U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31,1998
[ ] Transition Report Under Section 13 or 15(d) of the
Exchange Act
For the transition period from __________ to ___________
Commission file number: 0-20102
CELERITY SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 52-1283993
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
270 Bridge Street, Suite 301
Dedham, MA 02026
(Address of principal executive office)
(781) 329-1900
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (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 _X_ No___
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Number Outstanding Shares
Title of Class as of February 12, 1999
-------------- -----------------------
Common Stock, $.10 Par Value 8,067,798
Transitional Small Business Disclosure Format: Yes ___ No _X_
Exhibit Index on Page 21
Page 1 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
DECEMBER 31, 1998
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1998
and March 31,1998 3
Condensed Consolidated Statement of Operations for the
three and nine months ended December 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended December 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis or Plan of
Operation 12
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 21
ITEM 2. Changes in Securities 21
ITEM 3. Defaults Upon Senior Securities 21
ITEM 4. Submission of Matters to a Vote of Security Holders 21
ITEM 5. Other Information 21
ITEM 6. Exhibits and Reports on Form 8-K 21
Signatures 22
</TABLE>
Page 2 of 22
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Celerity Solutions, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
December 31 March 31
1998 1998
--------------------------
Assets
Current assets:
Cash and cash equivalents $ 814,095 $ 1,347,246
Short-term investments 10,550 994,384
Accounts receivable, net 3,617,046 2,200,754
Notes Receivable 245,800 1,159,893
Prepaid expenses and other current assets 147,339 109,649
--------------------------
Total current assets 4,834,830 5,811,926
Property and equipment: 1,564,902 1,266,250
Less: accumulated depreciation and amortization (938,734) (697,577)
--------------------------
626,168 568,673
Notes receivable from related parties 96,981 117,999
Capitalized software, net 834,101 803,887
Goodwill, net 1,029,788 1,134,100
Other long-term assets 83,307 9,057
--------------------------
Total assets $ 7,505,175 $ 8,445,642
==========================
See accompanying notes.
Page 3 of 22
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Celerity Solutions, Inc.
Condensed Consolidated Balance Sheets (continued)
(Unaudited)
<TABLE>
<CAPTION>
December 31 March 31
1998 1998
----------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 1,794,418 $ 1,287,750
Income taxes payable 358,627 507,577
Current portion of notes payable to related parties 1,390,739 1,100,797
Unearned revenue and other current liabilities 278,813 494,640
----------------------------
Total current liabilities 3,822,597 3,390,764
Notes payable to related parties 317,399 1,178,051
Deferred rent 46,243 70,688
----------------------------
Total liabilities 4,186,239 4,639,503
----------------------------
Shareholders' equity:
Common stock, $.10 par value 884,289 884,289
Additional paid-in capital 18,856,768 18,900,290
Accumulated deficit (14,433,902) (13,928,096)
----------------------------
5,307,155 5,856,483
Less treasury stock, at cost (1,988,219) (2,050,344)
----------------------------
Total shareholders' equity 3,318,936 3,806,139
----------------------------
Total liabilities and shareholders' equity $ 7,505,175 $ 8,445,642
============================
</TABLE>
See accompanying notes.
Page 4 of 22
<PAGE>
Celerity Solutions, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
1998 1997 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Services $ 2,236,310 $ 1,386,890 $ 6,359,623 $ 3,183,811
Software licenses 346,577 108,889 1,638,762 369,936
Hardware and other 2,508 3,236 1,022,989 3,236
--------------------------------------------------------
Total revenue 2,585,395 1,499,015 9,021,374 3,556,983
Cost of sales
Services 1,427,901 799,102 4,423,305 1,902,184
Hardware and related 5,594 873,871
Amortization of capitalized software 43,266 21,089 129,798 41,088
--------------------------------------------------------
Total cost of sales 1,476,761 820,191 5,426,974 1,943,272
--------------------------------------------------------
Gross margin 1,108,634 678,824 3,594,400 1,613,711
Operating expenses:
Research and development 255,408 185,373 818,373 589,749
General and administrative 582,905 378,985 1,888,230 1,033,950
Sales and marketing 509,322 215,995 1,348,999 545,820
Amortization of goodwill 34,770 25,377 104,313 66,737
Purchased research & development 3,094,527 3,094,527
--------------------------------------------------------
Total operating expenses 1,382,405 3,900,257 4,159,915 5,330,783
Operating loss (273,771) (3,221,433) (565,515) (3,717,072)
Other income (expense):
Interest and other income 30,404 55,148 118,292 191,185
Interest expense (56,383) (52,830) (180,833) (148,134)
Gain on sale of assets 2,037,104
--------------------------------------------------------
Loss before income taxes (299,750) (3,219,115) (628,056) (1,636,917)
Income tax (expense) benefit 69,250 (51,500) 122,250 (129,312)
--------------------------------------------------------
Net loss $ (230,500) $(3,270,615) $ (505,806) $(1,766,229)
========================================================
Loss per common share:
Net loss per share $ (.03) $ (.50) $ (.06) $ (.29)
========================================================
Weighted average shares outstanding 8,035,189 6,545,599 8,023,616 6,203,243
========================================================
Loss per share-assuming dilution:
Net loss per share $ (.03) $ (.50) $ (.06) $ (.29)
========================================================
Weighted average shares outstanding 8,035,189 6,545,599 8,023,616 6,203,243
========================================================
</TABLE>
See accompanying notes.
Page 5 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Celerity Solutions, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31
1998 1997
--------------------------
<S> <C> <C>
Operating Activities
Net loss $ (505,806) $(1,766,229)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation of property and equipment 241,157 174,926
Amortization of goodwill and developed software 234,110 107,825
Write-off of purchased research and development 3,094,527
Gain on sale of assets (2,037,104)
Changes in assets and liabilities (net of effect from disposition):
Accounts receivable (1,416,292) (165,291)
Prepaid expenses and other current assets (37,690) 268,499
Short and long term notes receivable 914,093 250,000
Long-term notes receivable from related parties and other assets (53,232) (162,364)
Accounts payable and accrued liabilities 506,668 155,668
Income taxes payable (148,950) 152,669
Notes payable to related parties (570,710)
Unearned revenue, deferred rent and other cur. liabilities (240,272) 33,847
--------------------------
Net cash (used in) provided by operating activities (1,133,669) 106,973
Investing Activities
Purchase of Somerset Automation, Inc. net of cash acquired (1,579,214)
Proceeds from sale of assets 2,509,757
Capitalized software costs (160,012)
Capital expenditures (298,652) (139,670)
--------------------------
Net cash (used in) provided by investing activities (401,919) 790,873
Financing Activities
Proceeds from sale of common stock 18,603 37,812
Proceeds from sales of short-term investments 983,834 997,036
--------------------------
Net cash provided by financing activities 1,002,437 1,034,848
--------------------------
Net (decrease) increase in cash and cash equivalents (533,151) 1,932,694
Cash and cash equivalents at beginning of period 1,347,246 760,065
--------------------------
Cash and cash equivalents at end of period $ 814,095 $ 2,692,759
==========================
</TABLE>
Non-cash financing activities:
The Company purchased all shares of Somerset Automation, Inc. for $5,557,918.
This transaction was partially financed by the issuance of 1,958,233 shares of
common stock and with seller notes payable totaling $747,907. See the
acquisition footnote for further information.
See accompanying notes.
Page 6 of 22
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CELERITY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Statement of Information Provided
The accompanying unaudited condensed consolidated financial statements, which
are for interim periods, have been prepared in accordance with Form 10-QSB
instructions and do not include all disclosures provided in the annual
consolidated financial statements. These unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the footnotes thereto contained in the Annual Report on
Form 10-KSB for the year ended March 31, 1998 of Celerity Solutions, Inc. (the
"Company"), as filed with the Securities and Exchange Commission on June 29,
1998. These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in the
preparation of the Company's March 31, 1998 Annual Report on Form 10-KSB. The
March 31, 1998 balance sheet was derived from audited consolidated financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
2. Reclassifications
Certain amounts in the December 31, 1997 Statement of Operations and Statement
of Cash Flows have been reclassified to conform to the December 31, 1998
presentation.
3. New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 131, "Disclosure about Segments of an Enterprise and Related Information"
which establishes standards for the way public business enterprises report
select information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. This statement must be
adopted for fiscal years beginning after December 15, 1997, but need not be
applied to interim financial statements in the initial year of its application.
Once this statement is adopted, comparative information for previous years is
required to be restated to comply with the reporting requirements of FASB No.
131. This Statement becomes effective for the Company with its annual Form
10-KSB filing for the fiscal year ending March 31, 1999. This Statement will
affect footnote disclosure but will not impact the Company's financial results.
4. Loss Per Share
In February 1997, the FASB issued Statement No. 128, "Earnings per Share", which
must be adopted for periods ending after December 15, 1997 including interim
periods. The Company has adopted FASB No. 128 and has changed its method of
computing earnings per share and has restated prior periods. Under the new
requirements for calculating earnings per share, the dilutive effect of stock
options will be excluded. This statement also prohibits the inclusion of any
potential common shares from any computation when a loss from continuing
operations exists as the effect would be antidilutive. The Company is reporting
a loss from operations for the three and nine month periods ended December 31,
1998 and 1997 and thus has not added potential common shares to the weighted
average shares outstanding for those periods.
Page 7 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Loss Per Share, continued
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------------------------------------------
1998 1997 1998 1997
----------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (230,500) $(3,270,615) $ (505,806) $ (1,766,229)
==========================================================
Numerator for loss per common share and loss
per share-assuming dilution $ (230,500) $(3,270,615) $(3,270,615) $ (1,766,229)
==========================================================
Denominator:
Denominator for loss per common
share-weighted average shares outstanding 8,035,189 6,545,599 8,023,616 6,203,243
Effect of Dilutive securities:
* * * *
----------------------------------------------------------
Denominator for diluted loss per share-
adjusted weighted average shares 8,035,189 6,545,599 8,023,616 6,203,243
==========================================================
Loss per common share $ (.03) $ (.50) $ (.06) $ (.29)
==========================================================
Loss per common share-assuming dilution $ (.03) $ (.50) $ (.06) $ (.29)
==========================================================
</TABLE>
*Potential common shares are not included because they would be antidilutive.
Had the numerator been a profit the potential common shares would have increased
the weighted average shares outstanding by 159,092 and 389,318 shares as of the
three months ended December 31, 1998 and 1997, respectively, and by 398,613 and
301,336 shares for the nine months ended December 31, 1998 and 1997,
respectively.
In addition, there were options to purchase 1,870,000 shares at exercise prices
between $1.16 and $4.66 per share outstanding at December 31, 1998 that were not
included in the potential common share computation for the three months ended
December 31, 1998 because their exercise prices were greater than the average
market price of the common shares. There were options to purchase 1,188,000
shares at exercise prices between $2.47 and $4.66 per share outstanding at
December 31, 1998 that were not included in the potential common share
computation for the nine months ended December 31, 1998 because their exercise
prices were greater than the average market price of the common shares. There
were also warrants to purchase 599,621 shares at $3.57 and 2,500 shares at $2.47
which were outstanding at December 31, 1998, but not included in the potential
common share computations because their exercise prices were greater than the
average market price of common shares. These would have been antidilutive even
if a profit had been reported in the numerator.
Page 8 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Notes receivable, current
Effective July 31, 1998, the Company entered into an agreement with Henninger
Media Services, Inc. ("HMSI") amending its secured promissory note dated June
30, 1993. The Company also entered into an agreement with Henninger Acquisition,
L.L.C. ("HALLC") and HMSI whereby the Company assigned all rights under its
secured agreement with HMSI, other than rights to payments and benefits stated
below, to HALLC.
The principal and interest on the original note totaled $1,159,893 as of March
31,1998 and $1,211,759 as of the amendment. The original note was amended as
follows. Upon execution of the agreements HMSI and HALLC paid the Company
$845,359 and agreed to give the Company $60,000 of post-production goods and
services. HMSI also agreed to pay the Company four additional separate monthly
payments of Forty Thousand Dollars ($40,000) followed by 12 separate payments of
Twelve Thousand Five Hundred Dollars ($12,500). The total payments to be
received under these agreements including interest are $1,215,359. Payments
under the above amendment and assignment have been made as scheduled through
December 31, 1998.
6. Notes payable to employee stockholders.
In connection with the acquisition of Client Server Technologies, Inc. ("CSTI"),
the Company issued notes payable to various employee stockholders. These notes
called for a total of $1,022,103 in payments to be made on December 31, 1998.
The Company paid $265,828 of the amount due December 31, 1998 and renegotiated
the payment of the balance over the subsequent four months.
7. Capitalized Software Costs
The Company capitalized $35,000 of third quarter Research and Development
("R&D") costs related to the documentation of Continuum 6.1 software on Windows
NT and $125,012 of third quarter R&D costs related to the documentation of WMS
software on Windows NT. Both of the projects reached technological feasibility
in the third quarter and will be available for general resale within the next
six months.
8. Sale of select multimedia assets, and acquisition of Somerset Automation,
Inc. (SAI)
On April 16, 1997, the Company sold certain of its multimedia assets to Davidson
& Associates ("Davidson") a division of Cendant, Inc. for $2,509,759 in cash.
The assets sold include machinery and capital equipment utilized in art,
animation and audio production in St. Petersburg, Russia, and Concord,
Massachusetts. The net asset value of assets transferred was $472,655. As part
of the transaction, the Company amended its software development contract with
Blizzard Entertainment (the Company was paid all related receivables from the
contract), entered into a work-for-hire agreement with Davidson related to
software engineering services, and assigned and transferred its present Concord,
Massachusetts office lease to Davidson. The gain on sale resulting from this
transaction was $2,037,104.
Page 9 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Sale of select multimedia assets, and acquisition of Somerset Automation,
Inc. (SAI), continued
On December 8, 1997, the Company acquired all of the outstanding stock of SAI
for stock, debt securities and cash valued at $5,557,918. The purchase price
consisted of 1,958,233 unregistered shares of the Company's common stock valued
at $2,313,848, long-term notes, with a stated interest rate of 7.5%, totaling
$747,907, and cash payments totaling $2,496,163. SAI was merged into Somerset, a
wholly owned subsidiary of the Company, at which time SAI's corporate existence
terminated. The transaction was accounted for under the purchase method of
business combinations. As a result of the acquisition; $394,553 of goodwill was
recorded and is being amortized on a straight-line basis over seven years,
$665,323 of capitalized software was recorded and is being amortized on a
straight-line basis over five years, and $3,094,527 of purchased research and
development was written off at December 8, 1997.
Somerset's in-process technology currently involves one project; rewriting,
packaging and porting software to Windows NT. The Company expects to expend
$150,000 during the next 6 months in order to complete these projects. The
Unix/Oracle port project which was in-process at the time of acquisition has
been completed and has achieved technological feasibility within the acquisition
valuation estimates. There are no changes in our expectations of this project
from the original valuation. Due to the high levels of competition in the
warehouse management software industry, SAI is continually working towards
improving upon existing capabilities through implementation of additional
product enhancements. In addition, due to the nature of the industry, SAI
expects additional product platforms and/or functionalities to evolve that are
currently not in development. 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. Supplemental pro forma revenue and cost of
sales for the three and nine month periods ended December 31, 1998 and 1997,
assuming the above transactions were consummated prior to April 1, 1997, are
presented below.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
1998 1997 1998 1997
Actual Proforma Actual Proforma
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenue -----(Unaudited)-----
Services $2,236,310 $2,212,859 $6,359,623 $5,926,212
Software licenses 346,577 228,889 1,638,762 865,536
Hardware and other 2,508 21,872 1,022,989 111,660
-------------------------------------------------
Total revenue 2,585,395 2,463,620 9,021,374 6,903,408
Cost of sales
Services 1,427,901 1,280,848 4,423,305 3,337,332
Hardware and other 5,594 873,871
Amortization of Capitalized Software 43,266 43,267 129,798 129,801
-------------------------------------------------
Total cost of sales 1,476,761 1,324,115 5,426,974 3,467,133
-------------------------------------------------
Gross Margin $1,108,634 $1,139,505 $3,594,400 $3,436,275
=================================================
</TABLE>
Page 10 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. Licensing, Distribution, and Development Agreements
Licensing and Distribution Agreement with Davidson & Associates, Inc. The
Company entered into an agreement with Davidson & Associates, Inc. ("Davidson")
on July 11, 1995 pursuant to which Davidson was granted a worldwide license to
distribute six software programs and related materials produced by the Company
based upon international folktale storybooks in a CD-ROM for Macintosh and
Windows format. The Company retains all right and title to all copyrights and
trademarks contained in the works. As consideration for the grant of license the
Company receives one-half (1/2) of the receipts less agreed upon costs and
expenses. Furthermore, Davidson agreed to pay the Company a non-refundable
advance, against future payments resulting from localized product, in the amount
of $90,000 for each localization kit accepted by Davidson. There were no
revenues recognized from this agreement during the three or nine month periods
ended December 31, 1998 or 1997. In March 1998, the Company transferred and
assigned to Davidson any and all rights in full for three out of the six titles
under this agreement.
Publishing and Licensing Agreement with Broderbund Software, Inc. The Company
entered into an agreement dated February 9, 1996 with Broderbund granting a
worldwide license for two (2) titles in a CD-ROM for Macintosh and Windows
format. The Company retains all right and title to all copyrights and trademarks
contained in the work. As consideration for the grant of license the Company
will receive 30% of the receipts less agreed upon costs and expenses for sales,
on-line versions, sequels, foreign language adaptations and conversions by
publisher, and 50% of the receipts less agreed upon costs and expenses for OEM
sales, sequels, foreign language adaptations and conversions. Furthermore,
Broderbund agreed to pay the Company a non-refundable advance, against future
payments in the amount of $100,000 for each title accepted by Broderbund.
Broderbund also agreed to pay the Company a non-refundable advance, against
future payments resulting from localized product, in the amount of $150,000 for
each localization kit accepted by Broderbund. There were no revenues recognized
from this agreement during the three or nine month periods ended December 31,
1998 or 1997.
Development Agreement with Blizzard Entertainment (Blizzard), subsidiary of
Davidson & Associates, Inc. On April 1, 1996 the Company entered into an
agreement with Blizzard to develop a computer software product based upon
Blizzard's WarCraft software series for the Windows 95 and Macintosh operating
systems. As part of the agreement the Company agreed to grant Blizzard all
rights, titles, and interest in work conceived, developed, created, obtained, or
first reduced to practice for Blizzard under this agreement. Subject to certain
termination provisions, Blizzard agreed to pay the Company a development fee of
$1,250,000 to be paid out at the accomplishment of specified milestones.
Blizzard also agreed to pay royalties to the Company as follows; 5% on net
receipts from $5 million to $10 million, 7.5% on net receipts from 10 million to
15 million, and 10% on net receipts of $15 million and above. This agreement was
amended on April 16, 1997 as part of the sale of certain multimedia assets to
Davidson. Under this amendment, the Company discontinued all development work
and agreed to halve any subsequent royalty receipts, reflecting the fact that
the Company was only responsible for half of the development. The amounts
payable to the Company for future milestone attainments under this agreement
were $0 at December 31, 1998 and 1997, respectively. There were no costs or
revenues generated under this agreement during the three or nine month periods
ended December 31, 1998 or 1997.
Page 11 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the condensed
unaudited financial statements included elsewhere within this quarterly report.
Fluctuations in annual and quarterly operating results may occur as a result of
certain factors such as the size and timing of customer contracts and
competition. Due to such fluctuations, historical results and percentage
relationships are not necessarily indicative of the results for any future
period. Statements, which are not historical facts contained in this report, are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from projected results. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly release the results of any revision to these
forward-looking statements, which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Business Developments
The Company acquired CSTI on March 31, 1997 in a transaction accounted for
under the purchase method of accounting. This acquisition provided the Company
an entry into the supply chain management ("SCM") sector of the business
software market. SCM encompasses the planning and control of material and
resources from customer order entry through warehousing and logistics to
customer delivery. In April 1997, the Company sold certain of its multimedia
assets to Davidson. The Company is focused on the business software market and
has no plans to develop new multimedia products in the foreseeable future. In
August 1997, the Company established Paragon, a limited liability company in St.
Petersburg, Russia as a wholly owned subsidiary. Paragon develops software for
the Company and employs 10 technical personnel some of whom were employed by the
Company's subsidiary AMI, which was sold in April of 1997. On December 8, 1997,
the Company acquired all of the outstanding stock of Somerset Automation, Inc.
("SAI"), a privately held warehouse management software company based in Irvine,
California by means of a merger between SAI and Somerset Solutions, Inc.
("Somerset"), a wholly owned subsidiary of the Company.
During the quarter ended September 30, 1998, the Company announced the
signing of a multi-million dollar agreement to provide Distribution Dynamics,
Inc. (DDI) with the Company's entire suite of supply chain management software
including its real-time Supply Chain Planner, Sales Order Management, Purchase
Order Management, Warehouse Management and Inventory Control modules. This
contract will generate consulting revenues over the next two years for system
configuration and implementation. DDI is a leading distributor of "C" class
commodity items, including fasteners and related items to original equipment
manufactures. This product suite, along with DDI's efforts to improve their
business processes, will provide DDI with a comprehensive system to manage their
current business divisions and the solid foundation required for future growth.
Presentation
Since the Company's April 1997 sale of select multimedia assets to
Davidson, the March 1997 acquisition of CSTI, and the December 1997 acquisition
of SAI, the Company has focused principally on the business software market.
Existing multimedia software titles continue to be sold through the distribution
channels that were established prior to the divestiture. However, multimedia
revenue represents a small fraction of the Company's revenues. Actual
comparisons are discussed below. The Company has also included a supplemental
discussion at the end of this section regarding pro forma revenue, a schedule of
which is included in the notes to the financial statements.
Page 12 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Net Sales
Revenues from services increased $849,420 or 61% and $3,175,812 or 100% for
the three month and nine month periods ended December 31, 1998 versus the same
periods in 1997. This increase is attributable to the acquisition of SAI on
December 8, 1997 which increased service revenue $960,037 and $3,322,113, but
was partially offset by decreases in service revenues at CSTI totaling $110,617
and $146,301 for the three months and nine months ended December 31, 1998,
respectively. The decrease in CSTI's revenue was attributable to the completion
of several projects that incurred non-billable time during the second and third
quarters and the delay in the start of new projects. Management expects that
service revenues will continue to increase over fiscal 1998 levels for CSTI and
Somerset. Management also believe that revenue from services will increase in
fiscal 2000 over fiscal 1999 levels, however there can be no assurance as to the
extent of such increase or if revenues will increase at all.
Revenues from software license sales increased $237,688 or 218% and
$1,268,826 or 343% for the three month and nine month periods ended December 31,
1998 versus the same periods in 1997. This increase is attributable to increases
in license fee revenue at CSTI of $111,420 or 101% and $705,338 or 231%, and the
acquisition of SAI on December 8, 1997 which generated increases of $127,407 or
43% and $623,713 or 210% in license fee revenue, partially offset by decreases
in multimedia royalties of $1,139 and $60,225 for the three and nine month
periods ended December 31,1998, respectively. CSTI's increase is attributable in
part to the recognition of license fees from a source code sale of $150,000 in
the second quarter and percentage of completion recognition of license fees in
the third quarter. License revenue recognition fluctuates with customer
acceptance of the delivered product, product sales to new and existing
customers, and the percentage of completion calculation on sales involving
consulting modifications and implementation. The Company continues to expand all
phases of sales and marketing in order to generate long-term business software
sales growth, however there can be no assurance as to the extent of such
increase or if revenues will increase at all.
Revenues from hardware and related sales decreased $728 or 23% for the
three months ended December 31, 1998 versus 1997, but increased $1,019,753 for
the nine months ended December 31, 1998 versus 1997. These changes are
attributable to the acquisition of SAI, which from time to time resells third
party software and hardware with related warehouse management system
installations at the customer's request. Hardware sales during the first quarter
of fiscal 1999 included two large sales totaling approximately $800,000.
Hardware sales fluctuate with the installation of new systems where the customer
requires that the Company's software be integrated with hardware. Hardware sales
are not expected to attain this level in subsequent quarters for fiscal 1999.
The level of net sales realized by the Company in any quarter is
principally dependent on the portion of projects completed. The purchase of
supply chain and warehouse 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 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 the timing of new orders, product
development expenditures, and the number and timing of new product completions.
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. As a result
Page 13 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Net Sales, continued
of these and other factors, the Company's results of operations and financial
condition for any period are inherently difficult to predict. The Company
continues to expand all phases of sales and marketing in order to generate
long-term sales growth.
Cost of Sales
Cost of services are incurred in connection with the sale of supply chain
and warehouse management software. Cost of services consists of costs primarily
associated with consulting and implementation services that are sold as part of
a total supply chain and warehouse management solution, and costs associated
with providing support to customers. These costs increased $628,799 or 79% and
$2,521,121 or 133% during the three and nine month periods ended December 31,
1998 versus the same periods in 1997. Cost of services as a percent of revenue
from services increased from 58% to 64% or an increase of 6% and from 60% to 70%
or an increase of 10% for the three and nine month periods ended December
31,1998 versus the same periods in 1997. The Company has increased its
consulting staff and engaged subcontractors in anticipation of growing
consulting revenue. The Company's cost of sales as a percent of sales also
increased due to the completion of several projects that incurred non-billable
time during the second and third quarters and the delay in the start of new
projects. To the extent that the Company's consulting revenues do not increase
at anticipated rates, the cost of these additional consultants could adversely
affect the Company's gross margins. The Company expects this expense to increase
in absolute dollars but to decrease as a percent of sales during the quarter
ended March 31, 1999. For the year ending March 31, 1999, management expects
this expense to increase in absolute dollars and as a percent of sales versus
fiscal 1998. In fiscal 2000, management believes that costs of sales will
increase in absolute dollars, but that it will decrease as a percentage of sales
when compare with fiscal 1999.
Cost of sales from hardware and related sales increased $5,594 and $873,871
for the three and nine month periods ended December 31, 1998 versus the same
periods in 1997. This increase is attributable to the acquisition of SAI, which
from time to time resells third-party software and hardware with related
warehouse management system installations. Hardware sales fluctuate with the
installation of new systems where the customer requires that the Company's
software be integrated with hardware. Hardware sales are not expected to attain
this level in subsequent quarters for fiscal 1999. The Company expects that
hardware cost of sales as a percentage of hardware sales will continue to
average approximately 86% during the remainder of fiscal 1999, but there can be
no assurance of this expectation.
Amortization of capitalized software increased $22,177 or 105% and $88,710
or 216% during the three and nine month periods ended December 31, 1998 versus
the same period in 1997. This increase is attributable to the acquisition of SAI
on December 8, 1997. This acquisition resulted in the recording of capitalized
software, which is being amortized over five years. The actual capitalized
software amortization costs for fiscal 1999 are expected to be approximately
$173,000.
Page 14 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Research and Development
Research and development (R&D) expenses increased $70,035 or 38% and
$228,624 or 39% during the three and nine month periods ended December 31, 1998
versus the same periods in 1997. R&D as a percent of sales excluding hardware
sales decreased from 12% to 10% for a decrease of 2% and from 17% to 10% for a
decrease of 7% for the three and nine month periods ended December 31, 1998,
respectively. The Company capitalized $35,000 of third quarter R&D costs related
to the documentation of Continuum 6.1 software on Windows NT and $125,012 of
third quarter R&D costs related to documentation of the Windows NT version of
the WMS software. Both of the projects reached technological feasibility in the
third quarter and will be available for general resale within the next nine
months. The Company expects R&D costs to increase in absolute dollars during
fiscal 1999 as a result of an expansion of product development and integration
of its supply chain and warehouse management software packages. The Company
expects R&D as a percent of sales for the fourth quarter to be consistent with
or lower than prior years, reflecting the realization of lower development costs
through increased utilization of the Company's St. Petersburg, Russia software
development facility. In fiscal 2000, management expects R&D costs to increase
as a percentage of sales over fiscal 1999.
In-process R&D projects are presented below and are grouped by each entity
acquired.
CSTI's in-process technology currently involves one project, which is
rewriting and porting of the Continuum 6.0 software to Windows NT. The Company
expects to expend $100,000 in order to complete this project, which is within
estimates utilized for valuation purposes at the time of acquisition. This
project is expected to be complete within three months. Approximately one-half
of these costs will be completed and billed to clients as part of consulting
engagements. The other three in-process projects at the time of acquisition have
been completed. The development of applets for the Internet did not achieve
technological feasibility and was not continued. This project involved
approximately $90,000 in development costs and is not considered material. The
other two in-process projects were the development of the DRP software package
and the porting of the software onto the Sun Solaris plarform. Both of these
projects were completed and achieved technological feasibility within the
original estimates used in the acquisition valuation. There are no changes in
the Company's expectations of these projects from the original valuation.
Somerset's in-process technology currently involves one project; rewriting,
packaging and porting software to Windows NT. The Company expects to expend
$150,000 during the next 6 months in order to complete this project. The
Unix/Oracle port project which was in-process at the time of acquisition has
been completed and has achieved technological feasibility within the acquisition
valuation estimates. There are no changes in the Company's expectations of this
project from the original valuation. Due to the high levels of competition in
the warehouse management software industry, the Company is continually working
towards improving upon existing capabilities through implementation of
additional product enhancement.
Due to the nature of the industry, the Company expects additional product
platforms and/or functionalities to evolve that are currently not in
development. 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.
Page 15 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
General and Administrative
General and administrative( "G&A") expenses increased $203,920 or 54% and
$854,280 or 83% during the three and nine month periods ended December 31, 1998
versus the same periods in 1997. Approximately $100,000 and $551,000 of the
increases for the three and nine month periods ended December 31,1998 were due
to the acquisition of SAI and include operating costs as well as increased costs
incurred by the Company for management and integration of Somerset. Of the
remaining increase, approximately $8,000 and $69,000 for the three and nine
month periods, respectively, resulted from an increase in investor relations
related activity and $96,000 and $234,000, respectively, from an increase in G&A
staffing and related expenses, including recruiting fees. General and
administrative expenses as a percent of sales decreased by 3% and 8% for the
three and nine month periods ended December 31, 1998 versus the same periods in
fiscal 1998, respectively. If you exclude hardware sales from total revenue the
decreases are 3% and 6%, respectively. 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 products are not completed
and/or shipped on schedule and net sales do not meet the Company's expectations
in any given quarter, operating results and financial condition could be
adversely affected. The Company expects general and administrative expenses to
increase in absolute dollars, but to continue to decrease as a percent of sales
in fiscal 1999 versus the same period in fiscal 1998. Management believes that
these costs will remain constant or slightly decrease in fiscal 2000 over fiscal
1999 in absolute dollars and as a percentage of sales.
Sales and Marketing
Sales and marketing expenses increased $293,327 or 136% and $803,179 or
147% during the three and nine month periods ended December 31, 1998 versus the
same periods in 1997. This item includes personnel related costs, as well as
those costs related to facilities, travel, trade shows, advertising and
promotions. The acquisition of SAI resulted in increases in sales and marketing
of $181,679 and $586,675 for the three and nine month periods, respectively.
CSTI's selling and marketing expenses increased by $112,837 and $216,504 for the
three and nine month periods, respectively. Sales and marketing as a percentage
of sales (excluding hardware revenue) increased from 14% to 20% and 15% to 17%
for the three and nine month periods ended December 31, 1998 versus 1997,
respectively. The Company is committed to an investment in sales and marketing
efforts, as well as the development of third party distribution channels and
alliances. These efforts are expected to generate an increase in future revenue.
There can be no assurance that the Company will be able to realize the benefits
from this investment. The Company expects sales and marketing expenses to
increase in absolute dollars and as a percent of sales during fiscal 1999.
Depreciation
Depreciation increased $15,050 or 22% and $66,022 or 38% during the three
and nine month periods ended December 31, 1998 versus the same periods in 1997.
The acquisition of SAI was responsible for increases of $18,006 and $72,680 for
the three and nine month periods, respectively. This was partially offset by
decreases in depreciation at CSTI of $2,955 and $6,659 for the same periods. The
Company expects depreciation to continue to increase during fiscal 1999 due to
this acquisition. The actual depreciation expense for fiscal 1999 is expected to
be approximately $320,000.
Page 16 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Amortization of Goodwill
Amortization of goodwill increased $9,393 or 37% and $37,576 or 56% during
the three and nine month periods ended December 31, 1998 versus the same periods
in 1997. The acquisition of SAI was responsible for all of the increase and the
Company expects amortization of goodwill to continue to increase during fiscal
1999 due to this acquisition. The actual goodwill amortization costs for fiscal
1999 are expected to be approximately $139,000.
Gain on Sale of Assets
The gain of $2,037,104 in fiscal 1998 resulted from the sale of select
multimedia assets to Davidson for $2,509,759 in cash. The assets sold included
equipment utilized in art, animation and audio production in St. Petersburg,
Russia, and Concord, Massachusetts.
Provision for Income Taxes
The provision for income taxes is a benefit arising from the reconciliation
of current and deferred income tax liabilities on the books of Somerset at the
time of acquisition. These deferrals and liabilities were related to an
amendment to their prior year return, as well as their final short year tax
return. This benefit was decreased by calculations of alternative minimum tax
liabilities and state income taxes. The Company expects an effective tax rate of
approximately 16% for fiscal year 1999. This rate differs from the statutory
rate due to anticipated partial recognition of $4,888,000 in deferred tax
assets, which were fully reserved in March and December of 1998.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash, cash equivalents, and
short-term investments. During the nine months ended December 31, 1998, cash,
cash equivalents, and investments decreased $1,516,985 or 65% to $824,645. This
decrease relates to $1,076,924 of cash used in operating activities (see below),
$298,652 in capital expenditures, and $160,012 in capitalized software costs,
partially offset from an issuance of common stock for $18,603. The Company
intends to use its working capital to finance its growth from ongoing operations
and fund the continued expansion of its sales and marketing resources.
Accounts receivable increased $1,416,292 or 64% to $3,617,046.
Approximately $247,000 and $1,169,000 of this increase occurred at CSTI and
Somerset, respectively during the nine months. The CSTI increase reflects
license fees and support contracts billed at the end of December 1998, and
increases associated with an increase in billings related to the DDI project.
The Somerset increase is the result of outstanding collections on several large
accounts. As of December 31, 1998 the company had approximately $797,000 in
receivables net of reserves over 90 days outstanding. Management is currently in
negotiations to collect these balances and expects to collect the overdue
portions. There can be no assurance that these amounts will be collected in
their entirety.
Notes receivable decreased $914,093 or 79% because of payments related to
the Henninger note. This is discussed in Note 5 of the Notes to the Condensed
Consolidated Financial Statements.
Page 17 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Liquidity and Capital Resources, continued
Accounts payable and accrued liabilities increased $506,668 or 39% to $506,668.
This increase includes increases in accrued payroll and related costs, accrued
interest on notes to related parties, and increases in amounts due to
subcontractors. Long term and short term notes payable to related parties
decreased $570,710, reflecting scheduled payments being made.
Unearned revenue decreased $215,827, reflecting the net recognition of support
maintenance and license revenue fees that are greater than the receipts taken in
on new yet-to-be recognized license fees. This decrease was also partially
caused by a decrease in renewals of the Company's support maintenance
agreements, which were on its older platforms and are being replaced by the new
NT and UNIX versions.
In the opinion of management, existing cash and cash equivalent balances,
short-term investment balances, and cash generated from operations will satisfy
the Company's working capital needs, investment in research and development and
sales and marketing needs, as well as its capital expenditure requirements for
the next twelve months. However, the Company has experienced a slowdown in the
collection of certain receivables, which if not collected in the next quarter
would adversely affect the Company's liquidity. The Company is currently in
negotiations to collect these past due receivables. Further, the Company is in
the process of establishing a line of credit secured by its assets, and it
anticipates having the line in place in sufficient time to meet the timing
issues of its working capital requirements. Neither, the collection of a major
portion of the past due receivables, nor the establishment of a line of credit
can be assured. If neither were to occur it would adversely affect the Company's
liquidity, and it would constrain the Company's ability to grow revenues, unless
other alternatives are developed. As disclosed in "Note 6" on page 9, the
Company has already renegotiated a portion of the payments due on December 31,
1998 and may have to renegotiate these payments again. In addition, any material
acquisitions of complementary business, products or technologies would require
the Company to obtain additional sources of financing.
The Company does not currently have plans for major capital expenditures, but
does have $317,399 in long-term notes payable to related parties from the
acquisitions of SAI and CSTI. These notes are payable in various amounts
beginning on April 1, 1998 and ending on January 1, 2001. The Company believes
that existing cash and cash equivalent balances, short-term investment balances
and potential cash flow from operations will be sufficient to satisfy this
long-term liability.
As of June 30, 1998, the Company had outstanding Series A Warrants to purchase
599,621 shares of Common Stock at $3.57 per share. These warrants expire March
31, 1999, subject to extension by the Company. Pursuant to the redemption
provision in the Warrant Agreement, the Company has the option of redeeming the
warrants on an "all or nothing basis," and, given favorable market conditions,
may do so. Exercise of these warrants would generate approximately $2,141,000 in
cash.
The Company continues to consider investments in or acquisitions of compatible
businesses. However, there can be no assurance that the Company will make
investments in or enter into business combinations with other entities. In the
event that the Company engages in such transactions, it will require additional
financial resources.
Page 18 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Pro Forma Net Sales
The following discusses the pro forma changes in the Company's financial
results assuming that the SAI acquisition and the multimedia asset sale took
place prior to April 1, 1997. The Company believes that this comparison provides
a more meaningful analysis of current and prior quarter results.
Pro forma revenues from services increased $23,451 or 1% and $433,411 or 7% for
the three and nine month periods ended December 31, 1998 versus the same periods
in 1997. Somerset had increases of approximately $134,000 or 12% and $580,000 or
19% for the three and nine month periods ended December 31, 1998. CSTI had
decreases of approximately $101,000 or 10% and $139,685 or 5% for the three and
nine month periods ended December 31, 1998 versus the same periods in 1997,
respectively. The decrease in CSTI's revenue was attributable to the completion
of several projects that incurred non-billable time during the second and third
quarters and the delay in the start of new projects. Management expects that
service revenues will again increase over fiscal 1998 levels for CSTI and
Somerset, however there can be no assurances as to the extent of such increase
or if revenues will increase at all.
Pro forma revenues from software license sales increased $117,688 or 51% and
773,226 or 89% for the three and nine month periods ending December 31, 1998
versus the same periods in 1997. CSTI had approximate increases in license fee
revenue of $111,000 or 103% and $705,000 or 230%, respectively, for the three
and nine month periods. CSTI's increase is attributable in part to the
recognition of license fees from a source code sale of $150,000 in the second
quarter. Somerset experienced approximate increases in license fee revenue of
$7,000 or 6% and $128,000 or 26% respectively, for the three and nine month
periods ended December 31, 1998 versus 1997. The exited multimedia business
experienced decreases in both periods of approximately $1,000 and $60,000,
respectively. License revenue recognition fluctuates with customer acceptance of
the delivered product, product sales to new and existing customers, and the
percentage completion calculation for license contracts involving consulting
modifications and implementation.
Pro forma revenues from hardware and other sales decreased $19,364 or 89% for
the three months ended December 31, 1998, but increased $911,329 or 816% for the
nine month period ended December 31, 1998 versus the same periods in 1997. This
decrease and increase are attributable to Somerset which resells third party
software and hardware with related warehouse management system installations.
Hardware sales during the first quarter of the year included two large sales
totaling approximately $800,000.
Year 2000 Compliance Issues
Many older computer systems and software products in use today were programmed
with a two -digit date code field. These systems or software products need to be
modified, upgraded or replaced to distinguish the Year 2000 in order to avoid
the possibility of erroneous results or system failures. The effects of this
issue and the efforts by companies to address it are uncertain. The risk for
Celerity exists in four areas: systems used by the Company to run its business,
systems used by the Company's vendors, potential warranty or other claims from
the Company's customers, and the potential reduced spending by others companies
as a result of significant information systems spending on Year 2000 issues.
Page 19 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
Year 2000 Compliance Issues, continued
The Company has inventoried and evaluated its internal systems, equipment,
and facilities and established a schedule to replace or upgrade systems that are
known to be Year 2000 non-compliant. The Company utilizes outside providers for
services such as payroll processing and 401(k) benefit administration, which may
or may not be Year 2000 compliant. The company has requested and received from a
majority of its vendors written confirmation of their knowledge of or plans for
Year 2000 compliance. The Company has taken steps to make sure that its internal
systems will function in the year 2000, but failure of any critical
technological component to operate properly may have an adverse impact on
business operations or require the Company to incur unanticipated expenses to
remedy any problems. The company's Year 2000 costs cost to date have not been
material. The Company does not expect future Year 2000 related compliance costs
to be material, but can not assure that such costs will be inconsequential. The
Company has not identified alternative contingency plans, but will do so as it
continues to assess the Year 2000 risk.
The Company's software products have been modified to be Year 2000 compliant.
However, the Company's products are complex and might contain undetected errors
or failures even though intended to be Year 2000 compliant. There can be no
assurance that the Company's software products contain or will contain all
necessary date code changes or that errors will not be found in new products or
product releases, resulting in loss of or delay in product acceptance. If the
Company is unable, or is delayed in its efforts to make the necessary date code
changes, there could be a material adverse effect upon the Company's business,
operating results, financial condition and cash flows.
Many companies are expending significant resources to modify or upgrade their
existing software and hardware for Year 2000 compliance. This might reduce funds
available to purchase other software products such as the Company's supply chain
management software. Additionally, Year 2000 problems in a customer's other
software products might significantly limit the customer's realized benefit from
the supply chain management software. These events could result in a material
adverse effect on the Company's business, operating results, financial condition
and cash flows.
Future Operating results, (Statutory Safe Harbor Disclosure)
This report contains forward-looking statements. For this purpose, any
statement, contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes","anticipates", "plans", "expects", and similar expressions are
intended to identify forward-looking statements.
Numerous factors may affect the Company's business and its results of
operations. These factors include the potential for significant fluctuations in
quarterly results, dependence on new products and rapid technological change,
risk of software errors or failures, the level and intensity of competition,
lack of product diversification, dependence on certain distribution channels,
proprietary intellectual property rights, limited operating history in the
supply chain management software industry, integration of acquisitions, loss of
key employees, lack of profitability, sustaining a public trading market,
absence of dividends, and international operations. For a discussion of these
and other factors that may affect the Company's future results, see the Form
10-KSB for March 31, 1998 filed by the Company with the SEC on June 1998 and the
S-3/A filed by the Company on July 17, 1998 with the SEC.
Page 20 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No Litigation.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Number Description of Exhibits
- ------ -----------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None
Page 21 of 22
<PAGE>
CELERITY SOLUTIONS, INC.
SIGNATURE
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.
CELERITY SOLUTIONS, INC.
(Registrant)
Date: February 16, 1999 /s/ James P. Dore
------------------------------------
James P. Dore
Controller (Principal Accounting
Officer)
Date: February 16, 1999 /s/ Edward Terino
-------------------------------------
Edward Terino
Chief Financial Officer &
Secretary / Treasurer
Page 22 of 22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 FOUND ON
PAGES 3-5 OF THE COMPANY'S FORM 10QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 814,095
<SECURITIES> 10,550
<RECEIVABLES> 3,843,326
<ALLOWANCES> (226,280)
<INVENTORY> 0
<CURRENT-ASSETS> 4,834,830
<PP&E> 1,564,902
<DEPRECIATION> (938,734)
<TOTAL-ASSETS> 7,505,175
<CURRENT-LIABILITIES> 3,822,597
<BONDS> 0
0
0
<COMMON> 884,289
<OTHER-SE> 18,856,768
<TOTAL-LIABILITY-AND-EQUITY> 7,505,175
<SALES> 1,022,989
<TOTAL-REVENUES> 9,021,374
<CGS> 873,871
<TOTAL-COSTS> 5,426,974
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180,833
<INCOME-PRETAX> (628,056)
<INCOME-TAX> 122,250
<INCOME-CONTINUING> (505,806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (505,806)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
