U.S. SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549


                                    FORM 10-Q

         (MARK ONE)

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

                  For the quarterly period ended March 31, 2005

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

               For the transition period from _______ to _______.

                          Commission File No. 814-00631



                             CELERITY SYSTEMS, INC.
             (Exact name of registrant as specified in Its charter)



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

146 Maryville Pike, Suite 201, Knoxville, Tennessee          37920
---------------------------------------------------          -----
    (Address of Principal Executive Offices)               (Zip Code)

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

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, par value $0.001 per share

                                (Title of Class)

           Indicate by check mark whether the registrant (1) has 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 |_|

         Indicate by check mark whether the registrant is an accelerated filed
(as defined in Rule 12b-2 of the Exchange Act).

                              Yes |_|  No |X|


There were 4,796,102,805 shares of common Stock outstanding as of May 3, 2005.

<PAGE>

                                     PART I


FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                             CELERITY SYSTEMS, INC.
                                 Balance Sheets

<TABLE>
<CAPTION>
Assets                                                                  (unaudited)
                                                                      March 31, 2005   December 31, 2004
                                                                      --------------   -----------------
<S>                                                                    <C>             <C>

 Cash                                                                  $    141,961    $          1,863
 Other current assets                                                         2,664               2,664
                                                                       -------------   -----------------
    Total current assets                                                    144,625               4,527
                                                                       -------------   -----------------
Fixed assets, net                                                            35,591              38,391
Investment in Yorkville Advisors Management, LLC, at cost
  which approximates fair value                                           3,000,000           5,240,000
Investment in and advances to Celerity Systems-NV, at fair
  value                                                                           -                   -
Debt offering costs, net                                                          -              40,529
                                                                       -------------   -----------------
  Total assets                                                         $  3,180,216    $      5,323,447
                                                                       =============   =================

Liabilities and Stockholders' Equity

Accounts payable                                                       $    490,782    $        473,637
Judgments and defaults payable (including $213,400 to a
  related party in 2004)                                                    115,000             400,675
Accrued interest ( including $188,366 to a related
  party in 2004)                                                            112,521             321,629
Notes payable - related party                                                10,000             510,000
Other current liabilities                                                    15,541              11,311
                                                                       -------------   -----------------
  Total current liabilities                                                 743,844           1,717,252

Convertible debentures - related party, net                                       -             583,517
Convertible debentures, net                                               1,646,291           1,703,495
                                                                       -------------   -----------------
                                                                          1,646,291           2,287,012
                                                                       -------------   -----------------

  Total liabilities                                                       2,390,135           4,004,264
                                                                       -------------   -----------------

Commitments and contingencies                                                     -                   -

Stockholders' Equity
Common stock, $.001 par value, 5,000,000,000 shares
  authorized, 4,796,102,805 shares issued and outstanding                 4,796,103           4,796,103
Additional paid-in capital                                               40,555,128          40,555,128
Treasury stock, at cost - 314,023,599 shares and 226,843,599
  shares                                                                   (789,655)           (561,334)
Accumulated deficit                                                     (43,771,495)        (43,470,714)
                                                                       -------------   -----------------
  Total stockholders' equity                                                790,081           1,319,183
                                                                       -------------   -----------------

  Total liabilities and stockholders' equity                           $  3,180,216   $       5,323,447
                                                                       =============   =================
</TABLE>

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

                                       1
<PAGE>

                             CELERITY SYSTEMS, INC.
                      Statement of Operations (unaudited)

<TABLE>
<CAPTION>
                                                                        Three Months         Three Months
                                                                       Ended March 31,      Ended March 31,
                                                                             2005               2004
                                                                     ------------------   -----------------
<S>                                                                  <C>                  <C>
 Unrealized loss on investments                                      $            --      $       (103,383)
 Dividend income                                                                  --               345,000
                                                                     ------------------   -----------------
                                                                                  --               241,617

  General and administrative expenses                                        200,681               196,788
                                                                     ------------------   -----------------
      Operating income (loss)                                               (200,681)               44,829

 Other income (expense)
  Amortization of debt offering costs                                        (40,529)              (37,124)
  Beneficial conversion feature - convertible debentures                    (189,279)             (175,326)
  Interest expense                                                           (58,738)              (48,207)
  Settlement of debt                                                         188,446                    --
  Other income                                                                    --                 1,114
                                                                     ------------------   -----------------
 Total other income (expense)                                               (100,100)             (259,543)
                                                                     ------------------   -----------------
     Net loss attributable to common stockholders                    $      (300,781)     $       (214,714)
                                                                     ==================   =================
Loss per common share, basic and diluted

     Net loss per common share attributable to common
       stockholders                                                  $         (0.00)     $          (0.00)
                                                                     ==================   =================

 Weighted average shares outstanding - basic and diluted               4,768,446,271         4,701,086,889
                                                                     ==================   =================
</TABLE>


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

                                       2
<PAGE>

                             CELERITY SYSTEMS, INC.
                      Statements of Cash Flows (unaudited)

<TABLE>
<CAPTION>
                                                                         Three Months            Three Months
                                                                            Ended                   Ended
                                                                        March 31, 2005          March 31, 2004
                                                                        --------------          --------------
<S>                                                                     <C>                     <C>
Cash flows from operating activities:

 Net loss                                                               $     (300,781)         $     (214,714)
 Adjustments to reconcile net loss to net
    cash used in operating activities:
      Settlement of debt                                                      (181,901)                     --
      Unrealized loss on investments                                                --                 103,383
      Depreciation and amortization                                              2,800                   2,075
      Beneficial conversion - convertible notes                                189,279                 175,326
      Amortization of debt offering costs                                       40,529                  37,124
      Changes in operating assets and liabilities:
         Other assets                                                                                    1,520
         Accounts payable                                                       17,145                  28,822
         Judgments and defaults payable                                       (103,774)                (32,409)
         Accrued interest                                                     (209,108)                  9,403
         Other current liabilities                                               4,230                   2,764
                                                                        --------------          --------------
           Net cash provided by (used in) operating activities                (541,581)                113,294

Cash flows from investing activities:
 Purchase of fixed assets                                                           --                  (3,176)
 Advances to Celerity Systems-NV                                                                      (103,383)
 Proceeds from liquidation of Yorkville Advisors Management, LLC             2,240,000                      --
                                                                        --------------          --------------
     Net cash provided by (used in) investing activities                     2,240,000                (106,559)

Cash flows from financing activities:
 Proceeds from notes payable - related party                                        --                      --
 Payments on notes payable - related party                                  (1,330,000)               (105,000)
 Proceeds from convertible debentures                                                                       --
 Principal payments on debt                                                         --                (125,000)
 Proceeds from issuance of common stock                                             --                 210,000
 Acquisition of treasury stock                                                (228,321)                     --
                                                                        --------------          --------------
           Net cash used in financing activities                            (1,558,321)                (20,000)

Net increase (decrease) in cash                                                140,098                 (13,265)
Cash, beginning of period                                                        1,863                  56,156
                                                                        --------------          --------------
Cash, end of period                                                     $      141,961          $       42,891
                                                                        ==============          ==============

Cash paid for:
  Interest                                                              $      245,000          $       38,806
                                                                        ==============          ==============
  Taxes                                                                 $           --          $        1,450
                                                                        ==============          ==============

</TABLE>


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

                                       3
<PAGE>

                             CELERITY SYSTEMS, INC.
                  Statement of Changes in Stockholders' Equity
                   For the three months ended March 31, 2005

<TABLE>
<CAPTION>
                                        Common Stock           Additional                                      Total
                                ----------------------------    Paid-In      Treasury      Accumulated       Stockholders'
                                   Shares           Amount      Capital        Stock         Deficit      (Deficit)  Equity
                                -------------     ----------   ----------    ----------    -----------    -----------------
<S>                             <C>               <C>          <C>           <C>         <C>                <C>
Balance December 31, 2004       4,796,102,805     $4,796,103   $40,555,128   $(561,334)  $ (43,470,714)     $  1,319,183

Acquisition of treasury
  stock (unaudited)                                                          $(228,321)                         (228,321)

Net loss (unaudited)                                                                          (300,781)         (300,781)
                                -------------     ----------   -----------   ----------  -------------    -----------------

Balance, March 31, 2005         4,796,102,805     $4,796,103   $40,555,128   $(789,655)  $ (43,771,495)     $    790,081
                                =============     ==========   ===========   ==========  =============    =================
</TABLE>


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

                                       4
<PAGE>

                             CELERITY SYSTEMS, INC.


Notes to Unaudited Condensed Financial Statements


Overview

The Company is a business  development  company that has elected to be regulated
pursuant to Section 54 of the Investment Company Act of 1940. We intend to focus
our investments in developing companies, but do not intend to limit our focus on
investment  in any  particular  industry.  We  intend  to  seek  investments  in
companies that offer attractive investment opportunities.


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 March 31, 2005 and for the
three  months ended March 31, 2005 and 2004,  are  unaudited.  The  accompanying
interim  unaudited  financial  statements  have been  prepared by the Company in
accordance with accounting  principles  generally  accepted in the United States
for interim financial  statements and pursuant to the requirements for reporting
on Form 10-Q and Article 10 of Regulation S-X. 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  adjustments)  considered necessary
for a fair  presentation  have been  included.  Operating  results for the three
month period ended March 31, 2005, are not necessarily indicative of the results
that may be expected  for the year  ending  December  31,  2005.  The  condensed
financial statements should be read in conjunction with the financial statements
and notes  thereto  included  in the Form 10-K of the  Company as of and for the
year  ended  December  31,  2004.  Certain  March 31,  2004  balances  have been
reclassified   to  conform   with  the  March  31,  2005   financial   statement
presentation.

On May 20, 2003,  the Company  formed a subsidiary,  Celerity  Systems,  Inc. (a
Nevada corporation),  ("Celerity NV"). The assets and liabilities related to the
existing  interactive video business were transferred to Celerity NV for 100% of
the common stock. As this subsidiary is not an investment company, after June 2,
2003 it is not consolidated with the parent company. The Company's investment in
Celerity  NV is  recorded  at fair  value,  represented  as cost,  plus or minus
unrealized appreciation or depreciation, respectively.

In accordance  with Article 6 of Regulation S-X under the Securities Act of 1933
and Securities Exchange Act of 1934, the Company does not consolidate  portfolio
company investments in which the Company has a controlling interest.

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 March 31, 2005 the losses total approximately
$43,771,000.  As of March 31,  2005,  the  Company  had a negative  net  working
capital of approximately $599,000. These factors taken together with the lack of
revenues and the absence of significant  financial commitments raise substantial
doubt about the Company's ability to continue as a going concern.

On June 3, 2003, the Company  elected to become a Business  Development  Company
which is regulated  under Section 54 of the  Investment  Company Act of 1940. On
June 4, 2003 the Company filed an Offering  Circular Under  Regulation E to sell
up to  $4,500,000  of its common stock at a minimum price of $0.001 to a maximum
price of $0.02 in the succeeding twelve month period.  Between June 30, 2003 and
March 31, 2005, the Company sold 1,289,833,333  shares resulting in net proceeds
of $1,360,000.

There can be no  assurances  that the Company will be successful in its attempts
to raise sufficient  capital  essential to its survival.  To the extent that the
Company  is unable to raise  the  necessary  operating  capital  it will  become
necessary to further curtail operations.  Additionally, even if the Company does
raise operating  capital,  there can be no assurances that the net proceeds will
be  sufficient  enough to enable it to develop its  business to a level where it
will generate profits and positive cash flows.  The financial  statements do not
include any  adjustments  relating to the recovery of the recorded assets or the
classification  of the liabilities that might be necessary should the Company be
unable to continue as a going concern.

                                       5
<PAGE>

Stock-Based Compensation

The Company has not  granted  any stock  options in 2005 and 2004.  There was no
stock-based compensation to be determined under the fair value method during the
three  months ended March 31, 2005 and 2004 and there is no  difference  between
net loss as reported and proforma net loss.


2.       Investment in Celerity Systems, Inc. (A Nevada corporation)

Celerity NV had no  operations  for the three months  ended March 31, 2005.  The
following table represents  Celerity NV's operating results for the three months
ended March 31, 2004.

                  Sales                                     $         --
                  Cost of Sales                                       --
                                                            --------------
                  Gross loss                                          --
                  General and administrative expenses             81,368
                                                            --------------
                  Net loss                                       (81,368)
                                                            =============


The following table represents Celerity NV's balance sheet as of March 31,
2004.

                  Accounts receivable, net                  $    24,319
                  Inventories, net                              299,200
                                                            --------------
                    Total current assets                        323,519
                  Fixed assets, net                              60,433
                  Other                                           1,600
                                                            --------------
                  Total assets                              $    385,552
                                                            ============

                  Accounts payable                          $    883,084
                  Other current liabilities                       23,601
                                                            --------------
                  Total liabilities                              906,685

                  Stockholder Deficit
                  Common stock                                       250
                  Additional paid-in capital                     499,750
                  Accumulated deficit                         (1,021,133)
                                                            --------------
                  Total stockholder deficit                     (521,133)
                                                            --------------
                  Total liabilities and deficit              $   385,552
                                                            ============


Celerity NV developed and manufacturered, at third party plants, digital set top
boxes and digital video servers for the  interactive  television  and high speed
Internet markets.  Celerity NV also provided a comprehensive content package for
education users.

The Company charged Celerity NV for salaries and benefits and a portion of costs
as a  facility  charge.  During  the first  three  months of 2004,  the  Company
advanced $103,383 to Celerity NV to fund operations.  This amount resulted in an
unrealized  depreciation  on  the  investment  in  Celerity  NV of  $103,383  as
reflected in the statement of operations of the Company.

In September  2004, the Company decided to cease  operations  within Celerity NV
and exchanged all of the operating assets,  customer lists and a cash payment of
$15,000 for a 25% equity  interest in Escent  Systems,  Inc.  The Company has no
managerial  involvement and has not guaranteed or otherwise committed any future
financing  to the  venture.  Because of the start up nature of the new  company,
Celerity  NV has valued its  investment  in Escent at nil.  Also,  in 2004,  the
Company  recognized a loss of its cost and the  unrealized  depreciation  of its
cost and advances in Celerity NV.

                                       6
<PAGE>

3.       Investment in Sagamore Holdings, Inc.

In September  2004, the Company  entered into a business  development  agreement
with  Sagamore  Holdings,  Inc. with an effective  date of October 4, 2004.  The
Company received  7,500,000 shares of Sagamore common stock as consideration for
its  agreement  to provide  future  services  regarding  capital  formation  and
management  advice. The Company has reviewed the valuation of the Sagamore stock
using fair value,  and,  based on the  liquidation  preference  of the preferred
stockholder,  management has considered the value of the stock as nil. Also, the
Company has  rendered no specific  services in 2005 or 2004.  There have been no
events or circumstances  occurring in the three months ended March 31, 2005 that
would change the valuation. Accordingly, the Board of Directors has continued to
include the value of the Sagamore  stock in its financial  statements as nil and
has not recognized any revenue from the transaction

4.       Investment in Yorkville Advisors Management, LLC

On  December  1, 2003 the Company  purchased  a minority  interest in  Yorkville
Advisors Management, LLC ("Yorkville"). Yorkville is the investment manager of a
private  equity  fund that is a  principal  holder of equity  securities  of the
Company.  The purchase price amounted to $5,240,000.  The acquisition was funded
through the sale of 2,000,000,000  shares of common stock to the  aforementioned
private  equity fund,  resulting in net proceeds of  $4,000,000  and the balance
paid using the proceeds received from the issuance of convertible notes payable.
During the year ended December 31, 2004 and 2003, the Company received  proceeds
of $1,255,000 and $65,000 respectively from this investment,  which amounts have
been recorded as dividend  income in the statements of operations.  In 2005, the
Company was informed that Yorkville is in the process of an orderly  liquidation
of its  business.  Under  the  terms of a  Preferential  Rights  Agreement,  the
Company's  membership  interest in Yorkville has been converted into a new class
with certain  preferential  rights and the Company shall  receive  consideration
equal to the  original  purchase  price of the  investment  less certain debt of
approximately $1,500,000 due to an affiliated company of Yorkville. In the three
months ended March 31, 2005, the Company  received  $2,240,000 net of payment of
$1,500,000 to a related  party for debt the Company had recorded at  $1,681,901.
The resulting  gain has been recorded as income in the operating  statements for
the period  ended  March 31, 2005 (see Note 10).  Management  has  reviewed  the
valuation of its investment in Yorkville and has determined  that the investment
is recorded at fair value.


5.       Loss Per Share

Basic and diluted loss per share were computed by dividing net loss attributable
to common  stock by the weighted  average  number of 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.


6.       Issuance of Convertible Debentures

The long-term debt of the Company includes the following items:

                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                               March 31, 2005     December 31, 2004
                                                              ----------------    ------------------
<S>                                                               <C>                  <C>
                   4% convertible debentures                      $    12,500          $     12,500
                   5% convertible debentures                        1,687,500             1,812,500
                   10% secured convertible debenture                        0               705,000
                                                              ----------------    ------------------
                                                                    1,700,000             2,530,000
                   Less:    Unamortized debt discount                 (53,709)             (242,988)
                                                              ----------------    ------------------
                   Long-term debt less current maturities         $ 1,646,291          $  2,287,012
                                                              ================    ==================
</TABLE>


During the three  months  ended March 31, 2005 no  convertible  debentures  were
presented  for  conversion,  accordingly,  no shares of its  common  stock  were
issued.


 7.      Stock Buyback Program

In September  2004 the Board of Directors  authorized the Company to establish a
stock buyback program whereby the Company would acquire up to 500,000,000 shares
of its common stock over a twelve month period from the open market at favorable
prices.  There was no  obligation  to acquire any  specific  number of shares or
purchase at any specific  price.  At December 31, 2004, the Company had acquired
226,843,599  shares at a cost of $561,334 and from January  through  March 2005,
the Company acquired  87,180,000 shares at a cost of $228,321.  The acquisitions
have been accounted for as treasury  stock.  The funding was provided  primarily
through a short term note of  $500,000  from a related  party  through  December
2004. In the three month period  through March 2005,  the purchases  were funded
from proceeds from the liquidation of its Yorkville investment. When the buyback
program is complete,  the Company plans to retire all shares  acquired under the
program.


8.       Judgments and Defaults Payable

In January 2002,  the Company  terminated the Equity Line of Credit entered into
on September 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 principal plus interest per month.  The
liability for  liquidated  damages has been accrued at its maximum  amount.  The
Company has remaining accrued liquidated damages of $36,000 at March 31, 2005.

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  cancellation  of a
purchase order.  During 2003 a judgment was rendered  against the Company in the
amount of $71,000, which has been accrued at March 31, 2005.

In 2003,  Del Rio  Enterprises  sued the  Company  for  non-payment  of services
rendered.  During 2003 a judgment was rendered against the Company in the amount
of $8,000. This amount has been accrued at March 31, 2005.

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.

9.       Common Stock

During the three  months  ended  March 31,  2005 the  Company  did not issue any
shares of its common stock.

                                       8
<PAGE>

10.      Subsequent Events

Subsequent  to March 31,  2005,  the  Company  collected  the  remainder  of the
$3,000,000 relating to its investment in Yorkville and has retired Approximately
$1,550,000 in convertible debentures and accrued interest.

The Company  entered into two business  development  agreements in 2004 in which
the  Company  was to  receive  shares of  common  stock  for  providing  capital
formation and management  services in the future.  However, no consideration has
been received and no services  performed as of March 31, 2005 and to the date of
this report. The Company and the respective parties are currently  negotiating a
termination agreement.

Effective April 22, 2005, the Company  dismissed  Marcus & Kliegman,  LLP as its
independent registered public accounting firm. Marcum & Kliegman,  LLP's reports
did not contain any adverse opinions,  there were no disagreements on any matter
of accounting  principals  or practices and there were no reported  events under
(a)(1)(v) of Item 304 of Regulation S-K.

Effective May 3, 2005, the Company engaged HJ & Associates, LLC as its certified
public accountants.


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 profitability,  (b) our company's growth strategies,
(c) our company's future financing plans and (d) 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-K for the year ended  December 31, 2004.
Actual results could differ materially from these forward-looking  statements as
a result of changes in trends in the  economy,  competition,  reductions  in the
availability  of  financing  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.


Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles
generally  accepted  in the  United  States  requires  our  management  to  make
assumptions,  estimates  and judgments  that affect the amounts  reported in the
financial  statements,  including the notes thereto,  and related disclosures of
commitments  and  contingencies,  if any. We consider  our  critical  accounting
policies  to be those  that are  complex  and  those  that  require  significant
judgments  and  estimates  in  the  preparation  of  our  financial  statements,
including  valuation  of  our  investments.   Management  relies  on  historical
experience  and  on  other  assumptions  believed  to be  reasonable  under  the
circumstances in making its judgment and estimates.  Actual results could differ
materially from those estimates.

Estimates- The preparation of financial statements in conformity with accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Fair Value of Financial  Instruments - The carrying  amount of items included in
working capital  approximates  fair value because of the short maturity of those
instruments.  The carrying value of the Company's debt  approximates  fair value
because it bears interest at rates that are similar to current  borrowing  rates
for loans of  comparable  terms,  maturity and credit risk that are available to
the Company.

                                       9
<PAGE>

Debt Offering Costs - Debt offering costs are related to private  placements and
are being  amortized on a straight line basis over the term of the related debt,
most of which is in the form of convertible debentures.  Should conversion occur
prior to the stated maturity date the remaining unamortized cost is expensed.

Investment  Valuation - Investments  in equity  securities  are recorded at fair
value,   represented  as  cost,  plus  or  minus   unrealized   appreciation  or
depreciation,  respectively.  The fair value of  investments  that have no ready
market, are determined in good faith by management, and approved by the Board of
Directors,  based upon assets and revenues of the underlying  investee companies
as well as general market trends for businesses in the same industry. Because of
the inherent uncertainty of valuations,  management's estimates of the values of
the  investments may differ  significantly  from the values that would have been
used had a ready market for the investments existed and the differences could be
material.

Income  Taxes - The  Company  accounts  for  income  taxes  using  the asset and
liability  method,  whereby  deferred tax assets and  liabilities are determined
based upon the differences  between financial  reporting and tax bases of assets
and  liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. A valuation allowance
related to the deferred tax assets is also  recorded when it is more likely than
not that some or all of the deferred tax asset will not be realized.

Going Concern - The Company's financial statements have been prepared on a going
concern basis, which contemplates the realization of asset 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 March 31, 2005,  the losses
total  approximately  $43,771,000.  As of March  31,  2005,  the  Company  had a
negative net working  capital of  approximately  $599,000.  These  factors taken
together  with the lack of  revenues  and the absence of  significant  financial
commitments raise substantial doubt about the Company's ability to continue as a
going  concern.  The Company's  source of income during 2004 has been  dividends
from  its  minority  investment  in  Yorkville  Management  Advisors,  LLC.  The
Company's  investment in the minority interest of Yorkville Management Advisors,
LLC was made on  December 1, 2003 and the Company  has  received  $1,310,000  in
dividend  proceeds  since that date.  In 2005,  the  Company was  informed  that
Yorkville is in the process of an orderly liquidation of its business. Under the
terms of a Preferential Rights Agreement,  the Company's  membership interest in
Yorkville has been converted into a new class with certain  preferential  rights
and the Company shall receive consideration equal to the original purchase price
of the  investment  less  certain  debt of  approximately  $1,500,000  due to an
affiliated company of Yorkville.


Results of Operations


Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004


Unrealized loss on investments

Since the election to operate as a Business Development Company, the Company has
recorded  a  realized  loss on its  investment  in  Celerity  NV.  This  loss is
comprised of two elements:

         Effect of recording advances at fair value                 $    633,008

         Effect of recording equity investments at fair value            500,000
                                                                    ------------
                                                                    $  1,133,008

The  write-down  of the  Company's  advances  to and  investment  in Celerity NV
recognized  that without  additional  sales,  there was a substantial  risk that
Celerity  NV would not be able to  continue  operation.  On  November  4,  2004,
Celerity NV entered into an Asset Purchase  Agreement with Escent Systems,  Inc.
whereby Celerity NV sold its assets and interactive  video business to Escent in
return for 25% of Escent's  equity.  Celerity NV also  provided  $15,000 in cash
toward the working capital of the new venture.  Because Escent has limited sales
history and lack of necessary product and content development capacity, Celerity
NV has determined that the fair value of the investment to be nil.

                                       10
<PAGE>

During the three  month  period  ended March 31,  2004,  Celerity NV recorded no
sales or gross profit and incurred  other  general and  administrative  expenses
that  resulted  in a net loss of $81,368  for the  period.  During  such  period
Celerity NV received  advances  from the Company of $103,383 to fund its working
capital requirements. Management recorded a write-down of the Company's advances
since without  additional  sales,  there is a substantial  risk that Celerity NV
will not be able to continue operation.


Dividend income

Since its  investment in Yorkville on December 1, 2003, the Company has received
$1,255,000 in 2004 and $65,000 in 2003 in proceeds,  which have been recorded as
dividend income in the statements of operations. On January 31, 2005 the members
of  Yorkville  decided  to wind up its  operations  and  amended  its  Operating
Agreement to establish a new class of membership with preferential  rights.  The
Company's investment interest was converted to this new class of ownership.  The
preferential  rights allow the Company to receive its investment  purchase price
returned in cash by December  31,  2005,  but receive no other  dividend  income
distributions.  During the three month period ended March 31, 2005,  the Company
has received $2,240,000 net of payment of related party debt of $1,500,000.

During the three  month  period  ended  March 31,  2004,  the  Company  received
$345,000 in proceeds from its  investment in Yorkville,  which has been recorded
as dividend income in the statement of operations.


Operating Expenses

Operating  expenses  for the three  months  ended March 31,  2005 were  $200,681
compared to  $196,788  for the three  months  ended  March 31,  2004.  Increased
operating  expenses for the three months ended March 31, 2005 can be  attributed
to higher professional service expenses  (approximately  $22,000). For the three
months ended March 31, 2005,  expenses were reduced by lower  payroll  ($11,000)
and office and other operating costs ($7,400).


Amortization of debt offering costs

Amortization  of debt  offering  costs for the three months ended March 31, 2005
was $40,529 compared to $37,124 in same period of 2004.


Beneficial conversion feature - convertible notes

Non-cash  interest expense  relating to amortization of a beneficial  conversion
feature for the various  convertible  debentures issues amounted to $189,279 and
$175,326 for the three months ended March 31, 2005 and 2004, respectively.  This
increase results primarily from the payment of certain debt in 2004 which caused
full  recognition of the related  beneficial  conversion  feature in this period
compared to the longer amortization period for debt not converted.


Interest Expense

Interest  expense for the three months ended March 31, 2005 was $58,738 compared
to $48,207 for the same period in 2004. The increase is  attributable  to higher
levels of debt and delinquent accounts in 2005.


Settlement of Debt

For the three months ended March 31, 2005,  the Company  settled  certain  trade
payables  wherein the total  amount due was reduced by  $188,446.  For the three
months ended March 31, 2004, there were no settlements of debt.


Net Loss Attributable to Common Stockholders

As a result of the foregoing,  the Company had a net loss of $300,781,  or $0.00
per share,  for the three months ended March 31, 2005  compared to a net loss of
$214,714, or $0.00 per share, for the three months ended March 31, 2004.

                                       11
<PAGE>

Liquidity and Capital Resources

The primary  source of financing for us since our inception has been through the
issuance of common and preferred stock and debt. We had cash balances on hand of
$141,961  as of March 31,  2005 and $1,863 as of  December  31,  2004.  Our cash
position  continues  to be  uncertain.  Our primary need for cash is to fund our
ongoing  operations  until such time that income from our  investments  generate
enough  proceeds to fund  operations.  In addition,  our need for cash  includes
satisfying  current  liabilities of $743,844,  consisting  primarily of accounts
payable of $490,782,  accrued  interest of $112,521 and  judgments  and defaults
payable  of  $115,000,   including  a  judgment  of  $71,000  obtained  by  Veja
Electronics,  Inc. for breach of contract,  a judgment of $8,000 obtained by Del
Rio Enterprises for non-payment of services,  and liquidated  damages  resulting
from the lack of filing a registration statement relating to certain convertible
debentures of $36,000.  We do not currently have  sufficient  funds to pay these
obligations. We will need significant new funding from the sale of securities or
from proceeds from our investments to fund our ongoing operations and to satisfy
the above  obligations.  We anticipate that preferential  distribution  proceeds
from the  liquidation  of our  investment in Yorkville  will provide  sufficient
funds (approximately $3,740,000) in 2005 to operate the Company after satisfying
certain  related  party  debt  of  $1,500,000.  We  currently  do not  have  any
commitments for funding.

As  discussed in the overview  section,  on June 3, 2003 the Company  elected to
become a BDC which is regulated  under Section 54 of the Investment  Company Act
of  1940.  As a BDC the  Company  may  sell  shares  of its  common  stock up to
$5,000,000  in a twelve month period.  Shares sold are exempt from  registration
under  Regulation E of the  Securities  Act of 1933.  To that end, at our Annual
Meeting of Shareholders  held on January 14, 2003, the shareholders  approved an
increase in our authorized capital stock to 5 billion shares of common stock. On
June 4, 2003 the Company filed an Offering  Circular Under  Regulation E to sell
up to  $4,500,000  of its common stock at a minimum price of $0.001 to a maximum
price of $0.02.  Between  June 4, 2003 and March 31,  2005 the  Company has sold
1,289,833,333 shares resulting in net proceeds of $1,360,000.

We are also  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 personal property to the investors in the 10%
convertible  debentures  issued in 2002. Such security  interests may hinder our
efforts  to  obtain  financing.  The lack of sales  or a  significant  financial
commitment  raises  substantial  doubt  about our ability to continue as a going
concern or to resume a full-scale level of operations.

During the three months  ended March 31, 2005,  we had a net increase in cash of
$140,098. Our sources and uses of funds were as follows:

Cash  Flows  From  Operating  Activities.  We used net cash of  $541,581  in our
operating activities in the three months ended March 31, 2005. Our net cash used
in  operating  activities  resulted  primarily  from the  Company's  net loss of
$300,781  non-cash income of $181,901 related to the settlement of debt, and the
payment of judgments  and defaults  and accrued  interest of $312,882.  Cash was
provided by non-cash  expenses of depreciation and amortization of fixed assets,
($2,800),  beneficial  conversion  feature  ($189,278)  and debt offering  costs
($40,529).  In addition,  cash was provided by increases in accounts payable and
other current liabilities of $21,375.

Cash  Flows  From  Investing  Activities.  We  provided  cash of  $2,240,000  in
investing  activities in the three months ended March 31, 2005 from the proceeds
from preferential  distributions from Yorkville Advisors Management,  LLC. These
funds were used to fund the  operating  activities  of the Company and  purchase
shares under the Company's stock buyback program.

Cash  Flows  From  Financing  Activities.  We used  $1,558,321  in net  cash for
financing  activities,  consisting  primarily of principal payments on debt to a
related  party of  $1,330,000  and the  purchase  of  treasury  stock  under the
Company's stock buyback program.

As of March 31,  2005 we had a negative  net  working  capital of  approximately
$599,000. We have reduced overhead expenses,  which will have a favorable impact
on cash  required  to fund the  business.  Under  the  Company's  stock  buyback
program,  the  Company  is still  actively  pursuing  the  purchase  of stock at
favorable  prices if adequate  cash flows are  available,  however  there are no
purchase  requirements or commitments to purchase any number of shares of stock.
We had no significant capital spending or purchase commitments at March 31, 2005
other than a certain lease of corporate office space

                                       12
<PAGE>

We have no existing bank lines of credit.

There can be no  assurances  that we will be successful in our attempts to raise
sufficient  capital essential to our survival.  To the extent that we are unable
to raise the  necessary  operating  capital it will become  necessary to further
curtail operations.  Additionally, even if we raise operating capital, there can
be no assurances that the net proceeds will be sufficient enough to enable us to
develop our business to a level where we will generate profits and positive cash
flows.  These matters raise substantial doubt about our ability to continue as a
going concern.


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Interest Rate Sensitivity

The Company  does not have any  exposure to market risk as it relates to changes
in interest rates as all of the borrowings of the Company are at a fixed rate of
interest.

The Company has no cash  equivalents or short-term  investments that are subject
to market risk.


Foreign Currency Risk

The Company does not do any business that has any risk of foreign  exchange rate
fluctuations.


Equity Security Price Risk

We do not have any investment in marketable equity securities;  therefore, we do
not have any direct equity price risk.


Commodity Price Risk

We no not do any business involving commodities;  therefore,  we do not have any
commodity price risk.


ITEM 4.  CONTROLS AND PROCEDURES


(A)      Evaluation Of Disclosure Controls And Procedures

As of the end of the period covered by this report,  the Company  carried out an
evaluation,  under the supervision and with the  participation  of the Company's
Principal Executive  Officer/Acting Principal Financial Officer (one person), of
the  effectiveness  of the  design and  operation  of the  Company's  disclosure
controls and procedures.  The Company's  disclosure  controls and procedures are
designed to produce a reasonable  level of assurance of achieving the /Company's
disclosure control objectives.  The Company's Principal Executive Officer/Acting
Principal  Accounting  Officer  has  concluded  that  the  Company's  disclosure
controls and procedures  are, in fact,  effective at this  reasonable  assurance
level. In addition,  we reviewed out internal  controls,  and there have been no
significant  changes in our  internal  controls  or in other  actors  that could
significantly  affect  those  controls  subsequent  to the  date of  their  last
valuation or from the end of the reporting period to the date of this Form 10-Q.


(B)      Changes In Internal Controls Over Financial Reporting

In connection with the evaluation of the Company's  internal controls during the
Company's three months ended March 31, 2005, the Company `s Principal  Executive
Officer/Principal  Financial  Officer (one person) has determined that there are
no changes to the Company's internal controls over financial  reporting that has
materially affected, or is reasonably likely to materially effect, the Company's
internal controls over financial reporting.

                                       13
<PAGE>

                                     PART II


OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

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

        o     In 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 for products not  received by us. During 2003, a judgment
              was rendered against the Company in the amount of $71,000.

        o     In 2003, Del Rio Enterprises  sued the Company for  non-payment of
              services rendered. During 2003 a judgment was rendered against the
              Company in the amount of $8,000.

        o     On September 20, 2004, Joseph Banta, et al. filed an action in the
              United States District Court for the Eastern District of Tennessee
              at Knoxville, Tennessee in the amount of approximately $60,000 for
              non-payment of salaries and benefits during a two-month  period in
              2002. The Company settled this case in full in January 2005.

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

None.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.


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

None.


ITEM 5.  OTHER INFORMATION

Not applicable.


                                       14
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K


(a)      Exhibits.

Exhibit No.      Description                                Location
----------       ---------------------------------------    -------------------
31.1             Certification re: Section 302              Provided herewith

32.1             Certification re: Section 906              Provided herewith


Reports on Form 8-K.

Report on Form 8-K filed  February 18, 2005 pursuant to Item 8.01 (Other Events)
reported that on February 11, 2005,  Celerity  Systems,  Inc. became entitled to
receive a distribution of $5,200,000  from Yorkville  Advisors  Management,  LLC
pursuant to the terms of a Preferential Rights Membership Interest in Yorkville.

Report on Form 8-K filed April 19,  2005  pursuant  to Item 5.02  (Departure  of
Directors or Principal Officers; Election of Directors; Appointment of Principal
Officers) reported that, effective April 15, 2005, David Leigh resigned from the
Board of Directors for personal reasons.

Report on Form 8-K filed  April  27,  2005  pursuant  to Item 4.01  (Changes  in
Registrant's  Certifying  Accountant)  reported that Marcum & Kliegman,  LLP was
dismissed as its independent  registered  public accounting firm effective April
22,  2005.  Marcum &  Kliegman's  reports did not contain any adverse  opinions,
there were no disagreements on any matter of accounting  principals or practices
and there were no reported events under (a)(1)(v) of Item 304 of Regulation S-K.

Report  on Form  8-K  filed  May 6,  2005  pursuant  to Item  4.01  (Changes  in
Registrant's  Certifying  Accountant)  reported that  effective May 3, 2005, the
Company,  based on the  recommendation  of and approval by the  Company's  audit
committee  and the Board of  Directors,  approved  a  resolution  to engage  the
services of HJ & Associates, L.L.C. as its certified public accountants.

                                       15
<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:    May 11, 2005                     CELERITY SYSTEMS, INC.

                                          By: /s/ Robert Legnosky
                                             -----------------------------------
                                                 Robert Legnosky
                                                 Chief Executive Officer and
                                                 Interim Chief Financial Officer