             Consulting Services Agreement dated as of August,   Incorporated by reference to the Registration
                  2001 between Celerity Systems, Inc. and Yorkville   Statement on Form SB-2 filed with the SEC on
                  Advisors, LLC                                       October 18, 2001

10.41             Consulting Services Agreement dated as of           Incorporated by reference to the Registration
                  September, 2001 between Celerity Systems, Inc.      Statement on Form SB-2 filed with the SEC on
                  and Yorkville Advisors, LLC                         October 18, 2001



                                       24
<PAGE>


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

10.42             Advisory Agreement dated September 6, 2001          Incorporated by reference to the Registration
                  between Celerity Systems, Inc. and Internet         Statement on Form SB-2 filed with the SEC on
                  Finance International Corporation                   October 18, 2001
10.43             Financing Agreement dated as of August, 2001        Incorporated by reference to the Registration
                  between Celerity Systems, Inc. and Artesian         Statement on Form SB-2 filed with the SEC on
                  Direct Holdings Corporation                         October 18, 2001
10.44             Partial Guaranty Agreement dated August, 2001       Incorporated by reference to the Registration
                  given by Ed Kidston to Celerity Systems, Inc.       Statement on Form SB-2 filed with the SEC on
                                                                      October 18, 2001
10.45             Termination Agreement                               Incorporated by reference to Exhibit 10.45 to
                                                                      the Form 10-KSB for the year ended December 31,
                                                                      2001 filed with the SEC on March 27, 2002
10.46             Letter Agreement dated as of April 26, 2002         Incorporated by reference to Exhibit 10.46 to
                  regarding the Purchase Order Financing              the Form SB-2 filed with the SEC on June 28, 2002
10.47             Letter Agreement dated June 12, 2002 between        Incorporated by reference to Exhibit 10.47 to
                  Cornell Capital Partners and Celerity Systems,      the Form SB-2 filed with the SEC on June 28, 2002
                  Inc.

</TABLE>


         (B)      REPORTS ON FORM 8-K.

         On April 10, 2002,  Celerity filed a Form 8-K announcing the results of
its annual shareholders' meeting.


                                       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:    August 14, 2002                    CELERITY SYSTEMS, INC.

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

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly Report of Celerity Systems,  Inc. (the
"Company")  on Form 10-QSB for the period  ended June 30, 2002 as filed with the
Securities and Exchange  Commission on the date hereof (the  "Report"),  each of
the  undersigned,  in the capacities and on the dates  indicated  below,  hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to his knowledge:

         1. The Report fully complies with the  requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

         2. The  information  contained in the Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of  operation of the
Company.


         August 14, 2002                    /s/ Kenneth D. Van Meter
---------------------------------           ----------------------------------
Date                                        Kenneth D. Van Meter
                                            President and CEO


         August 14, 2002                    /s/ David Leigh
---------------------------------           ----------------------------------
Date                                        David Leigh
                                            Assistant Secretary
                                            (acting CFO)



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