<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 ON
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission File Number: 0-23279
Celerity Systems, Inc.
----------------------------------------------------
(Exact name of small business issuer as specified in its Charter)
Delaware 52-2050585
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9051 Executive Park Drive, Suite 302
Knoxville, Tennessee 37923
-------------------------------------------------------
(Address of principal executive offices)
(423) 539-5300
--------------------------------
(Registrant's telephone number)
-----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check 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 (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes / / No /X/
As of December 19, 1997, 4,104,639 shares of the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
The Registrant hereby amends Part I, Item 1 (Financial Statements) to amend
the line amount for the nine months ended September 30, 1997 in the item
captioned "Accrued Expenses" contained in the Condensed Statements of Cash
Flows.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CELERITY SYSTEMS, INC.
CONDENSED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
ASSETS 1996 1997
------------ -------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2,344,666 $ 1,030,834
Accounts receivable, less allowance for doubtful accounts
of $555,050 and $567,119 in 1996 and 1997, respectively 713,232 583,206
Inventories 1,325,903 1,236,449
Prepaid expenses - 25,178
Costs in excess of billings on uncompleted contracts 187,749 -
----------- -----------
Total current assets 4,571,550 2,875,667
Property and equipment, net 813,290 837,389
Other assets 264,955 454,880
----------- -----------
$ 5,649,795 $ 4,167,936
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 315,832 $ 1,136,845
Accrued liabilities 672,740 764,753
Deferred revenue 359,970 -
Interest payable 150,000 408,333
Current portion of leases payable 7,821 2,185
Reserve for management compensation 137,500 -
Reserve for estimated losses on uncompleted contracts 672,600 94,335
Billings in excess of costs and estimated earnings on
uncompleted contracts 150,000 128,914
Short term notes payable - 3,800,000
----------- -----------
Total current liabilities 2,466,463 6,335,365
Long term notes payable 3,000,000 -
Long term leases payable 19,009 19,009
Commitments and contingencies (Notes 3 and 7)
Preferred stock, Series A, noncumulative, redeemable,
convertible, $0.01 par value, 975,836 shares
authorized, issued and outstanding at December 31, 1996
and September 30, 1997, respectively 1,813,412 1,949,987
Preferred stock, Series B, noncumulative, redeemable,
convertible, $0.01 par value, 408,479 shares
authorized, issued and outstanding at December 31, 1996
and September 30, 1997, respectively 932,720 1,004,774
Common stock, $0.001 par value, 15,000,000 shares
authorized, 1,836,476 issued and 1,819,113 outstanding
at December 31, 1996, and 1,865,876 issued and 1,528,513
outstanding at September 30, 1997 1,836 1,866
Additional paid-in capital 3,280,920 7,058,514
Treasury stock, at cost (67,500) (227,500)
Accumulated deficit (5,797,065) (11,974,079)
----------- -----------
Total liabilities and stockholders' equity $ 5,649,795 $ 4,167,936
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS.
2
<PAGE>
CELERITY SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 433,978 $ 355,870 $ 1,733,877 $ 1,610,373
Cost of revenues 472,600 284,592 1,740,658 1,688,682
----------- ----------- ----------- -----------
Gross margin (38,622) 71,278 (6,781) (78,309)
Operating expenses 903,962 2,084,101 2,674,297 5,627,545
----------- ----------- ----------- -----------
Loss from operations (942,584) (2,012,823) (2,681,078) (5,705,854)
Interest expense (100,925) (348,739) (154,695) (502,125)
Interest income 41,634 9,314 50,297 30,965
----------- ----------- ----------- -----------
Net loss (1,001,875) (2,352,248) (2,785,476) (6,177,014)
Accretion of premiums
on preferred stock 69,543 69,543 208,631 208,629
----------- ----------- ----------- -----------
Net loss applicable
to common stock $(1,071,418) $(2,421,791) $(2,994,107) $(6,385,643)
=========== =========== =========== ===========
Primary loss per
share (Note 4): $(.61) $(1.14) $(1.57) $(2.78)
===== ====== ====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS.
3
<PAGE>
CELERITY SYSTEMS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TREASURY ACCUMULATED
STOCK CAPITAL STOCK DEFICIT
------ ---------- -------- -----------
<S> <C> <C> <C> <C>
Balances, December 31, 1996 $1,836 $3,280,920 $(67,500) $(5,797,065)
Grant of stock to officer (unaudited) 15 - - -
Exercise of employee stock options (unaudited) 15 1,448 - -
Acquisition of 320,000 shares of
common stock held in treasury - - (160,000) -
Accretion of premiums on preferred stock (208,629)
Issuance of bridge notes and accompanying
common stock warrants(unaudited) - 1,440,000 - -
Grant of stock options at below the
initial public offering price(unaudited) - 2,544,775
Net loss (unaudited) - - - (6,177,014)
--------- ---------- --------- -----------
Balances, September 30, 1997 (unaudited) $ 1,865 $7,058,514 $(227,500) $11,974,079
========= ========== ========= ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS.
4
<PAGE>
CELERITY SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1997
---- ----
(unaudited)
<S> <C> <C>
Net cash flows from operating activities:
Net loss $(2,785,476) $(6,177,014)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 180,024 363,733
Compensation expense for issuance of stock options - 2,544,775
Accretion of interest on notes payable - 240,000
Provision for doubtful accounts receivable 70,831 12,068
Changes in current assets and liabilities:
Accounts receivable 2,937,599 117,958
Prepaid expenses - (25,178)
Inventory (1,150,364) 89,454
Costs in excess of billings on uncompleted
contracts (1,492) 187,749
Accounts payable (1,491,004) 821,012
Accrued expenses (9,912) (45,487)
Deferred revenue - (359,970)
Interest payable 145,098 258,333
Allowance for estimated losses on uncompleted
Contracts (110,015) (578,265)
Billings in excess of costs and earnings on
uncompleted contracts, net - (21,086)
------------ ------------
Net cash used in
operating activities (2,214,711) (2,571,918)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (215,967) (216,826)
Change in other assets 25 -
------------ ------------
Net cash used in investing activities (215,942) (216,826)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable and warrants 3,000,000 2,000,000
Principal payments on long-term debt, notes payable
and capital leases (104,841) (5,636)
Proceeds from issuance of common stock 2,533,365 1,478
Repurchase of common stock - (160,000)
Debt offering costs (338,910) (360,930)
------------ ------------
Net cash provided by
financing activities 5,089,614 1,474,912
------------ ------------
Net increase (decrease) in cash and cash equivalents 2,658,961 (1,313,832)
Cash and cash equivalents, beginning of period 485,775 2,344,666
------------ ------------
Cash and cash equivalents, end of period $3,144,736 $1,030,834
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS.
5
<PAGE>
CELERITY SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. PRESENTATION OF UNAUDITED INTERIM FINANCIAL STATEMENTS - Information in the
accompanying interim financial statements and notes to the financial
statements for the interim periods as of September 30, 1996 and 1997 and
for the three month and nine month periods then ended, is unaudited. The
accompanying interim unaudited financial statements have been prepared by
the Company in accordance with generally accepted accounting principles and
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 accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month
period ended September 30, 1997, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. The
condensed financial statements should be read in conjunction with the
financial statements and notes thereto included in the audited financial
statements of the Company as and for the period ended December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IMPACT OF SFAS 128 - In February 1997, the FASB issued SFAS 128, EARNINGS
PER SHARE. The Statement simplifies the standards for computing earnings
per share (EPS). Additionally, the Statement requires dual presentation of
basic and diluted EPS on the face of the income statement and requires a
reconciliation of the numerator and denominator of the diluted EPS
calculation. The Company plans to adopt the provisions of SFAS 128 for the
year ended December 31, 1998. Had the pronouncement been in effect for the
three month periods ended September 30, 1996 and 1997, basic EPS would have
been $(.89) and $(1.55), respectively. Basic EPS for the nine month
periods ended September 30, 1996 and 1997, would have been $(2.23)and
$(3.68), respectively. Diluted EPS would have been the same as primary
loss per share for all periods presented.
IMPACT OF SFAS 129 AND SFAS 130 - In February and June 1997, respectively,
the FASB issued SFAS 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL
STRUCTURE, which will be effective for periods ending after December 15,
1997, and SFAS 130, REPORTING COMPREHENSIVE INCOME, which will be effective
for fiscal years beginning after December 15, 1997. These standards will
have no material impact on the Company.
3. CONTRACTS
The Company's long-term projects in Korea and Israel have expected
completion dates in the fourth quarter of 1997. The Korean project began
its systems reliability period in September 1997. The Company met its
final milestones under the Israel contract during the fourth quarter of
1997 and is waiting for the final acceptance by the customer.
The Company has recorded billings in excess of costs of $129,914 at
September 30, 1997 related to three short-term contracts accounted for
under the completed contract method.
4. LOSS PER SHARE
Loss per share has been computed by dividing net loss applicable to common
stock by the weighted average number of common and common equivalent shares
outstanding during each period. Common equivalent shares relating to
options and warrants issued during the twelve month period preceding the
filing of a registration statement at a price below the estimated offering
price have been calculated using the treasury stock method assuming that
the options were outstanding during each period presented and
6
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
that the fair value of the Company's common stock during each period was
equal to the assumed initial public offering price of $7.50 per share.
Remaining warrants, options, and preferred stock granted prior to the one
year period before the initial public offering were considered common stock
equivalents but were not included for purposes of calculating primary loss
per share because they were anti-dilutive.
After giving effect to the items described above, loss per common share has
been computed based on the assumed weighted average number of shares
outstanding in each period (1,903,968 and 2,293,735 shares for the nine
months ended September 30, 1996 and 1997 (unaudited), respectively, and
1,760,189 and 2,126,476 for the three months ended September 30, 1996 and
1997(unaudited), respectively).
5. STOCK OPTIONS
The Company recorded approximately $1,003,000 in non-cash compensation
expense in the third quarter of 1997 related to the award of stock options
below the initial public offering price of $7.50 per share.
6. SEGMENT INFORMATION
The Company has two reportable segments: CD-ROM and interactive video.
The CD-ROM segment includes the design, development, installation and
support of CD-ROM storage and imaging software products for business
applications. The interactive video segment products are interactive video
services hardware and software. The Company's two reportable segments
offer different products and services and market such products to different
customer bases. The two segments are managed separately because each
business requires different technology and marketing strategies. The two
segments evolved over the life of the Company and have specifically
identifiable tangible assets. The segments share certain corporate assets
and, as such, those are not specifically identified in the segment
information.
The segment information for the nine month periods ending September 30,
1996 and 1997, is as follows:
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
---- ----
(unaudited) (unaudited)
REVENUES FROM EXTERNAL CUSTOMERS
CD-ROM $ 1,244,242 $ 854,430
Interactive video 489,635 755,943
----------- -----------
Total $ 1,733,877 $ 1,610,373
=========== ===========
SEGMENT LOSS
CD-ROM $ (199,342) $(1,219,452)
Interactive video (2,481,736) (4,486,402)
----------- -----------
Total $(2,681,078) $(5,705,854)
=========== ===========
SEGMENT ASSETS
CD-ROM Not applicable $ 478,822
Interactive video Not applicable 2,039,897
Total Not applicable $ 2,518,719
===========
7
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS, CONTINUED
The change in the asset balance at September 30, 1997, for the interactive
video segment when compared to the December 31, 1996 segment information is
approximately $393,000. This change is due to the fact that billings
exceeded costs on the Company's ongoing projects at September 30, 1997,
whereas the costs exceeded billings at December 31, 1996 in the amount of
$187,749. This also led to the segment's increase in accounts receivable
of $130,000 at September 30, 1997. There was a decrease in accounts
receivable in the CD-ROM segment between December 31, 1996 and September
30, 1997 of approximately $45,000.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The segment information
provided contains allocations of certain corporate assets and expenses
which are shared by each of the segments. The allocations are generally
based on a 25%/75% basis for the CD-ROM and interactive video segments,
respectively. Neither of the segments have financial operations and,
therefore, there are no material amounts of interest revenue or expense
generated. There was a net interest expense for the Company of $104,398
and $471,160 for the nine month periods ended September 30, 1996 and 1997,
respectively. The segment loss amounts do not contain amounts attributable
to the Company's net interest expense or accretion of premiums on preferred
stock.
7. SUBSEQUENT EVENT
On November 7, 1997, the Company closed an initial public offering of
2,000,000 shares of common stock at the purchase price of $7.50 per share,
which resulted in gross proceeds to the Company of $15,000,000. A
portion of the proceeds of the offering was used to repay indebtedness
incurred in the Company's 1996 and 1997 private placements, and the balance
is intended to be used for the hiring of necessary personnel throughout the
Company, to fund the Company's sales and marketing efforts, and for working
capital and general corporate purposes. The repayment of the Company's debt
resulted in the recognition of an extraordinary loss on the early
extinguishment of debt related to the 1997 private placement in the amount
of $1,080,000. The Company also wrote off the unamortized debt offering
costs which approximated $300,000. In addition, upon the effective date of
the offering, the Company's preferred stock converted into common stock, and
common stock warrants related to the Company's November 1995 issuance of
promissory notes in the amount of $934,500 expired.
8
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: February 18, 1998
CELERITY SYSTEMS, INC.
(Registrant)
By: /s/ Kenneth D. Van Meter
-------------------------------------
Kenneth D. Van Meter
President and Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
By: /s/ Thomas E. Welch
-------------------------------------
Thomas E. Welch
Controller
(Principal Financial Officer)
9
