<PAGE>

                     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 quarter ended September 30, 1998

    /   /   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934

           For the transition period from __________ to __________

                       Commission File Number: 0-21477

                            JAVELIN SYSTEMS, INC.
      (Exact Name of Small Business Issuer as Specified in Its Charter)

           STATE OF DELAWARE                                  52-1945748
    (State or Other Jurisdiction of                        (I.R.S. Employer
     Incorporation or Organization)                       Identification No.)

                           17891 CARTWRIGHT ROAD.
                          IRVINE, CALIFORNIA  92614
            (Address of Principal Executive Offices) (Zip Code)

                               (949) 440-8000
              (Issuer's Telephone Number, Including Area code)


                                      N/A
-------------------------------------------------------------------------------
           (Former Name, Former Address and Former Fiscal Year, 
                        if Changed Since Last Report)

     Check whether the issuer (1) has filed all reports required to be filed 
by Section 13 or 15(d) of the Securities Exchange Act of 1934 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

                   (APPLICABLE ONLY TO CORPORATE ISSUERS)

    State the number of shares outstanding of each of the issuer's classes 
of common stock equity, as of the latest practicable date.


Title                              Date                     Outstanding

Common Stock, $.01 par value       October 31, 1998         5,521,275


Transitional Small Business Disclosure Format (check one):
Yes       No  / X /


<PAGE>

PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS


                                JAVELIN SYSTEMS, INC.
                                    BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  SEPTEMBER 30,             JUNE 30,
                                                                                      1998                    1998*
                                                                                  -------------             --------
                                                                                   (UNAUDITED)  
<S>                                                                              <C>                      <C>
ASSETS
Current assets:
     Cash                                                                        $                        $
     Accounts receivable -- net                                                     9,662,400                7,449,700
     Inventories                                                                    7,991,600                5,925,300
     Deferred income taxes                                                            204,900                  204,900
     Other current assets                                                             765,800                  426,900
                                                                                 -------------            -------------
        Total current assets                                                       18,624,700               14,006,800


     Property and equipment, net                                                    1,241,900                1,036,400
     Excess of cost over net assets of purchased businesses                         6,783,700                6,457,500
     Deferred financing costs                                                         853,300                  889,000
     Other assets, net                                                                296,700                  141,600
                                                                                 -------------            -------------
        Total assets                                                             $ 27,800,300             $ 22,531,300
                                                                                 -------------            -------------
                                                                                 -------------            -------------


LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
     Line of credit                                                              $  4,398,000             $  1,343,000
     Accounts payable                                                               7,651,400                5,636,900
     Accrued expenses                                                                 684,900                  625,000
     Current maturities of long-term debt                                             300,000                  300,000
     Customer deposits                                                                165,200                1,197,200
     Deferred maintenance revenues                                                    460,500                  385,300
     Income taxes payable                                                             741,100                  438,700
                                                                                 -------------            -------------
        Total current liabilities                                                  14,401,100                9,926,100
                                                                                 -------------            -------------

     Deferred rent expense                                                              6,300                    6,300
     Long-term debt, net of current portion                                         1,125,000                1,200,000
                                                                                 -------------            -------------

     Stockholders' equity:
       Preferred stock, $0.01 par value:
         authorized shares--1,000,000
         issued and outstanding shares--none                                                --                       --
       Common stock, $.01 par value:
         authorized shares--10,000,000
         issued and outstanding shares--4,171,275 at September 30, 
           1998, and 4,111,962 at June 30, 1998                                        41,700                   41,100
       Additional paid in capital                                                  11,642,400               11,270,900
       Deferred compensation                                                         (30,000)                 (39,200)
       Retained earnings                                                              605,500                  132,900
</TABLE>

                                       
                                       2

<PAGE>

<TABLE>

<S>                                                                              <C>                      <C>
     Cumulative translation adjustment                                                   8,300                 (6,800)
                                                                                 --------------           -------------
        Total stockholders' equity                                                  12,267,900              11,398,900
                                                                                 --------------           -------------
        Total liabilities and stockholders' equity                               $  27,800,300            $ 22,531,300
                                                                                 --------------           -------------
                                                                                 -------------            -------------

</TABLE>

*The balance sheet at June 30, 1998 has been derived from audited financial
statements.

                                       
                                       3

<PAGE>

                                JAVELIN SYSTEMS, INC.
                               STATEMENTS OF OPERATIONS
                                     (UNAUDITED)

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                               SEPTEMBER 30,
                                                             1998           1997
                                                         ------------   ------------

<S>                                                      <C>             <C>
Revenues:
  Product sales                                          $11,587,900    $ 2,950,100
  Service                                                  1,344,300
                                                         ------------   ------------
Total revenues                                            12,932,200      2,950,100
                                                         ------------   ------------

Cost of revenues:
  Cost of product sales                                    8,156,300      2,268,800
  Cost of service                                          1,110,500
                                                         ------------   ------------
Total revenues                                             9,266,800      2,268,800
                                                         ------------   ------------
Gross profit                                               3,665,400        681,300
                                                         ------------   ------------

Operating expenses:
  Research and development                                   298,000        137,200
  Selling and marketing                                      366,700        147,500
  General and administrative                               1,975,700        374,700
                                                         ------------   ------------
Total operating expenses                                   2,640,400        659,400
                                                         ------------   ------------

Income from operations                                     1,025,000         21,900
Interest expense                                            (234,500)        (1,800)
Interest income                                                3,700          3,900
Other income (expense)                                        24,400         (2,800)
                                                         ------------   ------------
Income before income taxes                                   818,600         21,200
Provision for income taxes                                  (346,000)
                                                         ------------   ------------
Net income                                               $   472,600    $    21,200
                                                         ------------   ------------
                                                         ------------   ------------
Earnings per common share:
      Basic                                               $     0.11    $      0.01
                                                         ------------   ------------
                                                         ------------   ------------
      Diluted                                             $     0.11    $      0.01
                                                         ------------   ------------
                                                         ------------   ------------
Shares used in computing earnings
  per share:
      Basic                                                4,131,556      3,263,040
                                                         ------------   ------------
                                                         ------------   ------------
      Diluted                                              4,271,736      3,279,731
                                                         ------------   ------------
                                                         ------------   ------------
</TABLE>

                                       
                                       4

<PAGE>

                                JAVELIN SYSTEMS, INC.
                               STATEMENTS OF CASH FLOWS
                                     (UNAUDITED)

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                               SEPTEMBER 30,
                                                             1998           1997
                                                         ------------   ------------

<S>                                                      <C>                <C>
OPERATING ACTIVITIES
Net income                                                $  472,600     $   21,200
Adjustments to reconcile net loss to net cash
  used in operating activities:
     Depreciation and amortization                           178,300         23,000
     Amortization of goodwill                                 67,000
     Loss on disposal of assets                                               2,800
     Amortization of deferred compensation                     9,200         21,600
     Deferred rent expense                                                    1,100
     Non-cash allowances                                     117,200
       Changes in operating assets and liabilities:
       Accounts receivable                                (2,323,900)       316,800
       Inventories                                        (2,066,300)        (2,300)
       Other current assets                                 (338,900)        (2,000)
       Accounts payable                                    2,014,500       (171,600)
       Accrued expenses                                       53,900        (51,200)
       Income taxes payable                                  302,400
       Customer deposits                                  (1,032,000)
       Deferred maintenance                                   75,200
                                                        -------------   ------------
     Net cash provided by (used in) operating activities  (2,470,800)       159,400
                                                        -------------   ------------

INVESTING ACTIVITIES
     Purchase of equipment                                  (308,700)       (87,000)
     Other assets                                           (185,100)        (1,200)
                                                         ------------   ------------
       Net cash used in investing activities                (493,800)       (88,200)
                                                         ------------   ------------

FINANCING ACTIVITIES
     Net borrowings (payments) under line of credit        3,055,000       (200,000)
     Repayment of notes payable                              (75,000)
     Deferred offering costs                                 (39,400)
     Exercise of stock options                                 8,900         71,400
                                                         ------------   ------------
     Net cash provided by (used in) financing activities   2,949,500       (128,600)
                                                         ------------   ------------

     CUMULATIVE TRANSLATION ADJUSTMENT                        15,100
                                                         ------------   ------------

     Net (decrease) in cash and cash equivalents                   0        (57,400)
     Cash and cash equivalents at beginning of period              0        686,200
                                                         ------------   ------------
     Cash and cash equivalents at end of period           $        0     $  628,800
                                                         ------------   ------------
                                                         ------------   ------------
</TABLE>
                                       
                                       5

<PAGE>

<TABLE>

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
     <S>                                                 <C>            <C>
     Income tax paid                                      $   43,600     $   --
                                                         ------------   ------------
     Interest paid                                        $  159,400     $    1,800
                                                         ------------   ------------
                                                         ------------   ------------
</TABLE>

                                       
                                       6

<PAGE>

                                  JAVELIN SYSTEMS, INC.
                              NOTES TO FINANCIAL STATEMENTS
                                      (UNAUDITED)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

Javelin Systems, Inc. ("the Company") was incorporated in the State of Delaware
under the name of Sunwood Research, Inc. on September 19, 1995.  The Company
designs, develops, markets and sells open systems touch screen point-of-sale
("POS") computers.

On November 1, 1996, the Company completed an initial public offering (the
"IPO") of 850,000 shares of its common stock at $5.00 per share, netting
proceeds to the Company of approximately $3.2 million.  Proceeds to the Company
were used to repay debt with an outstanding balance of approximately $745,000
and for general corporate purposes.

In December 1997, Javelin acquired all of the outstanding common stock of POSNET
Computers, Inc.("Posnet") and CCI Group, Inc. ("CCI") as described in Note 3.
Posnet and CCI provide full turn-key systems integration services, including
system consulting, staging, training, deployment, product support and
maintenance.

In March and April 1998, Javelin established three international subsidiaries
to expand its sales and distribution channels in the international marketplace.
The international subsidiaries are: Javelin Systems (Europe) Limited  ("Javelin
Europe") headquartered in England; Javelin Systems International Pte Ltd
("Javelin Asia") headquartered in Singapore; and Javelin Systems Australia Pty
Limited ("Javelin Australia") headquartered in Australia.

In  May 1998, Javelin Asia acquired all of the outstanding common stock of
Aspact IT Services (Singapore) Pte Ltd ("Aspact").  Aspact is headquartered in
Singapore and provides consulting and system integration services.

In October 1998, the Company completed a public offering of 1,350,000 shares of
its common stock at $6.75 per share, netting proceeds to the Company of
approximately $8.0 million.  Proceeds to the Company were used to repay
borrowings under the revolving line of credit of approximately $3.2 million,
to purchase all of the outstanding common stock of RGB/Trinet Ltd. ("RGB") and
Jade Communications Ltd ("Jade") described below and for general corporate
purposes.

In November 1998, Javelin acquired all of the outstanding common stock of
RGB/Trinet Ltd. ("RGB") and Jade Communications Ltd ("Jade").  RGB and Jade are
headquartered in England and provided complementary Wide Area Networking (WAN) 
products and services primarily to large retail, hospitality, and
telecommunications companies. The aggregate price for the companies was 
$1,242,300 in cash and 243,125 shares of the Company's common stock.  Javelin 
may be required to issue additional shares of its common stock with a market 
value of

                                       
                                       7

<PAGE>

$3,290,000 in each of 1999 and 2000 based on cumulative net profits of RGB and 
Jade during the 24-month period ending September 30, 2000.  The acquisitions 
will be accounted for using the purchase method and, accordingly, the operations
of RGB and Jade will be consolidated with the operations of Javelin commencing
in November 1998.

Hereinafter, Javelin and its subsidiaries are referred to as the Company.

BASIS OF PRESENTATION

The accompanying financial statements have been prepared by the Company without
audit, pursuant  to the rules and regulations of the Securities and Exchange 
Commission (the "SEC").  Certain information and footnote disclosures normally 
included in financial statements prepared in accordance with generally accepted 
accounting principles have been condensed or omitted pursuant to the rules and 
regulations of the SEC.  In the opinion of the Company's management, all 
adjustments necessary for a fair presentation of the accompanying unaudited
financial statements are reflected herein.  All such adjustments are normal and
recurring in nature.  Interim results are not necessarily indicative of the
results for the full year or for any future interim periods.  For more complete
financial information, these financial statements should be read in conjunction
with the audited financial statements included in the Company's Annual Report on
Form 10-KSB filed with the SEC.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Javelin and of
its wholly owned subsidiaries.  All significant intercompany transactions and
balances have been eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions 
that affect the amounts reported in the accompanying financial statements. 
Actual results could differ from these estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

These consolidated financial statements contain financial instruments whereby
the fair market value of the financial instruments could be different than that
recorded on a historical basis in the accompanying consolidated financial 
statements.  The financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses and debt.  The carrying
amounts of the Company's financial instruments as of June 30, 1998 and September
30, 1998 approximate their respective fair values.

CONCENTRATION OF BUSINESS AND CREDIT RISK

                                       
                                       8

<PAGE>

Javelin operates within an industry that is subject to rapid technological
advancement, intense competition and uncertain market acceptance.  The 
introduction of new technologies, competitors' alternative products and ultimate
market acceptance of the products sold by Javelin, could have a substantial
impact on the future operations of the Company.

Financial instruments which potentially subject the Company to a concentration
of credit risk consist primarily of trade receivables.  In the normal course of
business, the Company provides credit terms to its customers and collateral is 
generally not required.  Accordingly, the Company performs ongoing credit 
evaluations of its customers and maintains allowances for potential losses 
which, when realized, have been within the range of management's expectations.

During the quarter ended September 30, 1998 one customer represented 
approximately 23.1% of net sales, a second customer approximated 10.6% of net 
sales and a third customer approximated 10.1% of net sales.  During the year 
ended June 30, 1998 one customer represented approximately 11% of net sales. 
Foreign sales, principally to Europe, during the quarter ended September 30, 
1998 aggregated approximately 14.2% of net sales.  Foreign sales during the year
ended June 30, 1997 were not significant. 

INVENTORIES

Inventories consist primarily of computer hardware and components and are stated
 at the lower of cost (first-in, first-out) or market as follows:

<TABLE>
<CAPTION>

                                           September 30,           June 30,
                                               1998                  1998
                                           --------------     --------------
               <S>                         <C>                <C>
               Raw materials               $   4,977,000      $   3,572,500
               Finished goods                  3,014,600          2,352,800
                                           --------------     --------------
                                             $ 7,991,600      $   5,925,300
                                           --------------     --------------
</TABLE>

EXCESS OF COST OVER NET ASSETS OF PURCHASED BUSINESSES

Excess of cost over net assets of purchased businesses (goodwill) represents the
excess of purchase price over the fair value of the net assets of acquired 
businesses.  Goodwill is stated at cost and is amortized on a straight-line
basis over 25 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through projected undiscounted cash flows.  The 
amount of goodwill impairment, if any, is measured based on projected 
undiscounted cash flows and is charged to operations in the period in which 
goodwill impairment is determined by management.  To date, management has not 
identified any impairment of goodwill.


DEFERRED FINANCING COSTS

Deferred financing costs represent incremental costs to unrelated parties 
incurred in connection with the credit facility described in Note 5 and are 
deferred and amortized over the term of the related debt.

                                       
                                       9

<PAGE>

FOREIGN CURRENCY TRANSLATION

The consolidated financial statements of the Company's non-U.S. operations 
are translated into U.S. dollars for financial reporting purposes.  The assets 
and liabilities of non-U.S. operations whose functional currencies are other 
than the U.S. dollar are translated at rates of exchange at fiscal year-end, 
and revenues and expenses are translated at average exchange rates for the 
fiscal year.  The cumulative translation effects are reflected in stockholders'
equity.  Gains and losses on transactions denominated in other than the 
functional currency of an operation are reflected in other income (expense).

REVENUE RECOGNITION

Revenues from sales of products are recognized upon shipment of the products.
The Company generally does not have any significant remaining obligations upon 
shipment of the products.  Product returns and sales allowances, which 
historically have not been significant, are provided for at the date of sale.

STOCK-BASED COMPENSATION

During 1995, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards 123 ("SFAS 123"), "Accounting for Stock-Based 
Compensation," which defines a fair value based method of accounting for 
stock-based compensation.  However, SFAS 123 allows an entity to continue to 
measure compensation cost related to stock and stock options issued to employees
using the intrinsic method of accounting prescribed by Accounting Principles 
Board Opinion 25 ("APB 25"), "Accounting for Stock Issued to Employees."  
Entities electing to use APB 25 for accounting for stock-based compensation to 
employees must make pro forma disclosures of net income or loss, as if the fair
value method of accounting defined in SFAS 123 had been applied.  The Company 
has elected to account for its stock-based compensation to employees under 
APB 25.

INCOME TAXES

The Company accounts for its income taxes using the asset and liability method 
whereby deferred tax assets and liabilities are determined based on temporary 
differences between bases used for financial reporting and income tax reporting 
purposes.  Income taxes are provided based on the enacted tax rates in effect at
the time such temporary differences are expected to reverse.  A valuation 
allowance is provided for certain deferred tax assets if it is more likely than 
not that the Company will not realize those taxes through future operations. 


                                   10
<PAGE>

EARNINGS PER COMMON SHARE

The Financial Accounting Standards Board ("FASB") issued Statement of Financial 
Accounting Standards 128, " Earnings per Share"  ("SFAS 128"), which specifies 
the computation, presentation and disclosure requirements for earnings per share
("EPS").  It replaces the presentation of primary and fully diluted EPS with 
basic and diluted EPS.  Basic EPS excludes all dilution.  It is based upon the 
weighted average number of common shares outstanding during the period.  Diluted
 EPS reflects the potential dilution that would occur if securities or other 
contracts to issue common stock were exercised or converted into common stock.
The Company has adopted SFAS 128 in the quarter ended December 31, 1997 and has 
restated all previously reported per share amounts to conform to the new 
presentation.

Diluted loss per common share is computed using the weighted average number of 
common shares outstanding during the period.A reconciliation of basic and 
diluted EPS for the quarters ended September 30, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
                                             Quarter Ended                   Quarter Ended
                                           September 30, 1997              September 30, 1998
                                           ------------------              ------------------
                                         BASIC          DILUTED          BASIC          DILUTED
                                       ---------       ----------       ---------      -----------
<S>                                 <C>              <C>             <C>              <C>
Net income                          $     21,100     $     21,100    $    472,600     $    472,600

Weighted average common shares
 outstanding                           3,130,115        3,130,115       4,131,556        4,131,556

Additional shares due to potential
 exercise of stock options                                149,616                          140,180

 Diluted weighted average
 common shares outstanding             3,130,115        3,279,731       4,131,556        4,271,736

Earnings per share                  $       0.01     $       0.01    $       0.11             0.11

</TABLE>

COMPREHENSIVE INCOME

Effective in the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130").  SFAS 130 establishes standards for reporting and displaying of 
comprehensive income and its components in the Company's consolidated financial
statements.  Comprehensive income is defined in SFAS 130 as the change in equity
(net assets) of a business enterprise during the period from transactions and 
other events and circumstances from nonowner sources.  Total comprehensive 
income was $21,200 and $481,700 for the quarters ended September 30, 1997 and 
1998, respectively.  The primary difference from net income as reported is the 
tax effected change in the cumulative translation adjustment.

                                       
                                       11
<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARD

In June 1997, the FASB issued Statement of Financial Accounting Standards 
No. 131, "Disclosures about Segment of an Enterprise and Related Information" 
("SFAS 131") which supersedes Statement of Financial Accounting Standards 
No. 14.  This statement changes the way that publicly-held companies report 
information about operating segments as well as disclosures about product and 
services, geographic areas and major customers.  Operating segments are defined
as revenue-producing components of the enterprise, which are generally used 
internally for evaluating segment performance.  SFAS 131 will be effective for 
the Company's year ending June 30, 1999 and will not affect the financial 
position or results of operations.



2.  LINE OF CREDIT AND LONG-TERM DEBT

On June 8, 1998, the Company and its U.S. subsidiaries obtained a credit 
facility of $7,500,000 from an unrelated financial institution.  The credit 
facility expires on June 8, 2001 and consists of a line of credit of up to 
$6,000,000 and a term loan of $1,500,000.

Under the terms of the line of credit, the Company may borrow up to 80% of 
eligible accounts receivable (as defined) and 50% of eligible inventory (as 
defined) with monthly interest payments based upon the prime rate of a national 
financial institution plus 1.75% (10.25% as of September 30, 1998).  Borrowings 
under the line of credit are collateralized by substantially all the assets of 
the Company.  As of September 30, 1998, borrowings outstanding under the line 
amounted to $4,398,000 with approximately $1,100,000 available for future 
borrowings.

Borrowings under the term loan are collateralized by substantially all of the 
assets of the Company, bear interest at 13.65% per annum and are repayable at 
$25,000 per month with all unpaid principal and interest due on June 8, 2001.


3.  STOCKHOLDERS' EQUITY

COMMON STOCK
During the three months ended September 30, 1998, 56,250 shares of common stock,
valued at $363,200, were issued to the former shareholders of Posnet in 
consideration for the termination of the earnout provisions contained in the 
stock purchase agreement related to the Posnet acquisition, 1,600 shares of 
common stock were issued upon the exercise of stock options with a weighted 
average exercise price of $5.56 per share and 1,463 shares of common stock were 
exchanged for warrants to purchase 2,998 shares of common stock at $6.25 per 
share.



STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No. 25 
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations 
in accounting for its employee stock options.  Under APB 25, the Company 
recognizes as compensation expense the 

                                       
                                       12

<PAGE>

difference between the exercise price and the fair market value of the 
underlying stock on the date of grant.  Stock based compensation expense is 
deferred and amortized over the life of the stock option.  During the three 
months ended September 30, 1997 and September 30, 1998, the Company recognized 
$21,600 and $9,200, respectively,  in stock based compensation expense.

In August 1996, the Company adopted a stock incentive award plan (the "Plan") 
under which the Board of Directors (the "Board"), or a committee appointed for 
such purpose, may from time to time grant options, restricted stock or other 
stock-based compensation to the directors, officers, eligible employees or 
consultants of the Company to acquire up to an aggregate of 300,000 shares of 
common stock, in such numbers, under such terms and at such exercise prices as 
are determined by the Board or such committee.  Options vest over a 3-year 
period based on the following schedule: 40% after year one, 30% after year two, 
and 30% at the end of year three.  All options expire five years from the date 
of grant.  It is the Company's intention to grant options under the Plan 
principally to employees.

     In December 1997, the stockholders approved the Company's 1997 Equity 
Incentive Plan (the " 1997 Plan") under which the Board, or a committee 
appointed for such purpose, may from time to time grant options, restricted 
stock or other stock-based compensation to the directors, officers, eligible 
employees or consultants of the Company to acquire up to an aggregate of 
1,100,000 shares of common stock, in such numbers, under such terms and at such 
exercise prices as are determined by the Board or such committee.  Options 
generally vest 20% per year over a 5-year period.  All options expire ten years 
from the date of grant.  It is the Company's intention to grant options under 
the Plan principally to employees.

The following option activity occurred in the quarter ended September 30, 1998:

<TABLE>
<CAPTION>
                                                            WEIGHTED AVERAGE
                                             OPTIONS          EXERCISE PRICE
                                             -------          --------------
<S>                                          <C>                 <C>
FOR OPTIONS GRANTED AT LESS THAN FAIR
  MARKET VALUE ON THE DATE OF THE GRANT:
Outstanding as of July 1, 1998               150,200              $3.77
Granted
Exercised                                    -------            -------
Canceled                                     -------            -------
                                             -------            -------

Balance, September 30, 1998                  150,200              $3.77
                                             -------            -------
                                             -------            -------

Exercisable at September 30, 1998            117,304              $3.76

</TABLE>

<TABLE>
<CAPTION>
                                             OPTIONS          EXERCISE PRICE
                                             -------          --------------
<S>                                          <C>                 <C>
FOR OPTIONS GRANTED AT LESS THAN FAIR
  MARKET VALUE ON THE DATE OF THE GRANT:
Outstanding as of July 1, 1998               683,500              $8.96
Granted                                       20,000              12.00
Exercised                                     (1,600)              5.56

</TABLE>
                                       
                                       13

<PAGE>

<TABLE>

<S>                                          <C>                <C>
Canceled                                     -------            -------
                                             -------            -------

Balance, September 30, 1998                  701,900              $9.05
                                             -------
                                             -------

Exercisable at September 30, 1998             86,035              $5.33
                                             -------            -------

</TABLE>

WARRANTS

In connection with its initial public offering, the Company sold the 
representatives of the underwriters a warrant to purchase 85,000 shares of the 
Company's common stock at $6.25 per share.  During the quarter ended June 30, 
1998, warrants to purchase 2,998 shares of the Company's common stock were 
exchanged into 1,463 shares of common stock pursuant to the net-exercise 
provisions of such warrants.  The fair value of the common stock issued 
approximated the fair value of the warrants received.

                                       
                                       14
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS

GENERAL

Javelin Systems, Inc. (the "Company") designs, manufactures, and markets open 
system touchscreen point-of-sale ("POS") computers and provides POS systems 
integration services primarily for the food service and retail industries.

This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 as amended 
and Section 21E of the Securities Exchange Act of 1934 as amended (the 
"Exchange Act"), and the Company intends that such forward-looking statements 
be subject to the safe harbors created thereby.  The Company may experience 
significant fluctuations in future operating results due to a number of 
factors, including, among other things, the size and timing of individual 
orders; seasonality of revenues; employee hiring and retention, particularly 
with respect to sales and consulting personnel; lengthy sales and 
implementation cycles; reduction in demand for existing products and services 
and shortening of product life cycles; the timing of the introduction of 
products, product enhancements and services by the Company or its 
competitors; competition in pricing in the POS systems industry; market 
acceptance of new products; service personnel utilization rates; the ability 
of the Company to expand its domestic and international sales, as well as the 
mix of such sales; foreign currency exchange rates; changes in the mix of 
products and services sold; general health of the restaurant industry, 
particularly the quick service restaurant segment; the ability of the Company 
to generate service agreements; product quality problems; the ability of the 
Company to control costs; the Company's success in establishing and expanding 
its direct and indirect distribution channels; the mix of distribution 
channels through which the Company's products are sold; and general economic 
conditions.  Any of these factors could cause operating results to vary 
significantly from prior periods.  Significant variability in orders during 
any period may have a material adverse impact on the Company's cash flow, and 
any significant decrease in orders could have a material adverse impact on 
the Company's results of operations and financial condition.  As a result, 
the Company believes that period-to-period comparisons of its results of 
operations are not necessarily meaningful and should not be relied upon as 
any indication of future performance.  Fluctuations in the Company's 
operating results could cause the price of the Company's Common Stock to 
fluctuate substantially.

Assumptions relating to the foregoing involve judgments with respect to, among 
other things, future economic, competitive and market conditions, all of which 
are difficult or impossible to predict accurately, and many of which are beyond
the control of the Company.  In addition, the business and operations of the 
Company are subject to substantial risks which increase the uncertainty 
inherent in the forward-looking statements.  In light of the significant 
uncertainties inherent in the forward-looking information included herein, the 
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.

                                       
                                       15

<PAGE>

RESULTS OF OPERATIONS

QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997


The following discussion sets forth the historical results of operations and 
financial condition of the Company for the quarters ended September 30, 1997 
and 1998 . The following table sets forth certain statements of operations data 
as a percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                            QUARTER  ENDED
                                                            SEPTEMBER 30,
                                                            --------------------
                                                            1997      1998
                                                            ----      ----
          <S>                                               <C>      <C>
          Revenues:
            Hardware and related software                   100.0%    88.4%
            Services                                                  11.6
                                                            -----    -----
          Total revenues                                    100.0    100.0
                                                            -----    -----

          Cost of revenues:
            Hardware and related software                    76.9     70.4
            Services                                                  82.6
                                                            -----    -----
          Total cost of revenues                             76.9     71.7
                                                            -----    -----

          Gross profit                                       23.1     28.3
                                                            -----    -----
          Operating expenses:
             Research and development                         4.7      2.3
             Selling and marketing                            5.0      2.9
            General and administrative                       12.7     15.2
                                                            -----    -----

          Total operating expenses                           22.4     20.4
                                                            -----    -----
          Operating income (loss)                             0.7      7.9
          Interest expense                                   (0.1)    (1.8)
          Other income                                        0.1      0.2
          Provision for income taxes                           --     (2.6)
                                                            -----    -----

          Net income (loss)                                   0.7%     3.7%
                                                            -----    -----
                                                            -----    -----

</TABLE>

REVENUES.  Revenues increased by 338.4% to $12.9 million in 1998 compared to 
revenues of $3.0 million for  1997.  The change is due to an increase in 
revenues relating to Javelin hardware sales of $3.8 million (129.4%), hardware 
revenues from CCI of $3.1 million, service revenues from CCI of $1.2 million and
revenues primarily from hardware from the newly established foreign subsidiaries
of $1.8 million. The increases relating to Javelin are attributable primarily to
increases in the number of units sold (approximately 5,400 units in 1998 
compared to 1,600 in 1997) as the average sales price of Javelin hardware 
remained relatively constant.

                                       
                                       16

<PAGE>

GROSS PROFIT.  Gross profit increased by 438.0% to $3.7 million in 1998 compared
to a gross profit of $681,000 in 1997. The change is due to an increase in gross
profit relating to Javelin of $1.5 million (221.8%), gross profit relating to 
hardware sales by CCI of $752,000, gross profit relating to services provided 
by CCI of $98,000 and gross profit from the newly established foreign 
subsidiaries of $622,000. The increase in gross margins relating to Javelin are 
attributable to (i) the increase in revenues, (ii) reduced prices from the 
Company's suppliers resulting from increased volume of purchases by the Company 
and (iii) the realization of manufacturing efficiencies.  During the quarter 
ended September 30, 1998, the Company did not commence or complete any 
significant deployment service contracts.  Costs of service revenues are 
relatively fixed in the near term.  Consequently, until the Company has a larger
volume of matured service contracts, gross margins on service revenues will be 
lower than the Company believes can ultimately be realized by its service 
operations.

RESEARCH AND DEVELOPMENT.     Research and development expenses increased by 
117.2% to $298,000 in 1998 compared to research and development expenses of 
$137,000 in 1997.  All research and development activities are conducted by 
Javelin.  The increase is primarily attributable to increased payroll costs due
to the hiring of additional engineers.

SELLING AND MARKETING. Selling and marketing expenses increased by 148.6% to 
$367,000 in 1998 compared to selling and marketing expenses of $148,000 in 1997.
Such expenses represent primarily expenses of Javelin and consisted primarily 
of payroll, trade show fees, and travel costs.  The increase is primarily 
attributable to additional personnel and advertising costs associated with the 
growth of the business.

GENERAL AND ADMINISTRATIVE.  General and administrative expenses increased by 
427.3% to $2.0 million in 1998 compared to general and administrative of 
$375,000 in 1997. The change is due to an increase in general and administrative
expenses relating to Javelin of $279,000 (74.5%), general and administrative 
expenses from the acquired domestic subsidiaries of $865,000 and general and 
administrative from the newly established foreign subsidiaries of $457,000.
The increase at Javelin consisted primarily of increased payroll costs due 
primarily to an increase in the number of employees and increased facility costs
due to expansion. 

INTEREST EXPENSE. Interest expense increased  by $233,000 to $235,000 in 1998 
compared to interest expense of $2,000 in 1997.  The increase is due to 
borrowings under the credit facility in 1988.  Such borrowings were necessary
to sustain the growth of business.

INCOME TAXES. A provision for federal, state and foreign income taxes of 
$346,000 was required in 1998 since the Company generated taxable income while 
no provision was required in 1997 as the Company utilized available tax 
benefits.  All of such benefits were utilized during the fiscal year ended 
June 30, 1998. 

                                       
                                       17

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

On November 1, 1996, the Company completed its IPO of 850,000 shares of its 
common stock at $5 per share, netting proceeds to the Company of approximately 
$3.2 million.  A portion of the proceeds was used to repay debt of approximately
$745,000 and for general corporate purposes.  The remaining proceeds were used
to build the Company's infrastructure and for working capital.


On June 8, 1998, the Company and its U.S. subsidiaries obtained a credit 
facility of  $7.5 million from a financial institution.  The credit facility 
expires on June 8, 2001 and consists of a line of credit of up to $6.0 million 
and a term loan of $1.5 million.  Under the line of credit, the Company may 
borrow up to 80% of eligible receivables (as defined) and 50% of eligible 
inventory (as defined) with monthly interest based upon the prime rate of a 
national financial institution plus 1.75% (10.25% as of September 30, 1998). As
of September 30, 1998 borrowing outstanding under the line amounted to $4.4 
million with approximately $1.1 million available for future borrowings.  
Borrowings under the term loan are collateralized by substantially all of the
assets of the Company and bear interest at 13.65% per annum.  The Company is 
required to pay $25,000 per month under the term loan with all unpaid principal
and interest due on June 8, 2001.  As of September 30, 1998, the Company had 
working capital of $4.2 million.

On October 30, 1998, the Company completed a public offering of 1,350,000 shares
of its common stock at $6.75 per share, netting proceeds to the Company of 
approximately $8.0 million. Proceeds to the Company were used to repay 
borrowings under the revolving line of credit of approximately $3.2 million, 
to purchase all of the outstanding common stock of RGB/Trinet Ltd. ("RGB") and 
Jade Communications Ltd ("Jade") and for general corporate purposes.

Cash used in operating activities for the three months ended September 30, 1998 
amounted to $2.5 million and consisted primarily of increases in trade 
receivables and inventories.  Cash used in investing activities for the three 
months ended September 30, 1998 amounted to $493,800 and consisted primarily of
purchases of property and equipment. Cash provided by financing activities for 
the three months ended September 30, 1998 amounted to $2.9 million and consisted
primarily of net borrowings under the line of credit.

The Company believes that the net proceeds from the public offering completed in
October 1998, together with the availability of its line of credit, will be 
sufficient to meet its capital requirements for the next eighteen months.


YEAR 2000

The Company is aware of the issues associated with the programming code in 
existing computer systems as the year 2000 approaches.  The year 2000 problem 
is pervasive and complex as virtually every computer operation will be affected 
in some way by the rollover of the two digit year value to "00".  The issue is 
whether computer systems will properly recognize date-sensitive information when
the year changes to 2000.  Systems that do not properly recognize such 

                                       
                                       18

<PAGE>

information could generate erroneous data or cause a system to fail.  The 
Company is reviewing both its information technology and its non-information 
technology systems to determine whether they are year 2000 compliant, and to 
date the Company has not identified any material systems which are not year 2000
compliant.  The Company has not made any material expenditure to address the 
year 2000 problem and at present does not anticipate that it will be required 
to make any such material expenditures in the future.

The Company has initiated formal communications with all significant suppliers 
and service providers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate the year 2000 problem.  Although 
the Company has received verbal assurances of year 2000 compliance from certain 
of such third parties, the Company has not received written assurances of year 
2000 compliance from the third parties with whom it has relationships.  The 
Company believes its operations will not be significantly disrupted even if 
third parties with whom the Company has relationships are not year 2000 
compliant.  In the event that the Company's suppliers are unable to provide 
sufficient quantities of materials or goods to the Company as a result of their 
failure to be year 2000 compliant, the Company believes that it can obtain 
adequate supplies of materials and goods at comparable prices from other 
sources.  In the event that the Company's OEMs and VARs are adversely affected 
by any failure to become year 2000 compliant and are therefore unable to 
purchase anticipated quantities of the Company's products on a timely basis, 
the Company may seek to replace such OEMs and  VARs.  Nevertheless, the Company 
believes that any year 2000 compliance problems of its suppliers, OEMs and VARs 
could cause the Company's results of operations to fluctuate on a period to 
period basis.  Uncertainty exists concerning the potential costs and effects 
associated with any year 2000 compliance, and the Company intends to continue 
to make efforts to ensure that third parties with whom it has relationships are 
year 2000 compliant.  Any year 2000 compliance problem of either the Company or 
third parties with whom the Company has relationships could materially adversely
affect the Company's business, financial condition or results of operations.


IMPACT OF NEW ACCOUNTING PRONOUNCEMENT

In June 1997, the FASB issued Statement of Financial Accounting Standards 
No. 131, "Disclosures about Segment of an Enterprise and Related Information" 
("SFAS 131") which supersedes Statement of Financial Accounting Standards 
No. 14.  This statement changes the way that publicly-held companies report 
information about operating segments as well as disclosures about product and 
services, geographic areas and major customers.  Operating segments are defined 
as revenue-producing components of the enterprise, which are generally used 
internally for evaluating segment performance.  SFAS 131 will be effective for 
the Company's year ending June 30, 1999 and will not affect the financial 
position or results of operations.

                                       
                                       19

<PAGE>

PART II.   OTHER INFORMATION

In August 1998, the company issued an aggregate of 56,250 shares of the 
Company's Common Stock to Mark LeMay, Paul Amestoy, Greg Kosin and Ralph 
E. Rudzik, Jr. in consideration for the termination of the earnout 
provisions of the stock purchase agreement related to the acquisition 
of Posnet.  The issuance of the Common Stock was deemed to be exempt from
registration under the Securities Act of 1933, as amended ("the Act"), by virtue
of Section 4(2) of the Act.


ITEM 2.      CHANGES IN SECURITIES AND USE OF PROCEEDS

1.   On August 31, 1998, the Company issued an aggregate of 56,250 shares of the
Company's Common Stock to Mark LeMay, Paul Amestoy, Greg Kosin and Ralph
E. Rudzik, Jr. in consideration for the termination of the earnout provisions 
of the stock purchase agreement related to the acquisition of Posnet.  The 
issuance of the Common Stock was deemed to be exempt from registration 
under the Securities Act of 1933, as amended ("the Act"), by virtue of Section
4(2) of the Act.

On September 18, 1998, the Company issued an aggregate of 1,463 shares of its
Common Stock to Meridian Capital Group, Inc. ("Meridian") upon exercise of 
warrants held by Meridian pursuant to the net-exercise provisions contained in 
such warrants.  The issuance of the Common Stock was deemed to be exempt from 
registration under the Act by virtue of Section 4(2) of the Act.

The recipients of the above-described securities represented their intention to 
acquire the securities for investment only and not with a view to distribution 
thereof.  Appropriate legends were affixed to the stock certificates issued in 
such transactions.  All recipients had adequate access, through employment or 
other relationships, to information about the Company.


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


(a)  27.1     Financial Data Schedule in accordance with Article 5 of 
              Regulation S-X.


(b)  No reports on Form 8-K were filed during the three months ended
     September 30, 1998

                                       
                                       20

<PAGE>

                                      SIGNATURES

     In accordance with the requirements of the Exchange Act, the Registrant 
caused this report to be signed on its behalf by the undersigned, thereunto 
duly authorized.


                                                 Javelin Systems, Inc.


    November 12, 1998                             /s/ Richard P. Stack
-------------------------                        -----------------------------
          Date                                   Richard P. Stack
                                                 Chief Executive Officer
                                                 and President



    November 12, 1998                             /s/ Horace W. Hertz
-------------------------                        -----------------------------
          Date                                   Horace M. Hertz
                                                 Chief Financial Officer

                                       
                                       21

<PAGE>

                                  EXHIBIT INDEX
                                  -------------

27.1   Financial Data Schedule in accordance with Article 5 of Regulation S-X.

                                       
                                       22