SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
February 11, 1998
Date of Report (Date of earliest event reported)
Celerity Solutions, Inc.
(Exact name of Registrant as Specified in Charter)
Delaware 0-20102 52-1283993
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
200 Baker Avenue, Suite 300
Concord, Massachusetts 01742
(Address of Principal (Zip Code)
Executive Offices)
(978) 287-5888
(Registrant's telephone number,
including area code)
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Item 5. Other Events.
In December 1997, Celerity Solutions, Inc. (the "Company" or "Celerity"),
acquired Somerset Automation, Inc. (SAI), a California-based, privately held
developer and integrator of warehouse management software and merged it into the
Company's wholly owned subsidiary, Somerset Solutions, Inc. (Somerset).
Additionally, the Company had previously acquired all of the outstanding capital
stock of Client Server Technologies, Inc., a Massachusetts-based, privately-held
developer and integrator of supply-chain management software ("CSTI"). As a
result of these acquisitions, the Company believes the risk factors previously
set forth in certain of the Company's filings with the Securities and Exchange
Commission should be updated and amended to reflect the Company's current
situation. Accordingly, the Company is filing this Current Report on Form 8-K
which contains an updated version of Risk Factors which it believes are
applicable to its business.
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RISK FACTORS
Limited Operating History in the Supply Chain Management Software Industry:
Starting in April of 1997, the Company shifted its focus from consumer to
business software and is in the process of transitioning business operations
into a new industry. Even though SAI and CSTI have combined, over 22 years of
experience in this industry, the Company itself has a limited operating history
in the new industry. There can be no assurance that the Company will be
successful in managing the transition and identifying acquisition candidates to
expand operations and add product offerings.
Lack of Profitability: The Company has had a history of losses. With the
exception of the fiscal years ended March 31, 1996, the Company has not had a
profitable year since its inception in 1982. With the acquisitions of SAI and
CSTI, management believes it has repositioned the Company for growth in an
expanding industry. However, there can be no assurance that the Company will be
able to achieve and sustain any level of profitability.
Sustaining a Public Trading Market: Since the publicly traded stock of the
Company is thinly traded, there can be no assurance that an active trading
market for the Company's stock will develop in the near future, or if developed,
that such a market will be sustained. In the absence of a public market, an
investor may be unable to liquidate his investment in the Company. The market
price of the Company's Stock may be adversely affected by factors that may or
may not relate to the Company's performance. Such factors may include the
announcement or introduction of new hardware platforms or software products by
the Company's competitors, as well as conditions in the supply chain management
software industry, the stock market and the economy in general. The market price
may be affected when certain existing shareholders have the right to begin
trading stock on the public market beginning April 1998, a year after the
acquisition of CSTI by the Company.
Dependence on New Products and Rapid Technological Change: The market for
the Company's products is characterized by rapidly changing technologies,
frequent new product introductions, rapid changes in customer requirements and
evolving industry standards. The Company's success is largely dependent on its
ability to develop new products and to lengthen the life cycle of current
products through upgrades and enhancements. It must continually evaluate and
adapt its products to emerging hardware platforms and technologies. There can be
no assurance that the Company will be able to develop and market new products or
product enhancements that respond to technological change or evolving industry
standards, that new products will be released on schedule, or that released
products will achieve any degree of market acceptance. The inability, for
technological or other reasons, to successfully develop and introduce new
products or product enhancements could have a material adverse effect on the
Company's business and its operating results and financial condition.
Risk of Software Errors or Failures: The Company's software products may
contain undetected errors when first introduced or when new versions are
released. There can be no assurance that, despite testing of the Company's
products, errors will be detected in new products
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or subsequent releases, resulting in the loss of or a delay in market acceptance
which could have a material adverse effect on the Company's business and its
operating results and financial condition.
Competition: The supply chain management software industry is intensely
competitive. The Company's competitors in the supply chain management software
industry include small and large companies which offer various solutions in
different segments of the supply chain. Many competitors have substantially
greater financial, technical, marketing and distribution resources, greater name
recognition and a larger base of customers than the Company. Existing
competitors may continue to broaden their product lines and potential
competitors, including computer manufacturers or software developers, may enter
the market or increase their focus and resources on products and product lines
which compete with the Company's products. An increasing number of competitive
products may result in an inability to distribute or sell products, increased
development, marketing and distribution costs, and additional pricing pressures,
any of which could have a material adverse effect on the Company's operating
results. Furthermore, current and potential competitors may make acquisitions of
other competitors or may establish cooperative relationships among themselves or
with third parties to increase the ability of their products to address the
needs of the Company's prospective customers. Therefore, it is possible that new
competitors may emerge and acquire significant market share. This could have a
material adverse effect on the Company's business and its operating results and
financial condition.
Lack of Product Diversification: The Company's future results depend on
continued market acceptance of supply chain management software as well as the
Company's ability to adapt and modify such software to meet the evolving needs
of its customers. Any reduction in demand or increase in competition could have
a material adverse effect on the Company's business and its operating results
and financial condition.
Dependence on Certain Distribution Channels: The Company's future success
in the supply chain management software industry depends upon the successful
expansion of the Company's marketing, sales, support and service organizations,
as well as its ability to establish alternative distribution channels, including
resellers, systems integrators and application software vendors. The Company has
formal and informal relationships with a number of third-party software and
4hardware vendors, consulting and system integration firms. Such firms include:
Hewlett Packard, Microsoft, Digital Equipment Corp., COGNOS, Business Forecast
Systems, The Orion Group Software Engineers, Inc., Oracle Corporation,
Information Industries, Inc., Telxon Corporation and Sqribe Technologies. There
can be no assurance that the Company will be able to expand its marketing,
sales, support and service organizations or develop additional distribution
channels on a timely basis. In addition, the Company's arrangements with these
firms are not exclusive and, in many cases, may be terminated by either party
without cause, and many of these firms also distribute products which compete
with those offered by the Company. Therefore, there can be no assurance that any
firm will continue its involvement with the Company and its products, and the
loss of important firms could have a material adverse effect on the Company's
business and its operating results and financial condition.
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Proprietary Intellectual Property Rights: The Company regards the software
it owns as proprietary and relies primarily on a combination of copyrights,
trademarks, trade secret laws, employee and third party nondisclosure agreements
and other methods to protect its proprietary intellectual property rights. There
can be no assurances that the Company's competitors will not independently
develop products that are substantially equivalent or superior to the Company's
products. Most of the Company's products do not include any mechanisms to
prevent or inhibit unauthorized copying, nor does the Company rely on
shrink-wrap licenses which restrict copying and use of the products. The Company
is aware that unauthorized copying occurs within the software industry and that
if a significant amount of unauthorized copying of the Company's products were
to occur, the Company's business and operating results could be adversely
affected. As the number of software products increase and the functionality of
these products further overlaps, software developers may become increasingly
subject to infringement claims. Although there are currently no infringement
claims against the Company, there can be no assurance that third parties will
not assert infringement claims against the Company with respect to current or
future products, or that any such assertion will not require the Company to
enter into royalty arrangements or incur significant litigation costs.
Integration of Acquisitions: The Company acquired CSTI and SAI in 1997. The
Company may pursue acquisitions of other companies with potentially
complementary product lines, technologies and businesses in the future. The
current Company's management and several members of, CSTI's and SAI's
management, had a history of successful integration of software companies and
successful development and integration of supply chain management software.
However, acquisitions involve a number of risks and difficulties, including
technology acceptance, expansion into new geographic markets and business areas,
the diversion of management's attention, the assimilation of the operations and
personnel of the acquired companies and the integration of the acquired
companies' business and financial processes with those of the Company. There can
be no assurance that the Company will successfully integrate the operation of
CSTI or SAI or other acquired businesses, which could have a material adverse
effect on the Company' business, operating results and financial condition.
Key Employees: The Company believes its future success will depend, in
part, upon continued service of a small number of key technical and senior
management personnel and on its continued ability to recruit and retain
highly-skilled management and technical personnel. Competition for such
employees is intense and the loss of services of key personnel could have a
material adverse effect on the Company's operating results and financial
condition. There can be no assurance that the Company will retain its key
managerial and technical employees or that it will be successful in attracting
and retaining other highly-skilled managerial and technical resources.
Quarterly Fluctuations And Seasonality: The Company's software products
revenues are difficult to forecast because the market for business application
software products is evolving rapidly, and the Company's sales cycles vary
substantially from customer to customer. The Company's revenues in general are
relatively difficult to forecast due to a number of reasons, including, but not
limited to, the following: (i) the relatively long sales cycle for the Company's
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products, (ii) the size and timing of individual licensing transactions, (iii)
the timing of the introduction of new products or product enhancements by the
Company or its competitors, (iv) the potential for delay or deferral of customer
implementations of the Company's software, (v) changes in customer budgets, and
(vi) the seasonality of technology purchases and other general economic
conditions. The level of net sales realized by the Company in any quarter is
principally dependent on the number of new Continuum software licenses sold and
the number of titles shipped for published consumer software titles. The
purchase of supply chain management solutions requires a significant commitment
of capital and resources on the part of the customer, the sales cycles are long
and average from six to nine months. As a result, revenue recognition is subject
to many risks such as budgetary cycles, changes in the business of a customer
and overall economic trends that are not controllable by the Company. Quarterly
results have varied significantly in the past and are likely to fluctuate in the
future as a result of new orders timing, product development expenditures, the
number and timing of new product completions, and multimedia product shipments
and returns. A significant portion of the Company's operating expenses are fixed
and planned expenditures in any given quarter are based on sales and revenue
forecasts. Accordingly, if net sales do not meet the Company's expectations in
any given quarter, operating results and financial condition could be adversely
and disproportionately affected because a significant portion of the Company's
expenses do not vary with revenues. As a result of these and other factors, the
Company's results of operations and financial condition for any period are
inherently difficult to predict. Any significant change from levels expected by
securities analysts or shareholders could result in substantial volatility in
the trading price of the Company's common stock.
Absence of Dividends: It is unlikely that the Company will declare or pay
cash dividends in the foreseeable future. The Company intends to retain
earnings, if any, to expand its business operations.
International Operations: The Company's international operations are
subject to risks inherent in international business activities, including
management and staffing of an organization spread over various countries, longer
account receivable payments abroad, compliance with foreign law, unexpected
changes in regulatory requirements, different tax structures, foreign currency
exchange rate fluctuations and general economic and political conditions.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 11, 1998 Celerity Solutions, Inc.
By: /s/ Edward Terino
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Edward Terino
Its: Chief Financial Officer
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