<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 quarterly period ended March 31, 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)

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

                               1881 Langley Ave.
                           Irvine, California  92614
              (Address of Principal Executive Offices) (Zip Code)

                                 (714) 223-5130
                (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 [_]

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

<TABLE> 
<CAPTION> 
Title                                Date                    Outstanding   
                                        
<S>                              <C>                         <C> 
Common Stock, $.01 par value     April 30, 1998               4,034,650
</TABLE> 

Transitional Small Business Disclosure Format (check one):
Yes [_]  No [X]

<PAGE>
 
Part I.   Financial Information

Item 1.   Financial Statements

                             JAVELIN SYSTEMS, INC.
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                        March 31,     June 30,
                                                          1998          1997*
                                                       -----------   ----------
                                                       (unaudited)
<S>                                                    <C>           <C>
ASSETS                                                 
Current assets:                                        
 Cash                                                  $             $  686,167
 Accounts receivable--net                                5,472,162    2,470,591
 Inventories                                             5,256,359    1,674,097
 Other current assets                                      184,595       46,535
                                                       -----------   ----------
  Total current assets                                  10,913,116    4,877,390
                                                                     
 Property and equipment, net                               940,249      295,519
 Excess of cost over net assets of purchased 
  businesses                                             5,792,384             
 Other assets, net                                         100,678       30,101
                                                       -----------   ----------
  Total assets                                         $17,746,427   $5,203,010
                                                       ===========   ==========
                                                                     
LIABILITIES AND STOCKHOLDERS' EQUITY                                 
 Current liabilities:                                                
  Line of credit                                       $ 1,565,000   $  200,000
  Accounts payable                                       4,026,079    1,503,825
  Accrued expenses                                       1,053,527             
  Customer deposits                                        949,728             
  Income taxes payable                                     269,428      144,732
                                                       -----------   ----------
     Total current liabilities                           7,863,762    1,848,557
                                                       -----------   ----------
  Deferred rent expense                                      4,765          -- 
                                                       -----------   ----------
                                                                     
 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--3,119,250 at June 30, 1997 and              
   4,034,650 at March 31, 1998                              40,347       31,193
  Additional paid in capital                            10,300,911    4,295,291
  Deferred compensation                                    (49,246)     (90,803)
  Accumulated deficit                                     (414,112)    (881,228)
                                                       -----------   ----------
   Total stockholders' equity                            9,877,900    3,354,453
                                                       -----------   ---------- 
   Total liabilities and stockholders' equity          $17,746,427   $5,203,010
                                                       ===========   ==========
</TABLE>

* The balance sheet at June 30, 1997 has been derived from audited financial
  statements

                                       2
<PAGE>
 
                             JAVELIN SYSTEMS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (unaudited)



<TABLE>
<CAPTION>
                                            Three Months Ended         Nine Months Ended
                                                 March 31,                 March 31,
                                         ------------------------   ------------------------
                                             1998         1997          1998         1997
                                         -----------   ----------   -----------   ----------
<S>                                      <C>           <C>          <C>           <C>
Revenues:                                                                         
  Hardware and related software          $ 9,357,483   $1,694,592   $16,759,818   $4,329,842        
  Services                                 1,285,966                  1,285,966                        
                                         -----------   ----------   -----------   ----------           
Total revenues                            10,643,449    1,694,592    18,045,784    4,329,842        
                                         -----------   ----------   -----------   ----------        
                                                                                                      
Cost of sales                                                                                         
  Hardware and related software            6,864,135    1,313,210    12,560,441    3,389,932        
  Services                                   891,720                    891,720                      
                                         -----------   ----------   -----------   ----------           
Total cost of sales                        7,755,855    1,313,210    13,452,161    3,389,932        
                                         -----------   ----------   -----------   ----------
Gross profit                               2,887,594      381,382     4,593,623      939,910        
                                         -----------   ----------   -----------   ----------
                                                                                  
Operating expenses:                                                               
    Research and development                 250,119      119,778       556,844      259,422
    Selling and marketing                    438,053      107,981       806,877      264,361
    General and administrative             1,581,699      214,214     2,444,528      570,854     
                                         -----------   ----------   -----------   ----------   
Total operating expenses                   2,269,871      441,973     3,808,249    1,094,637
                                         -----------   ----------   -----------   ----------      
                                                                                  
Operating income (loss)                      617,723      (60,591)      785,374     (154,727)
Interest expense                             (26,833)        (903)      (35,593)    (705,362)    
Other income                                  23,188                     29,242         
Interest income                                2,243        4,068        10,237       10,446
                                         -----------   ----------   -----------   ----------
Net income (loss) before income taxes        616,321      (57,426)      789,260     (849,643)
Provision for income taxes                   262,955                    322,144   
                                         -----------   ----------   -----------   ----------
Net income (loss)                        $   353,366   $  (57,426)  $   467,116   $ (849,643)
                                         ===========   ==========   ===========   ==========
                                                                                  
Earnings (loss) per common share: 
      Basic                              $      0.09   $    (0.02)  $      0.13        (0.33)
                                         ===========   ==========   ===========   ==========
      Diluted                            $      0.09   $    (0.02)  $      0.13        (0.33)
                                         ===========   ==========   ===========   ==========
                                                                                  
Shares used in computing                                                          
   Earnings (loss) per share:                                                     
      Basic                                4,034,650    2,954,250     3,466,436   2,576,472
                                         ===========   ==========   ===========   =========
      Diluted                              4,115,291    2,954,250     3,574,567   2,576,472
                                         ===========   ==========   ===========   =========
</TABLE>
                                       3
<PAGE>
 
                             JAVELIN SYSTEMS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)
                                                            
<TABLE>
<CAPTION>
                                                          Nine Months Ended     
                                                              March 31,         
                                                         1998          1997     
                                                      -----------   ----------- 
Operating Activities                                                            
<S>                                                   <C>           <C>         
Net income (loss)                                     $   467,116   $  (849,643)
Adjustments to reconcile net loss to net cash used                              
    in operating activities:                                                    
 Depreciation and amortization                            121,940        21,855 
 Amortization of goodwill                                  57,923               
 Amortization of deferred charge related to warrants                    636,097 
 Amortization of deferred compensation                     41,557        72,199 
 Loss on disposal of assets                                 2,841               
 Deferred rent expense                                      4,765               
 Income tax benefit from exercise of stock options         59,155               
 Non-cash allowances                                      764,000               
 Changes in operating assets and liabilities:                                   
       Accounts receivable                             (1,894,047)     (990,279)
       Inventories                                     (2,004,072)   (1,020,966)
       Other current assets                              (326,663)      (36,796)
       Accounts payable                                 1,673,041       (42,155)
       Accrued expenses                                   (28,693)       30,920 
     Customer deposits                                   (693,665)              
     Income taxes payable                                  61,375               
                                                      -----------   ----------- 
  Net cash used in operating activities                (1,693,427)   (2,178,768)
                                                      -----------   ----------- 
Investing Activities                                                            
 Purchase of equipment                                   (486,086)     (172,518)
   Cash received from purchased businesses                699,832               
   Other assets                                           (44,453)              
                                                      -----------   ----------- 
   Net cash provided by (used in) investing           
    activities                                            169,293      (172,518)
                                                      -----------   ----------- 
Financing Activities                                                            
 Net payments under line of credit                        996,245      (106,552)
 Proceeds from issuance of notes payable                                585,000 
 Re-payment of notes payable                             (229,678)     (745,000)
 Net proceeds from initial public offering                            3,241,992 
 Exercise of stock options                                 71,400               
                                                      -----------   ----------- 
  Net cash provided by financing activities               837,967     2,975,440 
                                                      -----------   ----------- 
Increase in cash and cash equivalents                    (686,167)      624,154 
 Cash and cash equivalents at beginning of period         686,167         6,404 
                                                      -----------   ----------- 
 Cash and cash equivalents at end of period           $       --    $   630,558 
                                                      ===========   =========== 
                                                                                
Supplemental disclosure of cash flow information                                
 Income tax paid                                      $       --    $       --  
                                                      ===========   =========== 
 Interest paid                                        $    33,751   $    69,625 
                                                      ===========   =========== 
 
Supplemental disclosure of non-cash financing
 and investing activities:
See Note 3 for the acquisition of business in
 exchange for 895,000 shares of the Company's
 common stock.
</TABLE>
                                       4
<PAGE>
 
                             JAVELIN SYSTEMS, INC.

                       STATEMENT OF STOCKHOLDERS' EQUITY

                 For the period July 1, 1997 to March 31, 1998


<TABLE>
<CAPTION>
                                              ADDITIONAL
                              COMMON           PAID-IN       DEFERRED     ACCUMULATED
                              STOCK            CAPITAL     COMPENSATION     DEFICIT
-------------------------------------------------------------------------------------
                        SHARES      AMOUNT                                           
-------------------------------------------------------------------------------------
<S>                    <C>         <C>       <C>           <C>            <C>        
Balance at July 1,     3,119,250   $31,193   $ 4,295,291     $(90,803)     $(881,228)
 1997                                                                                
-------------------------------------------------------------------------------------
Exercise of stock
 options                  20,400       204        71,196                             
-------------------------------------------------------------------------------------
Issuance of shares                                                                   
 for acquisitions                                                                    
 (see Note 3)            895,000     8,950     5,875,269                             
-------------------------------------------------------------------------------------
Income tax benefit                                                                   
 resulting from                                                                      
 the exercise of                                                                     
 stock options                                    59,155                             
-------------------------------------------------------------------------------------
Amortization of                                                                      
 deferred                                                      41,557                
 compensation                                                                        
-------------------------------------------------------------------------------------
Net income for the                                                                   
 period July 1, 1997                                                         467,116 
 to March 31, 1998                                                                   
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
                                                                                     
Balance at March 31,                                                                 
 1998                  4,034,650    40,347    10,300,911      (49,246)      (414,112)
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
                                       5
<PAGE>
 
                             JAVELIN SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)
                                        
                                        
1.  Summary of Significant Accounting Policies

General

     Javelin Systems, Inc. (the "Company") was incorporated in the State of
Delaware on September 19, 1995 under the name of Sunwood Research, Inc.  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, the Company acquired all of the outstanding common stock
of POSNET Computers, Inc. and CCI Group, Inc. as described in Note 3.  The
Company has filed with the Commission a Form 8-K with respect to each
acquisition.

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.  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 for the fiscal
year ended June 30, 1997 filed with the SEC.

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.

                                       6
<PAGE>
 
Principles of consolidation

     The consolidated financial statements for the quarter ended March 31, 1998
include the accounts of the Company and of its wholly-owned subsidiaries
acquired in December 1997 (see Note 3).  All significant intercompany
transactions and balances have been eliminated.  The results of operations of
the wholly-owned subsidiaries have been included with the results of operations
of the Company beginning in January 1998.

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>
                                     March 31,          June 30,
                                       1998               1997    
                                     ----------        ----------
          <S>                        <C>               <C>       
          Raw materials              $2,569,542        $1,525,653
          Work-in-Process               107,937                  
          Finished goods              2,578,880           148,444
                                     ----------        ----------
                                                                 
                                     $5,256,359        $1,674,097
                                     ==========        ==========
</TABLE>

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.

     Revenue from the installation of products will be recognized upon the
completion of the installation of the product as acknowledged by the customer.

     Service contract revenues will be recognized on a pro rata basis over the
term of the related contract.

Excess of Cost over Net Assets of Purchased Businesses

     Assets and liabilities related to business combinations accounted for as
purchase transactions are recorded at their respective fair values.  The excess
of cost over net assets of purchased businesses is amortized on a straight-line
basis over 25 years.  Long-lived assets are reviewed for impairment whenever
events and changes in business circumstances indicate the carrying value of the
assets may not be recoverable.  Impairment losses are recognized if expected
future cash flows of the related assets are less than their carrying value.

                                       7
<PAGE>
 
Earnings (loss) per Common Share

     The Financial Accounting Standards Board issued SFAS 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.  Common share equivalents were
not included in the computation of diluted loss per common share since their
effect would have been anti-dilutive.

     A reconciliation of the basic and diluted EPS for the three and six months
ended March 31, 1998 is as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                    Three Months Ended      Nine Months Ended
                                      March 31, 1998          March 31, 1998
--------------------------------------------------------------------------------
                                    BASIC      DILUTED     BASIC        DILUTED 
--------------------------------------------------------------------------------
<S>                               <C>         <C>         <C>         <C>       
--------------------------------------------------------------------------------
Net income (loss)                 $ 353,366   $ 353,366   $ 467,116   $ 467,116 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Weighted average common shares
 outstanding                      4,034,650   4,034,650   3,466,436   3,466,436 
--------------------------------------------------------------------------------
Additional shares due to                                                        
 potential exercise of stock
 options                                         80,641                 108,131
--------------------------------------------------------------------------------
Weighted average common shares
 outstanding                      4,034,650   4,115,291   3,466,436   3,574,567 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Earnings per share                $    0.09        0.09        0.13        0.13 
--------------------------------------------------------------------------------
</TABLE>
                                       8
<PAGE>
 
2.  Line of Credit

     The Company has a line of credit with a financial institution expiring
December 31, 1998 under which it may borrow up to 75% of the Company's eligible
accounts receivable (as defined) with monthly interest based upon the prime rate
of a national financial institution. Borrowings under the line of credit are
collateralized by substantially all the assets of the Company. As of March 31,
1998, borrowings outstanding under the line amounted to $1,200,000 with $500,000
available for future borrowings.

     The Company's subsidiaries have lines of credit which allow borrowings of
up to $365,000.  As of March 31, 1998, borrowings outstanding under these lines
amounted to $365,000. Such lines of credit will be terminated in the three
months ending June 30, 1998.

3.  Acquisitions

     In December 1997, the Company acquired all of the outstanding capital stock
of POSNET Computers, Inc. ("POSNET").  POSNET sells, installs and maintains POS
systems and turnkey retail automation systems.  The purchase price for the
POSNET capital stock consisted of 225,000 shares of the Company's common stock.
The company may be required to issue an additional 75,000 shares of its common
stock in 1998 and shares of its common stock with a market value of $500,000 in
each of 1999 and 2000 based upon the cumulative net profits of POSNET during the
three years ending December 31, 2000.  The acquisition has been accounted for by
the purchase method, and accordingly, the results of operations of POSNET have
been included with those of the Company commencing on January 1, 1998.  The
purchase price of $1,589,150 (including acquisition costs of approximately
$70,400) resulted in excess of acquisition costs over net assets of
approximately $1,774,900.  Such excess (which will increase for any contingent
payments) is being amortized on a straight-line basis over 25 years.

     In December 1997, the Company acquired all of the outstanding capital stock
of CCI Group, Inc. ("CCI"). CCI sells, installs and maintains POS systems and
turnkey retail automation systems. The purchase price for the CCI capital stock
consisted of 670,000 shares of the Company's common stock. The acquisition has
been accounted for by the purchase method, and accordingly, the results of
operations of CCI have been included with those of the Company commencing on
January 1, 1998. The purchase price of $4,454,750 (including costs of
acquisition of approximately $89,300) resulted in excess of acquisition costs
over net assets of approximately $4,075,500. Such excess is being amortized on a
straight-line basis over 25 years.

     Cash received in connection with the Company's purchase acquisitions is as
follows:

<TABLE>
     <S>                                         <C>
     Fair value of assets acquired               $9,371,339
     Less liabilities assumed                     4,186,952
     Less stock issued to sellers                 5,884,219
                                                 ----------
                                              
     Cash received                               $  699,832
                                                 ==========
</TABLE>
                                       9
<PAGE>
 
4. Stockholders' Equity

    Common Stock

    During the nine months ended March 31, 1998, the Company issued 895,000
shares of its common stock in connection with the acquisitions described in Note
3 and 20,400 shares of common stock upon the exercise of stock options with a
weighted average exercise price of $3.50 per share.

    Income tax benefits from the exercise of the stock options of approximately
$59,000 has been credited to additional paid-in capital in the accompanying
consolidated balance sheet.

    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 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 nine months ended March 31, 1998, the Company recognized
$41,557 in stock based compensation expense.

    In August 1996, the Company adopted a stock incentive award plan (the
"Plan") under which the Board of Directors, 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.
During the nine months ended March 31, 1998, options to purchase 47,000 shares
of common stock were granted to employees at fair market value on the date of
grant. The weighted average exercise price of such options was $7.33.

    In December 1997, the stockholders approved at the Company's annual meeting
the Company's 1997 Equity Incentive Plan (the "Plan") under which the Board of
Directors, 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 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.  During the nine months ended
March 31, 1998, options to purchase 290,500 shares of common 


                                       10
<PAGE>
 
stock were granted at fair market value on the date of grant. The weighted
average exercise price of such options was $8.78.

5.  Recently Issued Accounting Standards

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. It includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. This standard will require that an enterprise display
an amount representing total comprehensive income for the period. SFAS No. 130
will be effective for the Company's year ending June 30, 1999. Adoption of SFAS
No. 130 is for presentation only and will not affect the Company's financial
position or results of operations.

     In June 1997, the FASB issued FASB No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which supersedes SFAS No. 14. This
statement changes the way that public business enterprises report segment
information, including financial and descriptive information about their
selected segment information. Operating segments are defined as revenue-
producing components of the enterprise which are generally used internally for
evaluating segment performance. SFAS No. 131 will be effective for the Company's
year ending June 30, 1999 and will not affect the Company's financial position
or results of operations.


                                       11
<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, develops, markets and sells
open system touch screen POS computers primarily for the foodservice industry
and provides comprehensive turn-key services for the foodservice, retail and
information kiosks markets.

     The following discussion and analysis addresses the results of the
Company's operations for the three and nine month periods ended March 31, 1998.
On November 1, 1996 the Company consummated an initial public offering (the
"IPO") of 850,000 shares of its common stock, resulting in net proceeds to the
Company of approximately $3.2 million. In December 1997, the Company acquired
all of the outstanding capital stock of POSNET Computers, Inc. ("Posnet") and
CCI Group, Inc. ("CCI"). The acquisitions have been accounted for by the
purchase method, and accordingly, the operations of the subsidiaries have been
included with the operations of the Company commencing in January 1998.

     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 customer orders, new or
increased competition, delays in new product enhancements and new product
introductions, quality control difficulties, changes in manufacturing systems,
suppliers, or vendors, changes in market demand, market acceptance of new
products, product returns, seasonality in product sales, and pricing trends in
the industry in general, and in the specific markets in which the Company is
active.  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 forward-looking statements 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, including the risks
factors described in the Company's Form 10-KSB for the year ended June 30, 1997
and other periodic reports filed with the Securities and Exchange Commission. In
light of the significant 


                                       12
<PAGE>
 
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.

Results of Operations

     As described in the preceding page, the operations of the subsidiaries
(Posnet and CCI) acquired in December 1997 have been included with the
operations of the Company commencing in January 1998.  Consequently, the Company
is providing an analysis of the results of operations for the three and nine
months periods ended March 31, 1998 based on historical information and on a
pro-forma basis as if the results of operations of these subsidiaries for the
three and nine months period ended March 31, 1997 had been included with the
operations of the Company for the corresponding period.  For purpose of the
following analyses, "Company" represents the consolidated group whereas
"Javelin" relates to the operations without the two subsidiaries.

Based on historical information

Three months ended March 31, 1998 as compared to three months ended March 31,
1997

     Net sales for the three months ended March 31, 1998 increased by $8,948,857
to $10,643,449 compared to net sales of $1,694,592 for the three months ended
March 31, 1997. The change is due to an increase in revenues relating to Javelin
of $2,657,769 and revenues from the subsidiaries amounting to $6,291,088. The
increases relating to Javelin are due to increases in the number of unit-sales
of NexDisplay 4 and NexDisplay LC systems. During the three months ended March
31, 1998, the Company sold systems to 87 customers compared to sales systems to
148 customers for the three months ended March 31, 1997.

     Gross margin was 27.1% for the three months ended March 31, 1998 as
compared to a gross margin of 22.5% for the three months ended March 31, 1997.
Gross margin for the three months ended March 31, 1998 for hardware and related
software amounted to 26.7% and for services amounted to 30.7%. Gross margin for
Javelin amounted to 29.5% while the gross margin for the subsidiaries amounted
to 25.5%. The increase in gross margin at Javelin from 22.5% to 29.5% was due to
product mix and reductions in prices from the Company's suppliers and contract
manufacturers resulting from increased volume of purchases by the Company.

     Research and development expenses for the three months ended March 31, 1998
increased by $130,341 to $250,119 compared to research and development expenses
of $119,778 for the three months ended March 31, 1997.  All research and
development activities are conducted by Javelin.  These expenses consisted
primarily of payroll expenses and consulting expenses.  Management anticipates a
substantial increase in research and  development costs primarily due to the
anticipated introduction of several product enhancements and new products.

                                       13
<PAGE>
 
     Selling and marketing expenses for the three months ended March 31, 1998
increased by $330,072 to $438,053 compared to selling and marketing expenses of
$107,981 for the three months ended March 31, 1997.  Such expenses represent
solely expenses of Javelin and  consisted primarily of payroll, tradeshow fees,
and travel costs.  Management anticipates that these costs will continue to
increase as the Company strengthens its marketing infrastructure in order to
support the expansion of its product lines, distribution network and markets.

     General and administrative expenses for the three months ended March 31,
1998 increased by $1,367,485 to $1,581,699 compared to general and
administrative expenses of $214,214 for the three months ended March 31, 1997.
The change is due to increases at Javelin of $65,086 and general and
administrative expenses of the subsidiaries of $1,243,036. These expenses
consisted primarily of payroll costs, professional services, utilities, supplies
and rent. The increase at Javelin consisted primarily of increased payroll
costs, increased facility costs due to expansion and costs associated with being
a public company. Management anticipates that in the future these expenses will
decrease as a percentage of sales as the consolidation of certain administrative
functions is effected.

     Interest expense for the three months ended March 31, 1998 increased by
$25,930 to $26,833 compared to interest expense of $903 for the three months
ended March 31, 1997.  The increase is due to an increase in the borrowings
outstanding under the line of credit.

     A provision for federal and state income taxes of $262,955 was required for
the three months ended March 31, 1998 since the Company generated taxable income
while no provision was required for the three months ended March 31, 1997 as the
Company incurred a net taxable loss for that period.

Nine months ended March 31, 1998 as compared to nine months ended March 31, 1997

     Net sales for the nine months ended March 31, 1998 increased by $13,715,942
to $18,045,784 compared to net sales of $4,329,842 for the nine months ended
March 31, 1997. The change is due to an increase in revenues relating to Javelin
of $7,424,854 and revenues from the subsidiaries amounting to $6,291,088. The
increases relating to Javelin are due to increases in the number of unit-sales
of NexDisplay 4 and NexDisplay LC systems.

     Gross margin was 25.5% for the nine months ended March 31, 1998 as compared
to a gross margin of 21.7% for the nine months ended March 31, 1997. Gross
margin for the nine months ended March 31, 1998 for hardware and related
software amounted to 25.1% and for services amounted to 30.7%. Gross margin for
Javelin amounted to 25.4% while the gross margin for the subsidiaries amounted
to 25.9%. The increase in gross margin at Javelin from 21.7% to 25.4% was due to
product mix and reductions in prices from the Company's suppliers and contract
manufacturers resulting from increased volume of purchases by the Company.

                                       14
<PAGE>
 
     Research and development expenses for the nine months ended March 31, 1998
increased by $297,422  to $556,844 compared to research and development expenses
of $259,422 for the nine months ended March 31, 1997.  All research and
development activities are conducted by Javelin.  These expenses consisted
primarily of payroll expenses and consulting expenses.  Management anticipates a
substantial increase in research and  development costs primarily due to the
anticipated introduction of several product enhancements and new products.

     Selling and marketing expenses for the nine months ended March 31, 1998
increased by $542,516 to $806,877 compared to selling and marketing expenses of
$264,361 for the nine months ended March 31, 1997.  Such expenses represent
solely expenses of Javelin and  consisted primarily of payroll, tradeshow fees,
and travel costs.  Management anticipates that these costs will continue to
increase as the Company strengthens its marketing infrastructure in order to
support the expansion of its product lines, distribution network and markets.

     General and administrative expenses for the nine months ended March 31,
1998 increased by $1,873,674 to $2,444,528 compared to general and
administrative expenses of $570,854 for the nine months ended March 31, 1997.
The change is due to increases at Javelin of $590,638 and general and
administrative expenses of the subsidiaries of $1,243,036. These expenses
consisted primarily of payroll costs, professional services, utilities, supplies
and rent. The increase at Javelin consisted primarily of increased payroll
costs, increased facility costs due to expansion and costs associated with being
a public company. Management anticipates that in the future these expenses will
decrease as a percentage of sales as the consolidation of certain administrative
functions is effected.

     Interest expense for the nine months ended March 31, 1998 decreased by
$669,769 to $35,593 compared to interest expense of $705,362 for the nine months
ended March 31, 1997.  The decrease is due to the inclusion of interest expense
for the nine months ended March 31, 1997 of $636,097 related to warrants issued
in connection with certain promissory notes.  This non-recurring interest
expense is attributable to the imputation of interest based upon the fair market
value of the warrants and did not represent a cash expense to the Company.

     A provision for federal and state income taxes of $322,144 was required for
the nine months ended March 31, 1998 since the Company generated taxable income
while no provision was required for the nine months ended March 31, 1997 as the
Company incurred a net taxable loss for that period.

                                       15
<PAGE>
 
Based on pro-forma information

Three months ended March 31, 1998 as compared to three months ended March 31,
1997

     The following pro-forma information presents the combined results of
Javelin, CCI and Posnet for the three months ended March 31, 1998 and 1997 as if
the acquisitions had occurred on July 1, 1996.  The pro-forma information is not
indicative of the results of future operations.

<TABLE>
<CAPTION>
                                 THREE MONTHS      THREE MONTHS
                                    ENDED             ENDED
                                  MARCH 1998        MARCH 1997       DIFFERENCE
<S>                             <C>               <C>              <C>
REVENUES:                                                         
  HARDWARE AND SOFTWARE         $ 9,357,483.44    $3,711,825.59    $5,645,657.85
  SERVICES                        1,285,965.57       527,367.93       758,597.64
                                --------------    -------------    -------------
  TOTAL                          10,643,449.01     4,239,193.52     6,404,255.49
                                --------------    -------------    -------------
                                                                  
COST OF SALES:                                                    
  HARDWARE AND SOFTWARE           6,864,134.31     3,268,901.52     3,595,232.79
  SERVICES                          891,720.35       264,290.49       627,429.86
                                --------------    -------------    -------------
  TOTAL                           7,755,854.66     3,533,192.01     4,222,662.65
                                --------------    -------------    -------------
                                                                  
GROSS MARGIN                      2,887,594.35       706,001.51     2,181,592.84
                                --------------    -------------    -------------
                                                                  
OPERATING EXPENSES:                                               
  SELLING, GENERAL AND                                            
    ADMINISTRATIVE                2,019,752.31       906,722.62     1,113,029.69
  RESEARCH AND DEVELOPMENT          250,119.00       119,778.00       130,341.00
                                --------------    -------------    -------------
  TOTAL                           2,269,871.31     1,026,500.62     1,243,370.69
                                --------------    -------------    -------------
                                                                  
OPERATING INCOME (LOSS)             617,723.04      (320,499.11)      938,222.15
                                                                  
OTHER INCOME (EXPENSE)               (1,402.31)       (1,772.00)          369.69
                                --------------    -------------    -------------
INCOME (LOSS) BEFORE INCOME
  TAXES                             616,320.73      (322,271.11)      938,591.84
                                --------------    -------------    -------------
                                                                  
PROVISION FOR INCOME TAXES          262,954.97                        262,954.97
                                --------------    -------------    -------------
NET INCOME (LOSS)               $   353,365.76    $ (322,271.11)   $  675,636.87
                                ==============    =============    =============
</TABLE>
                                                                                
     Net sales for the three months ended March 31, 1998 increased by $6,404,255
to $10,643,449 compared to net sales of $4,239,194 for the three months ended
March 31, 1997. The change is due to an increase in revenues relating to Javelin
of $2,657,769, an increase in

                                       16
<PAGE>
 
revenues relating to CCI of $2,400,602 and an increase in revenues relating to
Posnet of $1,345,884. The increases relating to Javelin are due to increases in
the number of unit-sales of NexDisplay 4 and NexDisplay LC systems as explained
previously. Increases in revenues for CCI and Posnet are due to rollouts to two
customers.

     Gross margin was 27.1% for the three months ended March 31, 1998 as
compared to a gross margin of 16.7% for the three months ended March 31, 1997.
Gross margin for the three months ended March 31, 1998 for hardware and related
software amounted to 26.7% and for services amounted to 30.7%. Gross margin for
the three months ended March 31, 1997 for hardware and related software amounted
to 11.9% and for services amounted to 50.1%. The increase in gross margin for
hardware was due to product mix and reductions in prices from the Company's
suppliers and contract manufacturers resulting from increased volume of
purchases by the Company whereas the decrease in gross margin for services is
primarily due to the current classification of certain costs as cost of sales
which previously had been included in selling, general and administrative
expenses.

     Research and development expenses for the three months ended March 31, 1998
increased by $130,341 to $250,119 compared to research and development expenses
of $119,778 for the three months ended March 31, 1997. All research and
development activities are conducted by Javelin. These expenses consisted
primarily of payroll expenses and consulting expenses. Management anticipates a
substantial increase in research and development costs primarily due to the
anticipated introduction of several product enhancements and new products.

     Selling, general and administrative expenses for the three months ended
March 31, 1998 increased by $1,113,070 to $2,019,752 compared to selling,
general and administrative expenses of $906,723 for the three months ended March
31, 1997. The increase consisted primarily of increased payroll costs, increased
facility costs due to expansion and costs associated with being a public
company.

     A provision for federal and state income taxes of $262,955 was required for
the three months ended March 31, 1998 since the Company generated taxable income
while no provision was required for the three months ended March 31, 1997 as the
Company incurred a net taxable loss for that period.

                                       17
<PAGE>
 
Nine months ended March 31, 1998 as compared to nine months ended March 31, 1997

The following pro-forma information presents the combined results of Javelin,
CCI and Posnet for the nine months ended March 31, 1998 and 1997 as if the
acquisitions had occurred on July 1, 1996.  The pro-forma information is not
indicative of the results of future operations.

<TABLE>
<CAPTION>
                                  NINE MONTHS      NINE MONTHS 
                                     ENDED            ENDED
                                     MARCH            MARCH
                                     1998             1997           DIFFERENCE
<S>                              <C>              <C>              <C>
REVENUES:                                         
  HARDWARE AND SOFTWARE          22,427,882.94    10,607,293.59    11,820,589.35
  SERVICES                        2,922,832.54     1,579,849.93     1,342,982.61
                                 -------------    -------------    -------------
  TOTAL                          25,350,715.48    12,187,143.52    13,163,571.96
                                 -------------    -------------    -------------
                                                                   
COST OF SALES:                                                     
  HARDWARE AND SOFTWARE          16,789,088.71     8,858,047.52     7,931,041.19
  SERVICES                        1,914,438.21       565,208.49     1,349,229.72
                                 -------------    -------------    -------------
  TOTAL                          18,703,526.92     9,423,256.01     9,280,270.91
                                 -------------    -------------    -------------
GROSS MARGIN                      6,647,188.56     2,763,887.51     3,883,301.05
                                 -------------    -------------    -------------
                                                                   
OPERATING EXPENSES:                                                
  SELLING, GENERAL AND                                             
    ADMINISTRATIVE                4,593,965.98     3,201,252.62     1,392,713.36
  RESEARCH AND DEVELOPMENT          556,844.00       259,422.00       297,422.00
                                 -------------    -------------    -------------
  TOTAL                           5,150,809.98     3,460,674.62     1,690,135.36
                                 -------------    -------------    -------------
                                                                   
OPERATING INCOME (LOSS)           1,496,378.58      (696,787.11)    2,193,165.69
                                                                   
OTHER INCOME (EXPENSE)                  642.31      (729,413.00)      730,055.31
                                 -------------    -------------    -------------
INCOME (LOSS) BEFORE                                               
  INCOME TAXES                    1,497,020.89    (1,426,200.11)    2,923,221.00
                                 -------------    -------------    -------------
                                                                   
PROVISION FOR INCOME TAXES          645,848.15                        645,848.15
                                 -------------    -------------    ------------- 
NET INCOME (LOSS)                   851,172.74    (1,426,200.11)    2,277,372.85
                                 =============    =============    =============
</TABLE>
                                       18
<PAGE>
 
     Net sales for the nine months ended March 31, 1998 increased by $13,163,572
to $25,350,715 compared to net sales of $12,187,144 for the nine months ended
March 31, 1997. The change is due to an increase in revenues relating to Javelin
of $7,424,854, an increase in revenues relating to CCI amounting to $3,674,864
and an increase in revenues relating to Posnet  amounting to $2,063,854. The
increases relating to Javelin are due to increases in the number of unit-sales
of NexDisplay 4 and NexDisplay LC systems whereas the increases in revenues
relating to CCI and Posnet are due primarily to new customer roll-outs.

     Gross margin was 26.2% for the nine months ended March 31, 1998 as compared
to a gross margin of 22.7% for the nine months ended March 31, 1997. Gross
margin for the nine months ended March 31, 1998 for hardware and related
software amounted to 25.1% and for services amounted to 34.5%. Gross margin for
the nine months ended March 31, 1997 for hardware and related software amounted
to 16.5% and for services amounted to 64.2%. The increase in gross margin for
hardware was due to product mix and reductions in prices from the Company's
suppliers and contract manufacturers resulting from increased volume of
purchases by the Company whereas the decrease in gross margin for services is
primarily due to the current classification of certain costs as cost of sales
which previously had been included in selling, general and administrative
expenses.

     Research and development expenses for the nine months ended March 31, 1998
increased by $297,422  to $556,844 compared to research and development expenses
of $259,422 for the nine months ended March 31, 1997.  All research and
development activities are conducted by Javelin.  These expenses consisted
primarily of payroll expenses and consulting expenses.  Management anticipates a
substantial increase in research and  development costs primarily due to the
anticipated introduction of several product enhancements and new products.

     Selling and marketing expenses for the nine months ended March 31, 1998
increased by $1,392,713 to $4,593,966 compared to selling and marketing expenses
of $3,201,253 for the nine months ended March 31, 1997. The increase consisted
primarily of increased payroll costs, increased facility costs due to expansion
and costs associated with being a public company.

     Other expenses, consisting primarily of interest expense, for the nine
months ended March 31, 1998 decreased by $730,055 to $(642) compared to other
expenses of $729,413 for the nine months ended March 31, 1997. The decrease is
due to the inclusion of interest expense for the nine months ended March 31,
1997 of $636,097 related to warrants issued in connection with certain
promissory notes. This non-recurring interest expense is attributable to the
imputation of interest based upon the fair market value of the warrants and did
not represent a cash expense to the Company.

     A provision for federal and state income taxes of $645,848 was required for
the nine months ended March 31, 1998 since the Company generated taxable income
while no provision was required for the nine months ended March 31, 1997 as the
Company incurred a net taxable loss for that period.

                                       19
<PAGE>
 
Liquidity and Capital Resources

     As of March 31, 1998, the Company had working capital of $3,049,354.

     Cash used in operating activities for the nine months ended March 31, 1998
totaled $1,693,427 and consisted primarily of investments in trade receivables
and inventories.  Cash provided by investing activities for the nine months
ended March 31, 1998 totaled $169,293 and resulted primarily from cash received
in connection with the acquisitions.  Cash provided by financing activities for
the nine months ended March 31, 1998 totaled $837,967 and consisted primarily of
net borrowings under the line of credit.  The Company has a line of credit
providing for borrowings of up to 75% of eligible accounts receivable (as
defined) bearing interest at the prime rate.  As of March 31, 1998, borrowings
available under the line of credit amounted to approximately $500,000.

     The Company believes that it has adequate financial resources to meet its
reasonably foreseeable future liquidity and capital requirements.


Part II.  Other Information

Item 2.   Changes in Securities and Use of Proceeds

     None

Item 4.   Submissions of Matters to a Vote of Security Holders

     None

Item 6.   Exhibits and Reports on Form 8-K.

(a)  Exhibits

     27.1  Financial Data Schedule in accordance with Article 5 of Regulation
           SX.

(b)  Reports on Form 8-K

     The Company filed a report on Form 8-K under Item 2 of such form dated
     December 30, 1997 for the acquisition of POSNET Computers, Inc. and a
     report on Form 8-K under Item 2 of such form dated January 5, 1998 for the
     acquisition of CCI Group, Inc.  The related financial statements were filed
     on Forms 8-K/A on March 4, 1998 and March 6, 1998, respectively.


                                       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.
                                                                              
                                                                              
        May  , 1998                                                           
-------------------------------          --------------------------------------
           Date                          Richard P. Stack                     
                                         Chief Executive Officer              
                                         and President                        
                                                                              
                                                                              
                                                                              
        May  , 1998                                                           
-------------------------------          --------------------------------------
           Date                          Horace Hertz                         
                                         Chief Financial Officer               


                                       21
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------

 27.1  Financial Data Schedule in accordance with Article 5 of Regulation SX.



                                       22