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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                  FORM 10-KSB
 
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
 
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
   ACT OF 1934
 
  FOR THE FISCAL YEAR ENDED MARCH 31, 1998 OR
 
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
   EXCHANGE ACT OF 1934
 
  FOR THE TRANSITION PERIOD FROM        TO
 
                        COMMISSION FILE NUMBER: 1-11747
 
                               ----------------
 
                       THE ASHTON TECHNOLOGY GROUP, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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       <S>                                                 <C>
                    DELAWARE                                   22-6650372
          (STATE OR OTHER JURISDICTION                      (I.R.S. EMPLOYER
        OF INCORPORATION OR ORGANIZATION)                  IDENTIFICATION NO.)
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                         1900 MARKET STREET, SUITE 701
                       PHILADELPHIA, PENNSYLVANIA 19103
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
 
                                (215) 751-1900
 
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
                               ----------------
 
         SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
 
                                     NONE
 
         SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
 
                         COMMON STOCK, PAR VALUE $.01
                   REDEEMABLE COMMON STOCK PURCHASE WARRANTS
                               (TITLE OF CLASS)
 
                               ----------------
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [_].
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
 
  Registrant's revenue for the fiscal year ended March 31, 1998 was
$3,494,276.
 
  The aggregate market value of the voting stock and nonvoting stock held by
non-affiliates of the registrant based on the closing selling price as
reported on NASDAQ on June 25, 1998 was $22,224,866.84.
 
  The number of shares outstanding of the registrant's Common Stock, $.01 par
value, was 8,477,913 as of July 2, 1998.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  Part III-Registrant's Definitive Proxy Statement for its 1998 Annual Meeting
of Stockholders to be filed not later than 120 days after the end of the
fiscal year.
 
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                               TABLE OF CONTENTS
 
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                                       PART I
 ITEM 1.  DESCRIPTION OF BUSINESS........................................     1
 ITEM 2.  DESCRIPTION OF PROPERTY........................................     9
 ITEM 3.  LEGAL PROCEEDINGS..............................................     9
 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............    10
                                      PART II
 ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
           MATTERS.......................................................    11
 ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS.........................................    12
 ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................    14
 ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE..........................................    33
                                      PART III
 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...............................    33
 SIGNATURES .............................................................    38
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<PAGE>
 
                          FORWARD-LOOKING STATEMENTS
 
  Certain statements in this Form 10-KSB constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act") and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known
and unknown risks, uncertainties and other important factors that could cause
the actual results, performance or achievements of the Company to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and
other important factors include, among others: dependence on arrangements with
self-regulatory organizations; dependence on proprietary technology;
technological changes and costs of technology; industry trends; competition;
ability to develop markets; changes in business strategy or development plans;
availability, terms and deployment of capital; availability of qualified
personnel; changes in government regulation; general economic and business
conditions; and other factors referenced in this Form 10-KSB. Such forward-
looking statements speak only as of the date of this Form 10-KSB. For
discussion of the factors that might cause performance of the Registrant to
differ with actual results, see Item 1: Description of Business and Item 6:
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which
any such statement is based.
 
                                    PART I
 
ITEM 1. DESCRIPTION OF BUSINESS
 
INTRODUCTION
 
  The Ashton Technology Group, Inc. ("ATG(TM)", the "Company", "Ashton", or
the "Registrant") is engaged in the development and commercialization of
online transaction systems for participants in the U.S. and international
financial markets. The Company was founded in 1994 to take advantage of
commercial opportunities through the application of advanced telecommunication
and computing technologies to the area of electronic commerce. The Company is
currently organized as a parent company which has or will have four
subsidiaries: (1) Universal Trading Technologies Corporation ("UTTC(TM)"); (2)
Gomez Advisors, Inc. ("GA"); (3) Electronic Market Center, Inc. ("EMC"); and
(4) ATG(TM) International, Inc. ("ATG(TM) International") (not yet
incorporated). REB Securities, Inc. ("REB"), a broker-dealer whose
registration statement with the Securities and Exchange Commission (the "SEC"
or "Commission") is pending, is a wholly-owned subsidiary of UTTC(TM). All
subsidiaries are or will be wholly-owned, except for UTTC(TM), of which the
Company owns approximately 96% of the common stock. During the third quarter
of fiscal 1998, the Company sold its Computer Science Innovations, Inc.
("CSI(R)") subsidiary (see "Computer Science Innovations, Inc.").
 
  During the fiscal year ended March 31, 1997, all of the Company's revenues
were generated by CSI(R). During the most recent fiscal year ended March 31,
1998, approximately 91% of the Company's revenues were generated by CSI(R),
and the remaining 9% of revenues were generated by GA. Following the sale of
CSI(R), the Company continues to seek regulatory approval to operate its
VTS(TM) system (see "Universal Trading Technologies Corporation") and to seek
other means of generating revenue. At the present time, GA (see "Gomez
Advisors, Inc.") is the Company's sole source of revenue.
 
ATG(TM)
 
  ATG(TM)'s transaction systems incorporate or plan to incorporate the
Company's core areas of technological expertise which include:
 
  .  Internet and Extranet technologies and systems;
 
  .  Electronic authentication, encryption and trusted systems providing high
     grade data and information security;
<PAGE>
 
  .  Online transaction systems for use through traditional communication
     channels and through the Internet;
 
  .  Advanced computing technologies (including neural networks and other
     forms of artificial intelligence to provide analytical tools for
     prediction and decision support which are being implemented in future
     products).
 
  ATG(TM) focuses on the development and application of the Company's data and
information security technologies and initiatives for the future electronic
distribution of the Company's online transaction based products and services.
ATG(TM)'s data and information security products are being designed to provide
the elements of confidentiality, integrity, non-repudiation, access control
and auditability that are necessary to allow the use of both "open" and
proprietary networks in the conduct of Internet commerce.
 
  WORLDCOM INC./COMPUSERVE NETWORK SERVICES, INC. AGREEMENT
 
  In January 1998, the Company announced the signing of a global network
services agreement with CompuServe Network Services, Inc., ("CompuServe
Network") a division of WorldCom Inc. CompuServe Network offers a wide range
of integrated data communications including Internet, Intranet, and Extranet
connectivity to over 1,300 businesses in 115 countries. CompuServe Network's
high speed digital network backbone, which includes Virtual Private Networking
(VPN) and Virtual Private Line (VPL) integrated services, is expected to allow
ATG(TM)'s trusted online transaction systems to be accessed worldwide by
financial intermediaries serving institutional and individual investors.
CompuServe Network's network solutions are expected to provide wide access to
ATG(TM)'s customers and permit ATG(TM) to deploy and control its system's
state-of-the-art encryption, authentication, and firewall technologies.
 
  E.COM INTERNATIONAL STRATEGIC RELATIONSHIP
 
  In November 1997, the Company entered into a strategic relationship with
E.Com International, Inc. ("E.Com") to support its goal of providing remote
wireless access to its family of online transaction systems. Under this
relationship, the Company will be the exclusive distributor of E.Com's
products for the professional financial services market. E.Com develops and
markets integrated wireless mobile computing devices which provide user access
to the Internet, corporate networks, and remote databases. As the exclusive
distributor of E.Com products to the professional financial services market,
ATG(TM) will be able to offer its proprietary online transaction products and
the Company's Universal Trading System ("UTS(TM)"), an electronic pricing and
transaction facility for trading securities with access from remote locations.
The Company purchased 35,000 shares of E.Com common stock and warrants to
purchase E.Com common stock at $3.00 per share in a private placement.
 
UNIVERSAL TRADING TECHNOLOGIES CORPORATION
 
  UTTC(TM)'s business is to develop, market and operate electronic pricing and
transactional systems for the securities trading market. UTTC(TM)'s target
customers are broker-dealers, pension plan sponsors, institutional money
managers and mutual funds and other members of the professional investment
community. These professional investors may benefit from UTTC(TM)'s
proprietary technologies and pricing mechanisms which will enable them to
trade efficiently and cost effectively in an electronic trading environment
which features:
 
  .  Anonymity;
 
  .  State-of-the-art data and information security;
 
  .  Market neutrality;
 
  .  Exchange-standard surveillance;
 
  .  Advanced computer and telecommunications technologies;
 
                                       2
<PAGE>
 
  .  Accessibility from anywhere in the world through the Company's alliance
     with CompuServe Network and ultimately through the Internet;
 
  .  Total data security through the use of encryption, electronic
     authentication and firewalls;
 
  .  Seamless integration into major customers' trading and investment
     management platforms;
 
  .  Electronic connection to pre-trade analytics and post-trade industry
     wide clearing and settlement mechanisms; and
 
  .  The ability to upgrade and expand to take advantage of the rapid
     improvements in computer and communications hardware and software.
 
  UTTC(TM) has developed the UTS(TM)'s first product module, the volume
weighted average price ("VWAP(TM)") Trading System ("VTS(TM)"), an electronic
securities pricing and transaction system for trading exchange listed and
NASDAQ National Market securities. All trades through the VTS(TM) system will
be executed at the days VWAP(TM), the average price for a specific stock
weighted by the volume of shares of such stock traded "regular way" during the
day on all securities exchanges throughout the United States as reported to
the appropriate consolidated reporting authority.
 
  THE PHILADELPHIA STOCK EXCHANGE AGREEMENT
 
  On April 22, 1995, the Philadelphia Stock Exchange (the "Exchange" or
"PHLX") and UTTC(TM) agreed to integrate and deploy the VTS(TM) system as a
new trading product of PHLX. On September 18, 1995, UTTC(TM) and PHLX
memorialized the April 22 agreement in a formal contract for a term of five
years commencing from the date the VTS(TM) becomes operational on PHLX.
Operation of the system is contingent upon approval by the SEC of a rule
proposal filed by PHLX in April 1996. The contract provides, among other
things, for the deployment of the VTS(TM) as a new trading product of PHLX.
 
  PHLX RULE CHANGE
 
  On October 28, 1997, PHLX submitted an amendment to its original request for
a rule change, which was required because of the elapsed time since the
original submission, and also reflected enhancements made by UTTC(TM) to
VTS(TM). On December 31, 1997, the SEC republished the rule and amendments in
the Federal Register. The standard notification period for the SEC to respond
is 35 to 90 days--though the SEC may extend this period with the Exchange's
consent. It is management's belief that approval of VTS(TM) as a facility of
the Exchange relates, in part, to operational issues related to the Exchange
and not to UTTC(TM) or the VTS(TM). Since the first filing in April 1996, and
the special investigation of PHLX by the SEC culminating in March 1997, PHLX
adopted significant governance changes, ceased full clearing agency services
and, after receiving merger or acquisition proposals from the Chicago Board
Options Exchange and the American Stock Exchange ("AMEX"), has agreed to enter
into an agreement to be acquired by AMEX.
 
  The Company has developed a working system in accordance with its contract
with PHLX, and continues to support the Exchange in efforts to secure
regulatory approval of VTS(TM) as a facility of the Exchange. The business and
regulatory environment for introducing new trading systems has become more
flexible based on proposals announced by the SEC in April 1998 regarding
alternate trading systems ("ATSs"). On April 16, 1998, the SEC proposed new
rules and rule amendments that, if adopted, will permit ATSs to choose whether
to register as national securities exchanges, or to register as broker-dealers
which must comply with additional requirements depending on their activities
and trading volume. Additionally, the SEC proposed to exclude from rule filing
requirements certain pilot trading systems to be launched by national
securities exchanges and self-regulatory organizations (collectively "SROs").
The latter regulation, if and when adopted, may allow the Company to introduce
its products, regardless of whether PHLX rule proposal is approved by the SEC.
Anticipating adoption of these new regulations, the Company currently is
exploring the best structure for launching its existing electronic trading
product and products under development, e.g. through an existing SRO facility,
as a broker-dealer, or as a new and independent registered exchange.
 
                                       3
<PAGE>
 
GOMEZ ADVISORS, INC.
 
  Gomez Advisors, Inc. ("GA") was formed in May 1997 as a wholly owned
subsidiary by the Company together with Julio Gomez and John Robb, formerly of
Forrester Research, Inc. and Dr. Alex Stein from FarSight Financial. GA
provides independent advice with respect to online investing and provides
clients in the financial services industry with consulting advice concerning
the use of the Internet as a tool for establishing electronic client
relationships, marketing, and the interactive distribution of securities. The
range of Internet brokerage consulting services provided through GA includes
strategy development, product and interface design, and implementation
planning. GA also publishes proprietary evaluations of Internet financial
services through its Internet Broker Scorecard and Internet Banker Scorecard
rankings. GA commenced generating revenue in October 1997 and has continued to
increase its business base since that time.
 
ELECTRONIC MARKET CENTER, INC.
 
  On June 4, 1998, the Company formed Electronic Market Center, Inc. as a
wholly owned subsidiary. This subsidiary is expected to operate and market the
Company's to be developed distributed open finance system called the
electronic market center ("eMC(TM)"). The Company intends to design eMC(TM)
for interactive market access by member users and to provide a global
electronic distribution channel for all types of financial products and
services. Although the Company has designed the specifications for the
eMC(TM), there can be no assurance that the Company will be able to finance
the development or to actually develop such finance system.
 
REB SECURITIES, INC.
 
  REB is a wholly owned broker-dealer subsidiary of UTTC(TM). REB expects
that, upon approval of its application for registration with the Commission,
National Association of Securities Dealers, Inc., and state authorities, it
will provide institutional "soft dollar" services pursuant to Section 28(e) of
the Exchange Act and brokerage services to banks, broker-dealers, insurance
companies, and other financial intermediaries.
 
ATG(TM) INTERNATIONAL, INC.
 
  The Company currently is in the process of forming ATG(TM) International,
Inc. as a wholly owned subsidiary. The international markets represent
potential significant growth opportunities for the application of ATG(TM)'s
technology and skills to the development of proprietary online transaction
systems for global financial markets. In November 1997, the Company entered
into a strategic initiative with Tianjin New Hong Chen Technology & Trading
Company to introduce its online trading technology and systems to the
financial markets in China.
 
COMPUTER SCIENCE INNOVATIONS, INC.
 
  CSI(R) was a subsidiary of the Company. CSI(R) was incorporated in Florida
in March 1983 and specialized in utilizing computer technologies and
sophisticated mathematical techniques to address complex information retrieval
and management problems. During the past year, CSI(R) was the primary revenue
provider for the Company.
 
  On November 6, 1997, ATG(TM) sold CSI(R) to George H. Milligan and Susanne
L. Cavadeas, as Trustees of the Trust Created by The Computer Science
Innovations, Inc. Leveraged ESOP, for $1,723,000, payable as follows: (1)
repayment of a $500,000 loan plus interest of $28,875, (2) $600,000 in cash,
and (3) a five year 8 1/4% Note of $594,125. The Company recognized an
accounting loss on the sale of $385,930; however, on a cash basis, the Company
realized a gain on the sale of $101,992. In addition, the Company received
cash in the amount of approximately $340,000 due to a Tax Allocation Agreement
(see "Tax Allocation Agreement").
 
                                       4
<PAGE>
 
          CAPITALIZATION, OWNERSHIP OF SUBSIDIARIES AND ORGANIZATION
 
INITIAL PUBLIC OFFERING
 
  On May 2, 1996, ATG(TM) completed an initial public offering (the
"Offering") of 2,472,500 shares of common stock, par value $0.01 per share
(the "Common Stock") at an initial public offering price of $4.50 per share
and 2,472,500 redeemable common stock purchase warrants at $.25 per warrant.
The Common Stock and the warrants are separately tradable. As a result of the
Offering, the Company received net proceeds of approximately $10,395,000.
 
UTTC(TM) PRIVATE PLACEMENT
 
  In April 1997, UTTC(TM) completed a private placement of $3,000,000 notes,
consisting of $2,550,000 nonconvertible and $450,000 convertible notes, to
accredited investors. The convertible notes are convertible into 450,000
shares of UTTC(TM) common stock. These notes bear interest at 9% per annum,
payable annually in arrears on January 31, 1998 and are due on January 31,
1999 or after the earlier conversion or prepayment of the Notes. The Company
received net proceeds of approximately $2,596,655 after deducting debt
issuance costs of $403,345. A total of $2,975,000 of notes were exchanged into
Series B Convertible Preferred Stock (see "ATG(TM) Series A and Series B
Private Placement and Exchange Offer").
 
ATG(TM) SERIES A AND SERIES B PRIVATE PLACEMENT AND EXCHANGE OFFER
 
  On September 18, 1997, the Company commenced a private offering and exchange
offer pursuant to which it offered to certain investors (i) up to 250,000
shares of its Series A Convertible PIK Preferred Stock (with a liquidation
preference of $10.00 per share) ( the "Series A Preferred"); (ii) up to
250,000 shares of its Series B Convertible Preferred Stock (with a liquidation
preference of $10.00 per share) (the "Series B Preferred"); and (iii) the
opportunity to exchange (the "Exchange Offer") up to 300,000 shares of its
Series B Preferred for up to $3,000,000 of convertible and non-convertible
notes issued by UTTC(TM) (the "UTTC(TM) Notes"). The Series A Preferred pays
cumulative dividends semi-annually at an annual rate of $0.50 per share and is
payable in additional shares of Series A Preferred until February 15, 2000. At
any time after February 15, 1998, each holder of shares of Series A Preferred
will have the right to convert each share of Series A Preferred into: (i) ten
shares of Common Stock; and (ii) one two-year warrant to purchase three shares
of the common stock, par value $0.01 per share, of UTTC(TM) (the "UTTC(TM)
Common Stock"), with an exercise price of $0.75 per share, subject to
adjustment. The Series B Preferred pays cumulative dividends semi-annually at
an annual rate of $0.90 per share. At any time after June 30, 1998, each
holder of shares of Series B Preferred has the right to convert each share of
Series B Preferred into: (i) six shares of Common Stock; and (ii) one two-year
warrant to purchase two shares of UTTC(TM) Common Stock, with an exercise
price of $0.75 per share, subject to adjustment.
 
  The Company sold all 250,000 shares of its Series A Preferred at $10.00 and
realized gross proceeds of $2,500,000. The Series A Preferred offering closed
on January 15, 1998. The Company closed the Exchange Offer transaction after
receiving the tender of $2,975,000 of the UTTC(TM) Notes for which the Company
issued 297,500 shares of Series B Preferred Stock. The Company extended its
private offering to institutional and accredited investors of Series B
Preferred until May 15, 1998. As of March 31, 1998, the Company had received
signed Subscription Agreements for 587,500 shares of the Series B Preferred
offered. The Series B transaction closed on May 6, 1998 after being
oversubscribed by 40,000 shares of Series B Preferred. The Company realized
gross proceeds of $2,900,000. The Company incurred transaction costs in
connection with the issuance of the Series A Preferred and the Series B
Preferred, as well as the issuance of the Series C Preferred (as defined
below) described below, in the aggregate amount of approximately $1.6 million.
 
 
ATG(TM) SERIES C CONVERTIBLE PREFERRED STOCK
 
  On January 27, 1998, the Company completed the sale of 100,000 shares of the
Series C Convertible Preferred Stock to a group of foreign investors (the
"Series C Investors"), with a liquidation preference of
 
                                       5
<PAGE>
 
$10.00 per share (the "Series C Preferred"), for an aggregate purchase price
of $1,000,000. Holders of the Series C Preferred will have the right to
convert each share of Series C Preferred into one share of Common Stock at the
conversion price which shall be equal to the following: (i) if the Market
Price (as hereinafter defined) on the Conversion Date (as hereinafter defined)
is less than $1.8774, the conversion price is equal to the lesser of 75% of
the Market Price at the Conversion Date or $1.2516; and (ii) if the Market
Price at the Conversion Date is equal to or greater than $1.8774, the
conversion price is equal to $1.2516 plus 50% of the difference between the
Market Price at the Conversion Date and $1.8774. The "Market Price" means the
average of the closing bid price per share of the Common Stock over the five
consecutive trading days ending on the trading day immediately preceding the
date the holder elects to convert the Series C Preferred (the "Conversion
Date"). In addition, the Series C Investors will receive warrants exercisable
into an aggregate of 100,000 shares of Common Stock at an exercise price of
105% of the Market Price for a period of 5 years.
 
  As of March 31, 1998, 50,000 shares of the Series C Preferred were converted
into 281,071 shares of Common Stock. Between March 31 and April 21, 1998, the
remainder of the shares of Series C Preferred were converted into
314,342 shares of Common Stock. The fees paid for the Series C Shares were as
follows: 5,000 Series C Shares, $50,000, and a warrant to purchase 100,000
shares of Common Stock at 105% of the Market Price to Settondown Capital
International Ltd. (the "Placement Agent"). In addition, the Company paid
$50,000 and is expected to grant an option to purchase 150,000 shares of
Common Stock at $1.875 per share to Adirondack Capital, L.L.C., whose managing
director is a director of the Company, for services in structuring the
offering.
 
ATG(TM) SERIES D AND E CONVERTIBLE PREFERRED STOCK
 
  On April 3, 1998 (the "Subscription Date"), the Company entered into a
Private Equity Line of Credit Agreement (the "Private Equity Agreement") with
a group of accredited investors (the "Private Equity Investors") which
provides for an aggregate commitment of $18,000,000 to the Company. On the
Subscription Date the Private Equity Investors purchased three shares of
Series D Convertible Preferred Stock (the "Series D Preferred") with a
liquidation preference of $1,000,000 per share for an aggregate purchase price
of $3,000,000 and the Company agreed to promptly file a registration statement
with the Securities and Exchange Commission under the Securities Act,
registering shares of Common Stock issuable in connection with the
transactions contemplated by the Private Equity Agreement (the "Registration
Statement"). The Company filed this registration statement with the Commission
on June 29, 1998. The Agreement provides that within five days after the
Registration Statement has been filed, and subject to the satisfaction of
certain other conditions, the Private Equity Investors will purchase two
shares of Series E Convertible Preferred Stock (the "Series E Preferred") with
a liquidation preference of $1,000,000 per share for an aggregate purchase
price of $2,000,000. Following the purchase of the Series E Preferred and
subject to the satisfaction of certain other conditions, the Company may from
time to time put (each, a "Put") to the Private Equity Investors shares of the
Common Stock for an aggregate Put price of $13,000,000. The Put price per
share is an amount equal to 85% of the average of the lowest bid prices of
such Common Stock over the seven day period beginning three days before and
ending three days after the Company gives notice of a Put. On the completion
of each Put, the Company has agreed to pay the Placement Agent an amount equal
to 5% in cash of the amount of each Put and has agreed to pay a fee of 5% cash
to Adirondack Capital, L.L.C., whose managing director is a director of the
Company.
 
  Under the terms of the Private Equity Agreement, the Company has agreed to
hold $1,000,000 of the proceeds received on the Subscription Date in cash or
government securities until the Company (i) receives shareholder approval for
the issuance of 20% or more of its Common Stock in connection with the
transactions contemplated by the Agreement (the "Required Approval") or (ii)
is able to increase its issued and outstanding Common Stock by at least
4,000,000 shares through the conversion of Convertible Preferred Stock (other
than Common Stock to be issued in connection with the Private Equity
Agreement). If neither of these events has occurred within 90 days after the
Subscription Date, the Company must return the $1,000,000 plus a 10% premium,
to the Private Equity Investors. On May 29, 1998, the Company held a Special
Meeting of its stockholders at which time the stockholders approved the
increase in the Company's Common Stock to 60,000,000 shares and its Preferred
Stock to 3,000,000 shares, thus removing the stipulation on holding the
$1,000,000 cited above.
 
                                       6
<PAGE>
 
  The Private Equity Investors are not obligated to purchase the Series E
Preferred or any Put shares unless, among other things, (i) the Company has
received the Required Approval, (ii) the Registration Statement is filed (the
Registration Statement must be effective in order for the Private Equity
Investors to be obligated to purchase the Put shares), (iii) the Company is
listed and its Common Stock is trading on a national exchange or quotation
system, (iv) the closing bid price of the Common stock on the day immediately
preceding such purchase is at least $1.50 per share, and (v) the Common Stock
has traded at an average volume of at least 25,000 shares a day for the thirty
trading days preceding such purchase.
 
  The Series D Preferred may not be converted into Common Stock until the
earlier of (i) 60 days following the Subscription Date or (ii) the date the
Registration Statement has been filed. The conversion price of the Series D
Preferred is an amount equal to 75% of the average closing bid price per share
over the five days preceding the conversion date (the "Market Price"). The
conversion price of the Series E Preferred is 80% of the Market Price. Each of
the Series D Preferred and Series E Preferred (i) ranks pari passu with the
other authorized Preferred Stock of the Company and (ii) is entitled to a
cumulative dividend of 8% per annum on its respective liquidation preference.
 
  On the Subscription Date, the Private Equity Investors received warrants
(each, a "Warrant") to purchase up to an aggregate of 250,000 shares of Common
Stock and will receive additional Warrants to purchase up to an aggregate of
100,000 of such shares on the completion of the purchase of the Series E
Preferred. The Warrants are exercisable for five years at an exercise price of
120% of the average closing bid price of the Common stock over the five
trading days preceding the Subscription Date.
 
  On the Subscription Date, the Company paid the Placement Agent, a fee of (i)
$150,000, (ii) 0.15 shares of Series D Preferred, (iii) a Warrant, on the same
terms as the Warrants issued to the Private Equity Investors, to purchase up
to 190,000 shares of Common Stock, (iv) 20,000 shares of Common Stock and (v)
attorney fees of $30,000. In addition, the Company paid a fee of $150,000 and
is expected to grant an option to purchase 450,000 shares of Common Stock at
$1.875 per share to Adirondack Capital, L.L.C., whose managing director is a
director of the Company, for its assistance in structuring the transaction.
Upon the completion of the purchase of the Series E Shares, the Company has
agreed to pay the Placement Agent (i) an amount equal to 5% of the proceeds of
such purchase, (ii) 0.1 shares of Series E Preferred, and (iii) a Warrant to
purchase up to 60,000 shares of the Common Stock. In addition, the Company
paid an amount equal to 5% of the proceeds of such purchase to Adirondack
Capital, L.L.C., the managing director of which is a director of the Company.
On the completion of each Put by the Company pursuant to the Series E
Agreement, the Company has agreed to pay the Placement Agent an amount equal
to 5% of the proceeds of each such Put.
 
OWNERSHIP OF SUBSIDIARIES
 
  ATG(TM) owns (i) approximately 96% of the outstanding common stock of
UTTC(TM) and (ii) 100% of the outstanding common stock of GA. During this
fiscal year, the Company increased its ownership of UTTC(TM) from 80% to 96%
by receiving: (i) approximately 6,000,000 shares of UTTC(TM) common stock in
connection with the Exchange Offer; (ii) approximately 4,800,000 shares of
UTTC(TM) common stock for the payment of certain guaranteed obligations; (iii)
3,000,000 shares of UTTC(TM) common stock for existing development advances;
and (iv) 5,000,000 shares of UTTC(TM) common stock for $2.5 million of the
proceeds from the Series B Offering.
 
COMPETITION
 
  The Company and its subsidiaries operate in several competitive markets.
ATG(TM)'s competition in the commercial markets principally comes from larger,
better-established companies, many of which have financial, sales and
marketing resources substantially greater than ATG(TM). In online trading
systems, the UTS(TM) system will compete with other electronic trading
systems, including Reuters, N.A.'s Instinet system, Investment Technology
Group, Inc.'s POSIT system and Optimark Technologies, Inc.'s proposed Optimark
system. The Company believes that competitive criteria includes quality of
trade execution, pricing and reliability of post-execution processing and
settlement operations. The UTS(TM) system will also compete with various
national and
 
                                       7
<PAGE>
 
regional securities exchanges for trade execution services. The automated
trade execution and analytical services to be offered by the UTS(TM) system
will compete with services offered by leading brokerage firms and other
information service and transaction processing firms. In the advisory/product
research area, Forrester Research, Inc., Gartner Group and J. D. Power &
Associates are competitors. In distribution networks, the Company's
competition would be national and regional securities exchanges and financial
intermediary private networks such as Merrill Lynch and Bloomberg L.P.
 
  UTTC(TM)'s success is heavily dependent upon the acceptance of the UTS(TM)
by institutional investors. Failure to obtain such acceptance could result in
lower share volumes and a lack of liquidity on the UTS(TM). Market and
customer acceptance of the UTS(TM) will depend upon, among other things,
UTS(TM)'s operational performance, which has not yet been tested in the
environment of actual equity market trading activity. In addition, once
operational, the UTS(TM)'s institutional customers may discontinue the use of
the UTS(TM) at any time. While the Company's management continues to solicit
customers to use the UTS(TM), any commitments are dependent upon the UTS(TM)
becoming operational at PHLX or, in the alternative, at an independent broker-
dealer or exchange. There can be no assurance that UTTC(TM) will attract a
sufficient number of customers to the UTS(TM). Failure to introduce
successfully and market the UTS(TM) could result in a material adverse effect
on UTTC(TM) and the consolidated operations of the Company.
 
DEVELOPMENT COSTS
 
  As a development stage company which has had a limited operating history,
the company is subject to the risks and difficulties common to new businesses.
During the fiscal year ended March 31, 1998, the Company incurred $196,974 of
development costs compared with $3,382,848 of development costs on a
consolidated basis for the fiscal year ended March 31, 1997. During the
previous fiscal year, ATG(TM) incurred development costs of $2,049,651 for the
design and development of the Ashton Technology Encryption Device ("ATED") and
the encryption client-server. Separately, UTTC(TM) incurred costs of
$1,333,197 for the development of the UTS(TM) system which will be an
electronic pricing and transaction facility for trading securities.
 
PROPRIETARY RIGHTS
 
  ATG(TM)'s success depends to some degree on the protection of its
proprietary rights. ATG(TM) and its subsidiaries regard their respective
products as proprietary and rely primarily on a combination of trademark and
trade secret protection, employee and third party confidentiality and non-
disclosure agreements, license agreements and other intellectual property
protection methods to protect their proprietary rights. Neither ATG(TM),
UTTC(TM) nor GA currently holds any material patents or has filed for
copyright protection. UTTC(TM) has filed "intent-to-use" or "actual use"
documents to the Patent & Trademark Office for all of the products presently
available or currently being developed. UTTC(TM)'s products are generally
licensed to customers on a "right to use" basis pursuant to a non-transferable
license that generally restricts the customer's use to internal purposes.
 
GOVERNMENT REGULATION
 
  The UTS(TM) will be subject to significant government regulation by the
Commission and SROs which are charged with protecting the interests of the
investing public and the integrity of the securities markets. Originally, the
VTS(TM) system had been developed as a facility of PHLX, an SRO, and is
subject to regulatory approval by the SEC. Section 19(b) of the Exchange Act
and Rule 19b-4 promulgated thereunder require PHLX to file any proposed rules
changes with the SEC. The concept of the UTS(TM) system, which would
constitute a new PHLX facility accompanied by new PHLX rules, must be filed as
a proposed rule change (the "Rule Change proposal"). In this regard, PHLX
management was authorized by its Board of Governors to submit a proposed rule
change filing relating to the UTS(TM) system with the SEC, which published a
notice of the terms of the substance of the proposed rule change on September
4, 1996 and gave interested persons an opportunity to submit written data,
views, and arguments concerning such proposed rule change. In order to approve
the proposed Rule Change, the Commission must determine that the UTS(TM)
filing is consistent with the purposes of the Exchange Act, particularly
Section 6 of the Exchange Act, which provides standards governing the rules of
 
                                       8
<PAGE>
 
national securities exchanges. In October 1997, PHLX submitted a second
amendment of the proposed Rule Change to the SEC. In December 1997, the SEC
published a notice in the Federal Register soliciting comments on the proposed
rule change. There can be no assurance that the Commission will not require
further amendment to the PHLX Rule Change proposal or that the Commission will
approve the Rule Change proposal in the amended form. The Company is unable to
predict whether or when such approval of PHLX request will be received.
 
YEAR 2000/DOW 10,000 COMPLIANCE
 
  The Company has assessed the potential impact of what is commonly referred
to as the "Year 2000" issue, concerning the inability of certain information
systems and automated equipment to properly recognize and process dates
containing the Year 2000 and beyond. If not corrected, these systems and
equipment could fail or create erroneous results. The Company currently is in
the process of determining if any of its systems and equipment present Year
2000 issues. Regardless of the Year 2000 compliance of the Company's systems,
there can be no assurance that the Company will not be adversely affected by
the failure of others to become Year 2000 compliant. The potential liabilities
and costs associated with the Year 2000 compliance cannot be estimated with
certainty at this time. Because of these uncertainties regarding others, there
can be no assurance that the Year 2000 issue will not have a material
financial impact in any future period.
 
  Additionally, the Company has assessed the potential impact of the Dow Jones
Industrial Average (the "Dow" or "DJIA") exceeding 10,000 ("Dow 10,000"). The
potential issue involves whether certain information systems and automated
equipment may be unable to process and recognize a Dow in excess of 9,999. If
not corrected, these systems and equipment could fail or create erroneous
results. The Company currently is in the process of determining if any of its
systems and equipment present Dow 10,000 compliance issues. Regardless of the
Dow 10,000 compliance of the Company's systems, there can be no assurance that
the Company will not be adversely affected by the failure of others to become
Dow 10,000 compliant. The potential liabilities and costs associated with the
Dow 10,000 compliance cannot be estimated with certainty at this time. Because
of these uncertainties regarding others, there can be no assurance that the
Dow 10,000 issue will not have a material financial impact in any future
period.
 
EMPLOYEES
 
  As of March 31, 1998, the Company and its subsidiaries employed a total of
25 people.
 
ITEM 2. DESCRIPTION OF PROPERTY
 
  ATG(TM) and UTTC(TM) lease approximately 10,000 square feet of office space
at 1900 Market Street, Suite 701, Philadelphia, Pennsylvania 19103. ATG(TM)
leases approximately 2,500 square feet of office space at 10420 Little
Patuxent Parkway, Columbia, Maryland 21044. This property is presently
subleased to another tenant. The lease between the building landlord and
ATG(TM) expires in September 1998. UTTC(TM) leases approximately 175 square
feet of office space at 1285 Avenue of the Americas, 35th Floor, New York, New
York 10019. GA leases approximately 300 square feet of office space at 101
Federal Street, Suite 1900, Boston, Massachusetts 02110, and approximately
5,000 square feet of office space at 97 Lowell Road, Suite A-13, Concord,
Massachusetts 01742.
 
ITEM 3. LEGAL PROCEEDINGS
 
  Alliant Techsystems, Inc. ("Alliant") with whom the Company has a contract
for the production of certain ATED encryption devices, has demanded payment of
approximately $292,000 under that contract, which the Company is contesting.
On October 22, 1997, ATG(TM) filed a complaint against Alliant in the court of
Common Pleas, County of Philadelphia, Pennsylvania for damages for failure of
Alliant to perform its obligations under its contract with ATG(TM). On
December 15, 1997, Alliant filed its answer and counterclaims seeking damages
in an amount "in excess of $50,000."
 
                                       9
<PAGE>
 
  On May 1, 1997, David N. Rosensaft ("Rosensaft") commenced an action in the
United States District Court for the Southern District of New York entitled
"David N. Rosensaft vs. The Ashton Technology Group, Inc., Universal Trading
Technologies Corporation, The Dover Group, Inc. and Fredric W. Rittereiser
(collectively, the "Defendants")" No. 97 Civ. 3138 ("Rosensaft Action"),
asserting ten claims against the defendants including breach of contract and
securities fraud and seeking, inter alia, specific performance of the
Settlement Agreement, dated January 30, 1997, between and among the parties or
in the alternative, actual and consequential damages in an amount to be proved
at trial in addition to punitive damages.
 
  On April 9, 1998, the parties agreed to a settlement of all claims in
consideration of $1,133,020 paid to Rosensaft by the defendants (ATG(TM),
UTTC(TM) and the Dover Group, Inc.) and a Stipulation and Order of Dismissal
was filed with the Court on April 10, 1998. ATG(TM)'s portion of the
settlement is $760,000.
 
  On May 29, 1998, Rosensaft ("Rosensaft") served the Company with a complaint
in the United States District Court for the Southern District of New York
entitled "David Rosensaft vs. Universal Trading Technologies Corporation and
The Ashton Technology Group, Inc." No. 98 Civ. 3681, asserting five claims
against the Company and its subsidiary, UTTC(TM) for breach of the Company's
fiduciary duty to Rosensaft as a minority shareholder of UTTC(TM) (Third Cause
of Action), for invalid amendments to the certificates of incorporation of
UTTC(TM) and the Company and invalid issuance of UTTC(TM) stock to the Company
(Fourth Cause of Action) and for improper issuance of additional shares of
UTTC(TM) common stock to the Company (Fifth Cause of Action).
 
  More specifically, the First Cause of Action alleges that in 1995 the
Company breached its March 7, 1995 agreement with Rosensaft by issuing only
2,000,000 shares of UTTC(TM) common stock to him in violation of a provision
of that agreement that allegedly entitled him to receive 2,450,000 shares of
UTTC(TM) common stock.
 
  The Second, Third, Fourth and Fifth Causes of Action allege that, in causing
UTTC(TM) to issue approximately 19 million shares of UTTC(TM) common stock to
ATG(TM) in September 1997, allegedly without adequate consideration, the
Company improperly diluted Rosensaft's share of UTTC(TM) common stock from
6.7% to 1.38% in violation of Delaware corporate law and in breach of
Rosensaft's March 7, 1995 agreement with the Company.
 
  The relief sought by Rosensaft is as follows: in the First Cause of Action,
450,000 shares of UTTC(TM) common stock, or damages to be determined at trial,
but not less than $2 Million; in the Second and Third Causes of Action,
damages to be determined at trial; in the Fourth Cause of Action, an order
revoking or canceling the issuance of additional shares of UTTC(TM) common
stock in excess of the 10,000,000 shares authorized by UTTC(TM)'s original
Certificate of Incorporation; and in the Fifth Cause of Action, an order
revoking or canceling the issuance of the approximately 19,000,000 additional
shares of UTTC(TM) common stock to the Company.
 
  The Company believes that none of the above matters will have a material
adverse effect upon the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  No matters were submitted to a vote of security holders during the fiscal
year ended March 31, 1997. A Proxy Statement was filed with the SEC on April
20, 1998 notifying stockholders of a Special Meeting of Stockholders to be
held on May 29, 1998 for the purpose of considering and voting upon: (i)
increasing the number of authorized shares of ATG(TM) Common Stock from
20,000,000 to 60,000,000; (ii) increasing the number of authorized shares of
ATG(TM) Preferred Stock from 1,000,000 to 3,000,000; and (iii) authorizing the
issuance of ATG(TM) Common Stock pursuant to certain put rights and upon the
conversion or exercise, as the case may be, of ATG(TM)'s Series D Convertible
Preferred Stock, Series E Convertible Preferred Stock and warrants to purchase
shares of Common Stock issued or issuable pursuant to the Private Equity Line
of Credit Agreement dated April 2, 1998. All three items were approved by the
stockholders at the May 29, 1998 Special Meeting of Stockholders.
 
 
                                      10
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
  On May 2, 1996, ATG(TM) completed an initial public offering of 2,472,500
shares of common stock ("Common Stock") at an initial public offering price of
$4.50 per share and 2,472,500 redeemable common stock purchases warrants
("Warrants") at $0.25 per warrant. The Common Stock and the Warrants are
traded on the Nasdaq Small Cap Market.
 
  The following sets forth the initial offering, and high and low prices for
the Common Stock during the periods indicated:
 
<TABLE>
<CAPTION>
                                                           LOW
                                                 HIGH ($)  ($)
                                                 -------- ------
     <S>                                         <C>      <C>
     Initial Offering Price                         4.50    4.50
     May 2, 1996 through June 30, 1996:            15.50    7.00
     July 1, 1996 through September 30, 1996:     11.625    4.25
     October 1, 1996 through December 31, 1996:    8.125    5.00
     January 1, 1997 through March 31, 1997:      7.6875    3.00
     April 1, 1997 through June 30, 1997:          4.125   2.375
     July 1, 1997 through September 30, 1997:       2.75  0.8125
     October 1, 1997 through December 31, 1997:    2.125  0.8125
     January 1, 1998 through March 31, 1998:       4.375   1.125
 
  The following sets forth the initial offering, and high and low prices for
the Warrants during the periods indicated:
 
<CAPTION>
                                                           LOW
                                                 HIGH ($)  ($)
                                                 -------- ------
     <S>                                         <C>      <C>
     Initial Offering Price                         0.25    0.25
     May 2, 1996 through June 30, 1996:             9.25    3.25
     July 1, 1996 through September 30, 1996:      5.375    1.25
     October 1, 1996 through December 31, 1996:     4.00    2.00
     January 1, 1997 through March 31, 1997:        3.25   1.625
     April 1, 1997 through June 30, 1997:           2.25  1.0625
     July 1, 1997 through September 30, 1997:      1.375   0.375
     October 1, 1997 through December 31, 1997:     1.00  0.1875
     January 1, 1998 through March 31, 1998:       1.875  0.1875
</TABLE>
 
  On March 31, 1998, the closing price of the Common Stock was $3.9375 and the
closing price of the Warrants was $1.50.
 
  As of March 31, 1998, there were approximately 86 holders of record of
Common Stock in "Street Name" representing approximately 2000 stockholders and
approximately 28 holders of record of Warrants in "Street Name" representing
approximately 1000 stockholders.
 
DIVIDEND POLICY
 
  No dividends have been declared on the Common Stock through June 30, 1998
and the Board of Directors has no current intention to declare or pay
dividends on the Common Stock in the foreseeable future.
 
                                      11
<PAGE>
 
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
  The following discussion of the Company's results of operations and
liquidity and capital resources should be read in conjunction with the
consolidated financial statements and related notes of the Company for the
years ended March 31, 1996, 1997 and 1998. The results for the year ended
March 31, 1998 are not comparable to the prior fiscal year (i) because the
Company established GA, which began to generate revenues in October 1997, and
(ii) because the Company sold, in November 1997, its CSI(R) subsidiary, which
had been the Company's primary source of revenues.
 
REVENUES AND EXPENSES
 
  The Company had consolidated revenues of $3,494,276 for the fiscal year
ended March 31, 1998 which compares with $4,938,330 for the fiscal year ended
March 31, 1997. All but $313,659 of the Company's current fiscal year revenues
and the related "cost of revenues" were generated by CSI(R), and all of the
Company's previous fiscal year revenues were generated by CSI(R). (The
consolidated revenues for last fiscal year do not include $1,386,143 paid by
ATG(TM) and UTTC(TM) to CSI(R) for software engineering services.) During this
fiscal year, the Company sold CSI(R), and continues to seek regulatory
approval to operate its VTS(TM) system and to seek other sources of operating
revenues, including the expansion and development of its subsidiaries.
However, there can be no assurance that the Company will obtain such
regulatory approval, that the company will locate other sources of operating
revenues, or that the Company's subsidiaries, other than GA, will generate
revenues.
 
  During the twelve months ended March 31, 1998, the Company incurred a net
loss of $8,674,902, compared to a loss of $6,842,406 in the prior fiscal year.
These losses include the following significant one-time expenses:
 
  .  $1,804,917 related to the issuance of non-employee stock options to
     consultants and professional advisors. This is a non-cash charge which
     impacts the Company's profit and loss ("P&L") in the current year but
     does not affect the balance sheet (the $1,804,917 reduction in retained
     earnings is offset by a corresponding increase in additional paid-in
     capital to reflect the grant of the options.) The options are not
     registered and are subject to the trading restrictions imposed by SEC
     rules.
 
  .  $385,930 loss on the sale of CSI(R). (On a "cash-on-cash" basis, the
     Company purchased CSI(R) for approximately $1.6 million, sold it for
     $1.7 million, and received $340,000 in cash from CSI(R) per a Tax
     Allocation agreement.)
 
  .  $760,000 settlement of the Rosensaft litigation (see Item 3).
 
  Although the Company reported a higher P&L loss in Fiscal 1998 than in the
prior fiscal year, the "net cash used in operating activities" was less in
fiscal 1998 ($5,749,180) than in fiscal 1997 ($6,377,582). (See "Consolidated
Financial Statement: Statement of Cash Flows")
 
 
GOMEZ ADVISORS
 
  At the beginning of fiscal 1998, the Company established GA. GA has grown
from an initial staff of three to seven employees at fiscal year end. GA
started to generate revenues in October 1997, and these have increased to
$313,659 for the year ended March 31, 1998. Costs of revenues are direct
costs, which include labor costs, subcontract costs, material costs and other
direct costs related to contract revenue and overhead.
 
CSI(R)
 
  CSI(R)'s revenues for the year ended March 31, 1997 increased by 5%,
$2,657,000, to approximately $6,324,000, from approximately $3,667,000 for the
year ended March 31, 1996. This increase was attributable to an increase in
commercial sales of $2,872,000. CSI(R) also recorded revenue of approximately
$1,386,000 from ATG(TM) for the year ended March 31, 1997.
 
                                      12
<PAGE>
 
  Costs of revenues for the year ended March 31, 1997 increased by $1,739,000,
or 58.2%, to approximately $4,725,000, from approximately $2,986,000 for the
year ended March 31, 1996. This change has occurred primarily due to the
higher concentration of commercial sales.
 
  Operating expenses for the year ended March 31, 1997 increased by $120,000,
or 28.0%, to approximately $549,000, from approximately $429,000 for the year
ended March 31, 1996.
 
  Net income for the year ended March 31, 1997 increased by $357,000, or
146.9%, to approximately $600,000, from approximately $243,000 in the year
ended March 31, 1996, based upon increased revenues.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
 
  During the fiscal year ended March 31, 1998, the Company incurred $5,718,443
of selling, general and administrative ("SG&A") expenses. This compares to the
$3,479,660 of SG&A expenses incurred during the fiscal year ended March 31,
1997. On a per subsidiary basis this fiscal year, ATG(TM) incurred $2,918,187
compared with last year's $2,140,582 of SG&A expense, UTTC(TM) incurred
$1,816,880 compared with last year's $876,069 SG&A expense and GA incurred
$492,901 of SG&A expense. The largest components of ATG(TM)'s increased SG&A
expenses were salaries, professional fees and public company expenses which
include directors and officers insurance.
 
DEVELOPMENT COSTS
 
  During the fiscal year ended March 31, 1998, the Company incurred
development costs of $196,974 which compares with the $3,382,848 of
development costs incurred last fiscal year on a consolidated basis. The
reduction in development costs occurred with the VTS(TM) system being
developed and ready for operation in April 1997. During the previous fiscal
year ended on March 31, 1997, ATG(TM) incurred development costs of $2,049,651
primarily for the design and development of the ATED encryption device and the
encryption client-server. Separately, UTTC(TM) incurred costs of $1,333,197
for the development of the UTS(TM) system.
 
INTEREST EXPENSE
 
  For the year ended March 31, 1998, the Company incurred interest expenses of
$393,813, which included the interest paid on the $3,000,000 in UTTC(TM) notes
payable, interest paid on a loan to CSI(R), and amortization of the deferred
placement expenses associated with its UTTC(TM) notes. This compares to the
interest expense of $39,792 shown last fiscal year.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  For the year ended March 31, 1998, the Company had cash and cash equivalents
of $5,050,680 after giving pro-forma effect to the private placement of Series
D Preferred Stock consummated on April 3, 1998 and after giving effect to the
additional Series B Preferred issuance. This compares to the cash and cash
equivalents of $2,691,854 in the last fiscal year after giving pro-forma
effect to the UTTC(TM) private placement that was consummated in April 1997.
Management expects to raise additional capital for the development of new
online transactional products for UTTC(TM), GA and ATG(TM) from the Series E
Equity Line of Credit or other sources. The Company has committed $1.5 million
of any such additional capital to the expansion of GA to complete its initial
business strategy. Management also expects to generate revenues from the
VTS(TM) system once regulatory approval has been obtained and the Company can
begin marketing the product to the professional investment community. However,
there can be no assurance that approval will be received or when such approval
will be received.
 
  Based upon the Company's current plan of operations, it is anticipated that
the net proceeds from the private placement of Series D Preferred completed in
April 1998 and the Series E Preferred together with the Put (when and if
exercised), will provide sufficient working capital for at least the next 18
months. The Company may need
 
                                      13
<PAGE>
 
additional financing in the future if (i) the Company experiences unexpected
costs, (ii) there is a delay in the introduction of the UTS(TM) system, (iii)
the Company fails to develop successfully the market for its
products, (iv) other opportunities arise which require significant investment,
or (v) if the net proceeds from the Series D Preferred and Series E Preferred
private placements prove to be insufficient for the Company's continued
operations. In addition, the Company may require additional financing to
complete any acquisition it may undertake. If financing is required, such
financing may be raised through additional equity offerings, joint ventures or
other collaborative relationships, borrowings and other sources. There can be
no assurance that additional financing will be available or, if it is
available, that it will be available on acceptable terms. If additional funds
are raised through the issuance of additional equity securities, the
percentage ownership of the then current stockholders of the Company may be
reduced and such equity securities may receive rights, preferences or
privileges senior to those of the holders of Common Stock.
 
CAPITAL EXPENDITURES
 
  During the current fiscal year ended March 31, 1998, the Company spent
$348,392 for the acquisition of capital equipment. This compares with the
$1,104,336 the Company spent for the acquisition of capital equipment
(primarily computer hardware and software for the UTS(TM) system) and for
leasehold improvements during the previous fiscal year.
 
TAX ALLOCATION AGREEMENT
 
  On or about March 27, 1997, the Company entered into an agreement with each
of its subsidiaries at the time, CSI(R) and UTTC(TM) (together with the
Company, the "Affiliated Group"), providing for the allocation of the
consolidated tax liability of the Affiliated Group among its members, for
reimbursing the Company for payment of such tax liability, for compensating
any party for use of its losses or tax credits, and for the allocation and
payment of any refund arising from a carryback of losses or tax credits from
subsequent tax years. The tax allocation agreement with CSI(R) was terminated
on its sale by the Company.
 
                                      14
<PAGE>
 
ITEM 7. FINANCIAL STATEMENTS
 
               THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                                         <C>
Independent Auditor's Report...............................................  16
Consolidated Financial Statements:
  Balance Sheet as of March 31, 1998.......................................  17
  Statement of Operations for the Years Ended March 31, 1997 and 1998......  18
  Statement of Stockholders' Equity for the Years Ended March 31, 1997 and
   1998....................................................................  19
  Statement of Cash Flows for the Years Ended March 31, 1997 and 1998......  20
  Notes to Consolidated Financial Statements...............................  21
</TABLE>
 
                                       15
<PAGE>
 
                         INDEPENDENT AUDITOR'S REPORT
 
To the Board of Directors
The Ashton Technology Group, Inc.
 
  We have audited the accompanying consolidated balance sheet of The Ashton
Technology Group Inc. and Subsidiaries as of March 31, 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period then ended. We have also audited the
pro forma consolidated balance sheet which gives effect to the receipt of
proceeds from issuance of preferred stock as described in Note 15 to the
consolidated financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Ashton
Technology Group, Inc. and Subsidiaries as of March 31, 1998 and the results
of their operations and their cash flows for each of the two years in the
period then ended in conformity with generally accepted accounting principles.
Also, in our opinion, the pro forma balance sheet presents fairly the
financial position of The Ashton Technology Group, Inc. and Subsidiaries as it
would have appeared at March 31, 1998 had the transaction described in Note 15
been consummated at that date.
 
                                          Goldstein Golub Kessler & Company,
                                           P.C.
 
New York, New York
May 7, 1998, except for the last
 paragraph of Note 7 and the 8th
 paragraph of Note 14, as to
 which the date is May 29, 1998
 
                                      16
<PAGE>
 
               THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
                           CONSOLIDATED BALANCE SHEET
 
<TABLE>
<CAPTION>
                                                     MARCH 31,     PRO FORMA
                                                        1998       (NOTE 15)
                                                    ------------  ------------
<S>                                                 <C>           <C>
                      ASSETS
Current Assets:
  Cash and cash equivalents........................ $    815,680  $  5,050,680
  Accounts receivable..............................      130,843       130,843
  Stock subscription receivable....................      245,000           --
  Current portion of note receivable...............      103,619       103,619
                                                    ------------  ------------
    Total current assets...........................    1,295,142     5,285,142
Property and Equipment, net........................      849,799       849,799
Investment in E. Com International, Inc............      105,000       105,000
Deferred Income Tax Asset, net of valuation allow-
 ance of $6,260,000................................          --            --
Note Receivable, net of current portion............      458,040       458,040
Computer Software Development Costs................      224,686       224,686
Other Assets.......................................       65,353        65,353
                                                    ============  ============
    Total Assets................................... $  2,998,020  $  6,988,020
                                                    ------------  ------------
       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable and accrued expenses............ $  1,736,447  $  1,936,447
  Notes payable....................................       25,000        25,000
                                                    ------------  ------------
    Total current liabilities......................    1,761,447     1,961,447
                                                    ------------  ------------
Commitment and Contingencies
Stockholders' Equity:
  Preferred stock--authorized 3,000,000 shares:
   250,000 shares designated as Series A (liquida-
   tion preference equals stated value); issued and
   outstanding 250,000 shares......................    2,500,000     2,500,000
  590,000 shares designated as Series B (liquida-
   tion preference $10 per share); issued and out-
   standing 460,000 shares; issued and outstanding
   587,500 shares for pro forma....................    3,188,875     3,977,013
  105,000 shares designated as Series C $.01 par
   value; (liquidation preference equals stated
   value); issued and outstanding 55,000 shares....      550,000       550,000
  10 shares designated as Series D $.01 par value;
   (liquidation preference equals stated value);
   none issued and outstanding; issued and out-
   standing 3.15 shares for pro forma..............          --      3,150,000
  10 shares designated as Series E $.01 par value;
   $1,000,000 per share liquidation preference;
   none issued.....................................          --            --
  Common stock--$.01 par value; authorized
   60,000,000 shares, issued outstanding 8,143,571
   shares; issued and outstanding 8,163,571 shares
   for pro forma...................................       81,436        81,636
Additional paid-in capital.........................   15,730,870    17,560,530
Deferred consulting expense........................     (438,281)     (438,281)
Accumulated deficit................................  (20,376,327)  (22,354,325)
                                                    ------------  ------------
    Stockholders' equity...........................    1,236,573     5,026,573
                                                    ------------  ------------
    Total Liabilities and Stockholders' Equity..... $  2,998,020  $  6,988,020
                                                    ============  ============
</TABLE>
 
(See Notes to Consolidated Financial Statements)
 
                                       17
<PAGE>
 
               THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED MARCH 31,
                                                       ------------------------
                                                          1997         1998
                                                       -----------  -----------
<S>                                                    <C>          <C>
Net revenue..........................................  $ 4,938,330  $ 3,494,276
                                                       -----------  -----------
Costs and expenses:
  Cost of revenue....................................    3,544,556    2,620,896
  Development costs..................................    3,382,848      196,974
  Selling, general and administrative expenses.......    3,479,660    5,718,443
  Noncash compensatory charges.......................          --     1,804,917
  Depreciation and amortization......................      280,678      326,736
                                                       -----------  -----------
    Total costs and expenses.........................   10,687,742   10,667,966
                                                       -----------  -----------
Other income (expenses):
  Loss on sale of subsidiary.........................          --      (385,930)
  Interest income....................................      144,341       91,996
  Interest expense...................................      (39,792)    (393,813)
  Corporate restructuring costs......................     (957,487)         --
  Settlement expense.................................          --      (760,000)
                                                       -----------  -----------
    Total other income (expenses)....................     (852,938)  (1,447,747)
                                                       -----------  -----------
Loss before provision for income taxes and minority
 interest in earnings of subsidiary..................   (6,602,350)  (8,621,437)
Provision for income taxes...........................      110,000       42,000
                                                       -----------  -----------
Loss before minority interest in earnings of subsidi-
 ary.................................................   (6,712,350)  (8,663,437)
Minority interest in earnings of subsidiary..........      130,056       11,465
                                                       -----------  -----------
Net loss.............................................  $(6,842,406) $(8,674,902)
                                                       ===========  ===========
Net loss per common share............................  $      (.93) $     (1.46)
                                                       ===========  ===========
</TABLE>
 
(see Notes to Consolidated Financial Statements)
 
                                       18
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
                      YEARS ENDED MARCH 31, 1997 AND 1998
 
<TABLE>
<CAPTION>
                                                           PREFERRED STOCK
                    COMMON STOCK          SERIES A             SERIES B              SERIES C
                  ----------------- -------------------- --------------------  --------------------  ADDITIONAL
                  NUMBER OF         NUMBER OF            NUMBER OF             NUMBER OF               PAID-IN    TREASURY
                   SHARES   AMOUNT   SHARES     AMOUNT    SHARES     AMOUNT     SHARES     AMOUNT      CAPITAL      STOCK
                  --------- ------- --------- ---------- --------- ----------  --------- ----------  -----------  ---------
<S>               <C>       <C>     <C>       <C>        <C>       <C>         <C>       <C>         <C>          <C>
Balance at March
31, 1996........  5,290,000 $52,900      --          --       --          --        --          --   $ 1,341,109  $(300,000)
Issuance of
common stock and
warrants in
initial public
offering........  2,272,500  22,725      --          --       --          --        --          --     9,141,088    300,000
Net loss........        --      --       --          --       --          --        --          --           --         --
                  --------- -------  -------  ----------  -------  ----------   -------  ----------  -----------  ---------
Balance at March
31, 1997........  7,562,500  75,625      --          --       --          --        --          --    10,482,197          0
Issuance of
Series A
Convertible
Preferred
Stock...........        --      --   250,000  $2,500,000      --          --        --          --           --         --
Issuance of
Series B
Convertible
Preferred
Stock...........        --      --       --          --   162,500  $1,625,000       --          --           --         --
Issuance of
Series B
Convertible
Preferred Stock
in connection
with the
exchange of
UTTC(TM) notes
payable.........        --      --       --          --   297,500   2,975,000       --          --      (309,005)       --
Issuance of
Series C
Convertible
Preferred
Stock...........        --      --       --          --       --          --    105,000  $1,050,000          --         --
Recognition of
beneficial
conversion
feature of
preferred
stock...........        --      --       --          --       --   (1,411,125)      --          --     3,617,605        --
Series C
Convertible
Preferred Stock
converted to
common stock....    281,071   2,811      --          --       --          --    (50,000)   (500,000)     497,189        --
Issuance costs
in connection
with preferred
stock...........        --      --       --          --       --          --        --          --    (1,594,466)       --
Issuance of
common stock for
consulting
services........    300,000   3,000      --          --       --          --        --          --       475,125        --
Issuance of
options to
purchase common
stock...........        --      --       --          --       --          --        --          --     2,562,225        --
Net loss........        --      --       --          --       --          --        --          --           --         --
                  --------- -------  -------  ----------  -------  ----------   -------  ----------  -----------  ---------
Balance at March
31, 1998........  8,143,571 $81,436  250,000  $2,500,000  460,000  $3,188,875    55,000  $  550,000  $15,730,870  $       0
                  ========= =======  =======  ==========  =======  ==========   =======  ==========  ===========  =========
<CAPTION>
                                 DEFERRED
                  ACCUMULATED   CONSULTING  STOCKHOLDERS'
                    DEFICIT      EXPENSE       EQUITY
                  ------------- ----------- -------------
<S>               <C>           <C>         <C>
Balance at March
31, 1996........  $ (2,652,539)        --    $(1,558,530)
Issuance of
common stock and
warrants in
initial public
offering........           --          --      9,463,813
Net loss........    (6,842,406)        --     (6,842,406)
                  ------------- ----------- -------------
Balance at March
31, 1997........    (9,494,945)        --      1,062,877
Issuance of
Series A
Convertible
Preferred
Stock...........           --          --      2,500,000
Issuance of
Series B
Convertible
Preferred
Stock...........           --          --      1,625,000
Issuance of
Series B
Convertible
Preferred Stock
in connection
with the
exchange of
UTTC(TM) notes
payable.........           --          --      2,665,995
Issuance of
Series C
Convertible
Preferred
Stock...........           --          --      1,050,000
Recognition of
beneficial
conversion
feature of
preferred
stock...........    (2,206,480)        --            --
Series C
Convertible
Preferred Stock
converted to
common stock....           --          --            --
Issuance costs
in connection
with preferred
stock...........           --          --     (1,594,466)
Issuance of
common stock for
consulting
services........           --   $ (438,281)       39,844
Issuance of
options to
purchase common
stock...........           --          --      2,562,225
Net loss........    (8,674,902)        --     (8,674,902)
                  ------------- ----------- -------------
Balance at March
31, 1998........  $(20,376,327) $ (438,281)  $ 1,236,573
                  ============= =========== =============
</TABLE>
 
(See Notes to Consolidated Financial Statements)
 
                                       19
<PAGE>
 
               THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
                            STATEMENT OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                       YEAR ENDED MARCH 31,
                                                      ------------------------
                                                         1997         1998
                                                      -----------  -----------
<S>                                                   <C>          <C>
Cash flows from operating activities:
 Net loss............................................ $(6,842,406) $(8,674,902)
 Adjustments to reconcile net loss to net cash used
  in operating activities:
 Bad debt expense....................................      50,000          --
 Depreciation and amortization.......................     280,678      326,736
 Interest expense forgiven upon sale of subsidiary...         --        28,875
 Loss on sale of subsidiary..........................         --       385,930
 Common stock issued in connection with consulting
  services...........................................         --        39,844
 Common stock options issued to nonemployees.........         --     1,804,917
 Minority interest in earnings of subsidiary.........     130,056       11,465
 Changes in operating assets and liabilities:
  (Increase) decrease in accounts receivable.........    (553,816)     221,227
  (Increase) decrease in prepaid expenses and other
   current assets....................................     (23,784)      40,310
  Increase in computer software development costs....         --      (224,686)
  Decrease (increase) in other assets................      60,392       (6,863)
  Increase in accounts payable and accrued
   expenses..........................................     468,576      344,732
  Increase (decrease) in billings in excess of costs
   and estimated earnings............................      52,722      (46,765)
                                                      -----------  -----------
   Net Cash used in operating activities.............  (6,377,582)  (5,749,180)
                                                      -----------  -----------
Cash flows from investing activities:
 Purchase of property and equipment..................  (1,104,336)    (348,392)
 Purchase of subsidiary, net of cash acquired........    (600,160)         --
 Investment in E. Com International, Inc.............         --      (105,000)
 Proceeds from sale of subsidiary, net of cash
  disposed...........................................         --       154,108
 Proceeds from collection of note receivable.........         --        32,466
                                                      -----------  -----------
   Net cash used in investing activities.............  (1,704,496)    (266,818)
                                                      -----------  -----------
Cash flows from financing activities:
 Issuance costs for initial public offering..........    (316,040)         --
 Net proceeds from the sale of stock and warrants....  10,394,709          --
 Proceeds from the sale of preferred stock...........         --     4,930,000
 Proceeds from notes payable.........................         --     3,000,000
 Issuance costs for private placement of preferred
  stock and notes payable............................         --    (1,159,163)
 Payments of notes payable...........................  (1,966,771)         --
                                                      -----------  -----------
   Net cash provided by financing activities.........   8,111,898    6,770,837
                                                      -----------  -----------
Net increase in cash and cash equivalents............      29,820      754,839
Cash and cash equivalents at beginning of the year...      31,021       60,841
                                                      -----------  -----------
Cash and cash equivalents at end of year............. $    60,841  $   815,680
                                                      ===========  ===========
Supplemental disclosures of cash flow information:
 Cash paid during the year for:
 Interest............................................ $    84,796  $   364,938
                                                      ===========  ===========
 Income taxes........................................ $     5,694  $    20,198
                                                      ===========  ===========
Supplemental schedule of noncash investing and
 financing activities:
 Forgiveness of note payable in connection with the
  sale of subsidiary.................................         --   $   500,000
                                                      ===========  ===========
 Receipt of note receivable in connection with the
  sale of subsidiary.................................         --   $   594,125
                                                      ===========  ===========
 Exchange of UTTC(TM) notes for Ashton preferred
  stock..............................................         --   $ 2,975,000
                                                      ===========  ===========
</TABLE>
 
(See Notes to Consolidated Financial Statements)
 
                                       20
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. ORGANIZATION, PRESENTATION, PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT
   ACCOUNTING POLICIES:
 
 The accompanying consolidated financial statements include the accounts of
The Ashton Technology Group, Inc. ("Ashton") and its Subsidiaries, Universal
Trading Technologies Corporation ("UTTC(TM)"), and Gomez Advisors, Inc., a
company formed in May 1997 ("Gomez"), (collectively the "Company"). All
significant intercompany transactions and balances have been eliminated in
consolidation.
 
  On May 2, 1996, Ashton purchased sufficient shares of Class A voting and
Class B nonvoting common stock of Computer Science Innovations inc. ("CSI(R)")
to enable Ashton to own 80% of each class of CSI(R)'s common stock, giving
Ashton a controlling interest in CSI(R). On November 4, 1997, Ashton sold
CSI(R) (see Note 9). The results of operations of CSI(R) are included in the
accompanying consolidated financial statements since May 2, 1996, the date of
acquisition, through November 4, 1997, the date of disposition of CSI(R). In
May 1997, the Company formed a wholly owned subsidiary, Gomez. Gomez provides
banks, broker-dealers, insurance companies and other financial intermediaries
with advice concerning the business potential of the Internet as a tool for
use in marketing and in the interactive distribution of financial products.
The range of services provided includes strategy development, marketing,
product and interface design and implementation planning. Gomez recognizes
revenue when services are performed. The results of operations of Gomez are
included from the date of formation.
 
  The Company was founded to take advantage of opportunities in the rapidly
evolving businesses of Internet and electronic commerce through the
application of its skills and advanced technologies in securities trading and
information security. The Company designs, develops and markets online
transactional systems, especially for the securities industry, and information
security technologies. Ashton has designed and developed the Ashton Technology
Encryption Device ("ATED") and UTTC(TM) has designed and developed the
Universal Trading System ("UTS(TM)").
 
  CSI(R)'s revenue on time and materials-type contracts is recognized as work
performed. Revenue from cost-reimbursement contracts is recorded as costs
incurred and includes estimated earned fees in the proportion that costs
incurred to date bear to total estimated costs. CSI(R) recognizes revenue from
long-term fixed-price contracts on the percentage-of-completion method,
measured by the percentage of contract costs incurred to date to estimated
total contract costs for each contract.
 
  CSI(R)'s cost of revenue includes all direct material and labor costs and
those indirect costs related to contract performance. Provisions for estimated
losses on uncompleted fixed-price contracts are made in the period in which
such losses are first estimated. The cumulative effect of revisions to
estimated total contract costs and revenue is recorded in the period in which
the facts requiring the revision become known. Claims, including change
orders, are reflected at estimated recoverable amounts. An allowance for
doubtful accounts is recorded in the period in which such accounts are
determined to be uncollectible.
 
  Development costs are expensed as incurred until technical feasibility is
obtained. Development costs incurred subsequent to technical feasibility are
capitalized and amortized on a straight-line basis over the estimated economic
life of the product of 18 months.
 
  At each balance sheet date, the capitalized computer software costs are
compared to the net realizable value of the related product. The net
realizable value is the estimated future gross revenue from the related
product reduced by the estimated future costs of completing and disposing of
such product. In the event that the unamortized capitalized computer software
costs exceed the net realizable value of the related product, such excess
amount is to be written off.
 
  Advertising and marketing costs are charged to operations when incurred.
These costs amounted to approximately $175,000 and $245,000 for the years
ended March 31, 1997 and 1998, respectively.
 
                                      21
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
 
  The Company considers highly liquid investments with an original maturity of
three months or less to be cash equivalents.
 
  In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings per Share. The adoption of this statement does not
change net loss per common share for the year ended March 31, 1997. Net loss
per common share is computed using the weighted-average number of shares
outstanding.
 
  In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. In February 1998, the
FASB issued SFAS No. 132, Employer's Disclosures about Pensions and Other
Postretirement Benefits. SFAS No. 130 establishes new standards for reporting
and displaying comprehensive income and its components. SFAS No. 131 requires
disclosure of certain information regarding operating segments, products and
services, geographic areas of operation and major customers. SFAS No. 132
revises employer's disclosures about pensions and other postretirement benefit
plans. Adoption of these statements is expected to have no significant impact
on the Company's consolidated financial position, results of operations or
cash flows.
 
  Depreciation of property and equipment is provided for using the straight-
line method over the estimated useful life of the related assets. Amortization
of leasehold improvements is provided for using the straight-line method over
the term of the lease.
 
  The Company maintains life insurance policies on its key officers and
employees in the aggregate amount of $8,600,000.
 
  In 1997, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation. The Company has elected to apply APB Opinion No. 25 and related
interpretations in accounting for its stock options issued to employees and
has adopted the disclosure-only provisions of SFAS No. 123.
 
  In 1998, the Company purchased a 1.5% interest in E. Com International, Inc.
for $105,000. The investment is accounted for on the cost method.
 
2. PROPERTY AND EQUIPMENT:
 
  Property and equipment, at cost, consists of the following:
 
<TABLE>
<CAPTION>
                                                                     ESTIMATED
                                                                    USEFUL LIFE
                                                                   -------------
   <S>                                                 <C>         <C>
   Office equipment................................... $  165,250   3 to 5 years
   Computer equipment.................................    923,907        3 years
   Furniture and fixtures.............................    134,835        7 years
   Leasehold improvements.............................    112,332  Term of lease
                                                       ----------
                                                        1,336,324
   Less accumulated depreciation and amortization.....   (486,525)
                                                       ----------
                                                       $  849,799
                                                       ==========
</TABLE>
 
 
                                      22
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Depreciation and amortization expense for the years ended March 31, 1997 and
1998 was approximately $242,000 and $327,000, respectively.
 
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
 
  Accounts payable and accrued expenses consist of the following:
 
<TABLE>
   <S>                                                               <C>
    Trade accounts payable.......................................... $   47,786
    Accrued litigation settlement (see Note 14).....................    760,000
    Accrued compensation............................................    115,500
    Accrued professional fees.......................................    797,807
    Accrued other expenses..........................................     15,354
                                                                     ----------
                                                                     $1,736,447
                                                                     ==========
</TABLE>
 
4. LONG-TERM DEBT:
 
  In October 1995, the Company raised $650,000 by issuing 13 units through a
private placement. Each unit consisted of a $49,000 10% nonconvertible
promissory note due in April 1997 and a $1,000 10% convertible promissory note
due in October 1998. The $1,000 convertible notes were convertible into
warrants to purchase 20,000 shares of common stock through October 1998 at $8
per share. Interest is payable semiannually on these notes. The nonconvertible
notes were repaid in May 1996 with the proceeds of the Offering (see Note 6).
 
5. NOTES PAYABLE TO STOCKHOLDERS:
 
  At March 31, 1996, the Company had a note payable in the amount of $615,176
to The Dover Group Inc. ("Dover"), a stockholder of the Company, which note
was issued in connection with the acquisition of the common stock of CSI(R)
(see Note 9). In addition, during 1995, Dover loaned UTTC(TM) $43,430.
 
  As of March 31, 1996, the Company had a $100,000 loan payable to Medford
Financial, Inc. ("Medford"), a company whose principals are stockholders of
the Company. Medford has agreed to provide certain consulting services to the
Company over a three-year period.
 
  In January 1996, the Company purchased 200,000 shares of its common stock
from a stockholder for an aggregate purchase price of $300,000. The purchase
price was paid by Ashton with a promissory note.
 
  In January 1996, an officer/stockholder loaned the Company $150,000.
Additionally, the Company had other stockholder loans totaling $36,165.
 
  All of the loans mentioned above were repaid in May 1996 with the proceeds
of the Offering (see Note 6).
 
6. INITIAL PUBLIC OFFERING:
 
  On May 2, 1996, the Company completed an Offering of 2,150,000 shares of
common stock at an offering price of $4.50 per share and 2,150,000 warrants at
$.25 per warrant. The common stock and the warrants are separately tradable.
The Company granted to the underwriters the right to exercise over-allotment
options of 322,500 shares of common stock and/or 322,500 warrants at the
Offering price, within 45 days of May 2, 1996. On May 7, 1996, the
underwriters exercised the over-allotment options and offered an additional
322,500 shares of common stock and 322,500 warrants to the public at $4.50 per
share and $.25 per warrant. As a result of the Offering, the Company received
net proceeds of approximately $10,395,000 and increased its total shares of
common stock and warrants outstanding by 2,472,500 each. The net proceeds from
the Offering were used to
 
                                      23
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
repay all notes payable to stockholders, certain notes payable and related
accrued interest in existence through the date of the Offering and provided
working capital. The net proceeds were also used to purchase the additional
shares of CSI(R) stock as described in Note 9.
 
  Concurrent with the Offering, the Company registered 760,000 additional
warrants to purchase common stock. Such warrants are identical to the warrants
described above and were issuable automatically upon the completion of the
Offering in exchange for the already existing outstanding common stock
warrants.
 
7. STOCKHOLDERS' EQUITY:
 
  In 1998, the Company completed a series of private offerings and an exchange
offering pursuant to which it issued to certain investors (i) 250,000 shares
of its Series A Convertible PIK Preferred Stock (with a liquidation preference
of $10.00 per share) (the "Series A Preferred"); (ii) 162,500 shares of its
Series B Convertible Preferred Stock (with a liquidation preference of $10.00
per share) ("Series B Preferred"); and (iii) exchanged 297,500 shares of its
Series B Preferred for $2,975,000 of convertible and nonconvertible notes
issued by UTTC(TM) (see below). The Series A Preferred pays cumulative
dividends semiannually at an annual rate of $.50 per share payable in
additional shares of Series A Preferred until February 15, 2000. At any time
after February 15, 1998, each holder of shares of Series A Preferred will have
the right to convert each share of Series A Preferred into: (i) ten shares of
common stock of Ashton, and (ii) one two-year warrant to purchase three shares
of the common stock, par value $.01 per share, of UTTC(TM) (the "UTTC(TM)
Common Stock"), with an exercise price of $.75 per share, subject to
adjustment. The Series B Preferred pays cumulative dividends semiannually at
an annual rate of $.90 per share. At any time after June 30, 1998, each holder
of shares of Series B Preferred will have the right to convert each share of
Series B Preferred into: (i) six shares of common stock, and (ii) one two-year
warrant to purchase two shares of UTTC(TM) Common Stock, with an exercise
price of $.75 per share, subject to adjustment.
 
  Dividends in arrears amounted to $47,705 and $60,044 for Series A Preferred
and Series B Preferred, respectively.
 
  In addition, in January 1998, the Company completed the sale of 100,000
shares of its Series C Convertible Preferred Stock to a group of foreign
investors (the "Series C Investors"), with a liquidation preference of $10.00
per share (the "Series C Preferred"), for an aggregate purchase price of
$1,000,000. Holders of the Series C Preferred will have the right to convert
each share of Series C Preferred into one share of common stock at the
conversion price which shall be equal to the following: (i) if the Market
Price (as hereinafter defined) on the Conversion Date (as hereinafter defined)
is less than $1.8774, the conversion price is equal to the lesser of 75% of
the Market Price at the Conversion Date or $1.2516; and (ii) if the Market
Price at the Conversion Date is equal to or greater than $1.8774, the
conversion price is equal to $1.2516 plus 50% of the difference between the
Market Price at the Conversion Date and $1.8774. The Market Price shall mean
the average of the closing bid prices per share of the common stock over the
five consecutive trading days preceding the Conversion Date. The Conversion
Date shall mean the date the holder elects to have shares converted into
common stock. In addition, the Series C Investors will receive warrants
exercisable into an aggregate of 100,000 shares of common stock at an exercise
price of 105% of the Market Price for a period of five years. In connection
with the sale, the Company has agreed to pay a placement fee to a placement
agent of $50,000 and to transfer to it 5,000 shares of the Series C Preferred
and a warrant to purchase 100,000 shares of common stock at an exercise price
of 105% of Market Price for a period of five years. In March 1998, 50,000
shares of Series C Preferred were converted into 281,071 shares of common
stock. In addition, subsequent to March 31, 1998, the remaining 55,000 shares
of Series C Preferred were converted into 314,343 shares of common stock.
 
  At the time of issuance, the preferred stock described above was convertible
at prices below the market price of the underlying common stock. The
beneficial conversion feature represented by the intrinsic value is calculated
as the difference between the conversion price and the market price of the
underlying common stock
 
                                      24
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
multiplied by the number of shares to be issued upon conversion. The
beneficial conversion feature is recognized as a return to the preferred
stockholders over the minimum period in which the preferred stockholders can
realize that return. At March 31, 1998, the beneficial conversion feature
amounted to $1,643,900, $212,637 and $349,943 for Series A Preferred, Series B
Preferred and Series C Preferred, respectively.
 
  The Company received net proceeds from the above transactions of
approximately $3,734,000 after deducting issue costs of approximately
$1,146,000.
 
  In April 1997, UTTC(TM) completed a private placement of $3,000,000 in
notes, consisting of $2,550,000 nonconvertible and $450,000 convertible notes,
to accredited investors. The Company received net proceeds of approximately
$2,600,000 after deducting debt issue costs of approximately $400,000. As
described above, $2,975,000 of these notes were exchanged for Series B
Preferred.
 
  At March 31, 1998, notes payable consist of $21,250 nonconvertible and
$3,750 convertible UTTC(TM) notes. The convertible notes are convertible into
3,750 shares of UTTC common stock. The notes bear interest at 9% per annum
payable on January 31, annually, and are due January 31, 1999.
 
  In February 1998, the Company entered into a consulting agreement whereby
the Company issued 300,000 shares of common stock, with a fair market value of
$475,125, in exchange for promotional services through February 1999. The
consulting costs will be amortized over the term of the agreement. For the
year ended March 31, 1998, the Company charged $39,844 to operations and
recorded a deferred consulting expense of $438,281 as a reduction to
stockholders' equity at March 31, 1998.
 
  In May 1998, the Company's stockholders authorized an increase in the number
of shares of common stock from 20,000,000 to 60,000,000 and in the number of
shares of preferred stock from 1,000,000 to 3,000,000.
 
8. DEFINED CONTRIBUTION PLAN:
 
  The Company maintains a defined contribution plan under Section 401(k) of
the Internal Revenue Code covering all qualified employees. The Company may
make nonmandatory contributions. Certain officers of the Company serve as
trustees of the plan. No contributions were made during the years ended March
31, 1997 and 1998.
 
9. ACQUISITIONS AND DISPOSITION:
 
  On May 2, 1996, Ashton purchased 469,155 shares of CSI(R)'s Class A voting
stock and 1,557,210 shares of Class B nonvoting common stock for $865,565. On
June 11, 1996, Ashton acquired an additional 12,053 of Class A voting common
shares and 1,261 Class B nonvoting common shares of CSI(R) for $6,100, and
subsequently purchased additional shares. After such purchases, Ashton owned
83.18% of the aggregate Class A and Class B common stock.
 
  The following pro forma information presents the results of operations of
the Company as though the acquisitions occurred on April 1, 1996:
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED
                                                                     MARCH 31,
                                                                       1997
                                                                    -----------
   <S>                                                              <C>
   Net revenue..................................................... $ 5,341,000
   Net loss........................................................  (6,813,000)
   Loss per common share...........................................        (.93)
</TABLE>
 
 
                                      25
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  On November 4, 1997, Ashton sold CSI(R) to a trust created by the Computer
Science Innovations Inc. Leveraged ESOP for $1,723,000. The Company received
$600,000 in cash, a $594,125 five-year 8 1/4% note and the forgiveness of
$528,875 due to CSI(R), which included $28,875 of accrued interest. The sale
resulted in a loss of $385,930, which is included in the accompanying
consolidated statement of operations. Based on rates of return currently
available to the Company for investments with similar terms and maturities,
the fair value of the note receivable approximates the carrying amount.
 
10. INCOME TAXES:
 
  The provision for income taxes consists of the following:
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED MARCH 31,
                                                            ---------------------
                                                               1997      1998
                                                            ---------- ----------
   <S>                                                      <C>        <C>
   Current--state.......................................... $   59,000 $  42,000
                                                            ========== =========
   Deferred:
     Federal...............................................     48,000       --
     State.................................................      3,000       --
                                                            ---------- ---------
                                                                51,000       --
                                                            ---------- ---------
                                                            $  110,000 $  42,000
                                                            ========== =========
</TABLE>
 
  The Company has net operating loss carryforwards at March 31, 1998 of
approximately $11,800,000, which will begin to expire in 2011, available to
reduce future federal taxable income. Additionally, the income tax basis of
intangibles and nonqualified options exceeds the basis for financial reporting
purposes by approximately $1,400,000 and $2,600,000, respectively. The
carryforwards and the temporary difference result in a deferred tax asset of
approximately $6,260,000 at March 31, 1998 for which the Company has provided
a full valuation allowance due to the uncertainty about the future realization
of this tax benefit.
 
  The components of deferred income taxes at March 31, 1998 were as follows:
 
<TABLE>
   <S>                                                              <C>
   Net operating loss carryforward................................. $ 4,695,000
   Basis of intangible asset.......................................     540,000
   Grant of nonqualified options...................................   1,025,000
   Valuation allowance.............................................  (6,260,000)
                                                                    -----------
                                                                    $         0
                                                                    ===========
</TABLE>
 
  The difference between the income tax benefit computed at the federal
statutory rate and the actual provision for income taxes is accounted for as
follows:
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED MARCH 31,
                                                     ------------------------
                                                        1997         1998
                                                     -----------  -----------
   <S>                                               <C>          <C>
   Tax benefit computed at the federal statutory
    rate of 34%..................................... $(2,290,000) $(2,885,000)
   Change in valuation allowance....................   2,290,000    2,885,000
   State income taxes, net of federal income tax
    effect..........................................     110,000       42,000
                                                     -----------  -----------
                                                     $   110,000  $    42,000
                                                     ===========  ===========
</TABLE>
 
  The Company files a consolidated federal income tax return. In 1997, Ashton
entered into an agreement with CSI(R) and UTTC(TM). The agreement provides
that any member of the group which has taxable income must compensate any
other member for the use of net operating losses and tax credits. The
agreement with CSI(R) was terminated upon disposition.
 
                                      26
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
11. RELATED PARTY TRANSACTIONS:
 
  For the year ended March 31, 1998, the Company paid consulting fees to Dover
and Adirondack Capital, L.L.C, an entity controlled by a member of the
Company's board of directors, amounting to $125,000 and $115,000,
respectively.
 
  In addition, as a placement fee on the issuance of Series A Preferred and
Series B Preferred, the Company issued 30,000 options to purchase common stock
to a person related to a member of the Company's board of directors. The fair
value of the options, approximately $76,000, was charged to additional paid-in
capital.
 
12. EMPLOYEE STOCK OPTIONS:
 
  Stock options are granted to employees at the discretion of the board of
directors. A summary of the status of the Company's employee stock options as
of March 31, 1997 and 1998 and changes during those years are as follows:
 
<TABLE>
<CAPTION>
                                                  1997              1998
                                            ----------------- -----------------
                                                    WEIGHTED-         WEIGHTED-
                                                     AVERAGE           AVERAGE
                                                    EXERCISE          EXERCISE
                                            OPTIONS   PRICE   OPTIONS   PRICE
                                            ------- --------- ------- ---------
   <S>                                      <C>     <C>       <C>     <C>
   Outstanding at beginning of year........ 350,000  $ 4.00   450,000   $6.28
   Granted during year..................... 100,000   14.25       --      --
                                            -------  ------   -------   -----
   Outstanding at end of year.............. 450,000  $ 6.28   450,000   $6.28
                                            =======  ======   =======   =====
</TABLE>
 
  The following table summarizes information about stock options outstanding
at March 31, 1998:
 
<TABLE>
<CAPTION>
     RANGE OF                                     WEIGHTED-AVERAGE
     EXERCISE             NUMBER                     REMAINING                   EXERCISE
      PRICE             OUTSTANDING               CONTRACTUAL LIFE                PRICE
   ------------         -----------               ----------------               --------
   <S>                  <C>                       <C>                            <C>
   $4.00-$14.25           450,000                     8 years                     $6.28
   ============           =======                     =======                     =====
</TABLE>
 
  At March 31, 1998, 90,000 of the above options were exercisable.
 
  In addition, a summary of the status of UTTC(TM)'s employee stock options as
of March 31, 1998 and changes during the year ended is as follows:
 
<TABLE>
<CAPTION>
                                                                    WEIGHTED-
                                                                      AVERAGE
                                                          OPTIONS EXERCISE PRICE
                                                          ------- --------------
   <S>                                                    <C>     <C>
   Outstanding at beginning and end of year.............. 400,000     $1.50
                                                          =======     =====
</TABLE>
 
  The following table summarizes information about stock options outstanding
at March 31, 1998:
 
<TABLE>
<CAPTION>
                                                     WEIGHTED-
                                                      AVERAGE
   EXERCISE             NUMBER                       REMAINING                     EXERCISE
    PRICE             OUTSTANDING                 CONTRACTUAL LIFE                  PRICE
   --------           -----------                 ----------------                 --------
   <S>                <C>                         <C>                              <C>
    $1.50               400,000                         3.36                        $1.50
    =====               =======                         ====                        =====
</TABLE>
 
  None of the above options were exercisable at March 31, 1998.
 
  Had the Company elected to recognize compensation cost based on the fair
value of the options granted during the year ended March 31, 1997 at the grant
date as prescribed by SFAS No. 123, net loss and loss per
 
                                      27
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
share would not have materially changed because the options issued had no
value at the grant date based on an independent valuation of the Company.
 
13. LOSS PER COMMON SHARE:
 
  Net loss per common share is computed as follows:
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED MARCH 31,
                                                      -------------------------
                                                         1997          1998
                                                      -----------  ------------
   <S>                                                <C>          <C>
   Net loss.........................................  $(6,842,406) $ (8,674,902)
   Less:
     Dividends in arrears on preferred stock........          --       (107,749)
     Recognition of beneficial conversion feature of
      preferred stock...............................          --     (2,206,480)
                                                      ===========  ============
   Net loss available to common stockholders........  $(6,842,406) $(10,989,131)
                                                      ===========  ============
   Weighted-average shares used in computing net
    loss per common share...........................    7,341,314     7,519,555
                                                      ===========  ============
   Net loss per common share........................  $      (.93) $      (1.46)
                                                      ===========  ============
</TABLE>
 
14. COMMITMENTS, CONTINGENCIES AND SETTLEMENTS:
 
  The Company leases office facilities under noncancelable operating leases
expiring through May 2005. Future minimum operating lease payments are as
follows:
<TABLE>
   <S>                                                                <C>
   Year ending March 31,
     1999............................................................ $  172,000
     2000............................................................    144,000
     2001............................................................    144,000
     2002............................................................    154,000
     2003............................................................    158,000
     Thereafter......................................................    343,000
                                                                      ----------
                                                                      $1,115,000
                                                                      ==========
</TABLE>
 
  The leases are subject to escalation for the Company's share of increases in
real estate taxes and other operating expenses. In addition, the Company
leases office facilities on a month-to-month basis. Rent expense for the years
ended March 31, 1997 and 1998 totaled approximately $390,000 and $253,000,
respectively.
 
  The Company has employment agreements which require the Company to pay
approximately $672,000 through September 1999.
 
  In September 1995, UTTC(TM) entered into an agreement with the Philadelphia
Stock Exchange ("PHLX") whereby PHLX has agreed to employ UTTC(TM)'s UTS(TM)
on its equity trading floor. In connection with this agreement, UTTC(TM) is
required to reimburse PHLX up to $100,000 for the first year of the agreement
for marketing costs incurred by PHLX. UTTC(TM) is also required to assume up
to $200,000 of PHLX's initial technology development costs in implementing the
UTS(TM). UTTC(TM) is required to contribute to a PHLX administered "claim
fund" for potential claims relating to the UTS(TM) operations. UTTC(TM) is
required to contribute $100,000 after commencement of the UTS(TM) trading and,
if necessary, to make additional contributions of up to $100,000 per year to
such claim fund. PHLX is also entitled to receive an annual
 
                                      28
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
royalty from UTTC(TM) of 3% of annual gross revenue based on UTTC(TM)'s
average revenue in the first three years of operations for each year the PHLX
agreement is in effect. These payments are required to begin at the end of the
second full year of operation and continue for the life of the PHLX agreement.
 
  On January 30, 1997, Ashton, along with UTTC(TM), Fredric W. Rittereiser
("Rittereiser") and Dover (of which Rittereiser is the chairman) entered into
a settlement agreement ("Settlement Agreement dated January 30, 1997") related
to a dispute with David N. Rosensaft ("Rosensaft") (a cofounder of UTTC(TM))
under which a consulting agreement among Ashton, UTTC(TM) and Rosensaft dated
January 19, 1996 was deemed to be void ab initio and each of the parties
released and discharged each of the other parties from any and all agreements
and claims which any of them have against any of the other parties. The
Settlement Agreement dated January 30, 1997 granted Rosensaft registration
rights under the Securities Act of 1933, as amended (the "Securities Act")
under certain terms and conditions for the 333,333 shares of UTTC(TM) common
stock that he owns. Also on January 30, 1997, Ashton, Dover, Rittereiser and
Rosensaft entered into a Stock Purchase Agreement under which Dover and
Rittereiser or his or its designee, agreed to purchase the 750,000 shares of
Ashton common stock owned by Rosensaft on April 10, 1997 for a total purchase
price of $2,000,000 and Ashton granted Dover and Rittereiser or his or its
designees, registration rights under the Securities Act under certain
conditions for the 750,000 shares. On or about April 10, 1997, Ashton advised
Rosensaft that the Rosensaft agreement was null and void and Rittereiser and
Dover declined to purchase the 750,000 shares.
 
  On May 1, 1997, Rosensaft commenced an action in the United States District
Court for the Southern District of New York entitled David N. Rosensaft vs.
The Ashton Technology Group, Inc., UTTC(TM), Dover and Fredric Rittereiser
(collectively the "defendants") No. 97 Civ. 3138, asserting 10 claims against
the defendants including breach of contract and securities fraud and seeking,
inter alia, specific performance of the Settlement Agreement dated January 30,
1997, between and among the parties or in the alternative, actual and
consequential damages in an amount to be proved at trial in addition to
punitive damages. On June 11, 1997, Rosensaft served a First Amended Complaint
adding three additional claims against the defendants, relating to Ashton's
refusal to allow Rosensaft's sale of his Ashton shares.
 
  On June 26, 1997, the defendants filed their answers and counterclaims
generally denying the allegations of the First Amended Complaint and alleging
six counterclaims against Rosensaft including that (i) Rosensaft acquired
1,100,000 shares of Ashton common stock from Ashton on the basis of false and
misleading statements and common law fraud, and (ii) Rosensaft breached his
January 19, 1996 consulting agreement with the Company (the "Agreement") by
(a) failing to carry out his duties as a consultant under the Agreement, (b)
violating the provisions of the Agreement restricting his use of confidential
information of the Company, (c) failing to adhere to the noncompetition
provisions of the Agreement, (d) misappropriating for himself the property
rights of UTTC(TM) relating to the Company's UTS(TM) and (e) failing to return
to UTTC(TM) and/or Ashton valuable property and information, including
confidential documents and computer equipment belonging to UTTC(TM) and/or
Ashton.
 
  On April 10, 1998, the Company and Dover entered into a settlement agreement
pursuant to which Rosensaft is to receive $1,133,000 in settlement of the
above claims and counterclaims. The Company's portion of the settlement, which
amount has been accrued and charged to operations for the year ended March 31,
1998 is $760,000.
 
  On May 29, 1998, Rosensaft filed a complaint alleging that UTTC(TM) had
improperly amended its certificate of incorporation increasing the number of
authorized shares of UTTC(TM) common stock. Rosensaft is asserting inter alia
claims regarding (i) breach of contract, (ii) improper dilution of Rosensaft's
ownership share of UTTC(TM), (iii) breach of fiduciary duty, (iv) fraud, and
(v) violations of Delaware corporate law. The Company and counsel for the
Company are of the opinion that the claims are unfounded and without merit.
 
 
                                      29
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  On October 22, 1996, the Company entered into a settlement agreement (the
"Settlement Agreement") related to a dispute involving Robert A. Eprile, John
A. Blohm, Rittereiser, Dover, F.E. Weimmer, Jr., F.E. Weimmer, Sr., F.E.
Rittereiser, Sr. and Thomas Rittereiser, as trustee for Alexis J. Rittereiser,
Amanda Weimmer and John Weimmer, Raymond T. Tate ("Tate"), Helen J. Tate, as
trustee for the Andrew Patrick Tate Trust, Helen J. Tate, as trustee for the
Susan Katherine Tate Burrowbridge Trust and Helen J. Tate, as trustee for the
Elizabeth Tate Winters Trust (collectively the "Tate Trusts"). The Settlement
Agreement resolved all differences among the parties thereto, and all parties
to the Settlement Agreement agreed to release each of the other parties from
any and all actions or claims arising out of or in connection with the matters
covered by the Settlement Agreement. Pursuant to the Settlement Agreement, on
October 22, 1996, Tate resigned from his position as director of the Company
and its Subsidiaries and all officer positions held by him in the Company and
its Subsidiaries. Pursuant to the Settlement Agreement, on October 22, 1996,
the board of directors of the Company elected Fred S. Weingard, executive vice
president of UTTC(TM), to fill the vacancy on the Company's board of directors
created by the resignation of Tate.
 
  Pursuant to the Settlement Agreement and in consideration of the payment of
$250,000 on October 22, 1996, Helen J. Tate as trustee for the Tate Trusts
granted to Rittereiser or his designee the option (the "Call Option"),
exercisable at any time from April 2, 1997 through June 2, 1997, to purchase
1,000,000 shares of the Company's common stock, par value $.01 per share (the
"Tate Common Stock"), from the Tate Trusts for a total purchase price of
$4,500,000. Pursuant to the Settlement Agreement and in consideration for $1,
Rittereiser granted Tate the option (the "Put Option"), exercisable at any
time during the five business days following the exercise of the Call Option,
to require Rittereiser to purchase from Tate the 107,500 shares of Tate Common
Stock owned, beneficially or otherwise, by Tate for a total purchase price of
$483,750. Rittereiser did not exercise the Call Option prior to its
expiration.
 
  In addition, on October 22, 1996, Tate and the Company also entered into a
license agreement (the "License Agreement"). Under the terms of the License
Agreement, the Company granted Tate a perpetual, worldwide license, at his own
cost, to use, sublicense, reproduce and make derivative works and enhancements
of the technology used by the Company to develop the ATED, including the ATED
Key Management System, encryption software and cryptoserver technology (the
"Licensed Technology") in any field of use other than the Financial Services
Industry (as such term is defined in the License Agreement). In consideration
for granting the license, Tate (or his permitted assigns under the License
Agreement) must pay a perpetual annual royalty to the Company equal to 2% of
the total gross revenue earned from the use of the Licensed Technology. Tate's
right to use the Licensed Technology will be exclusive, provided Tate pays to
the Company a cumulative license fee of at least $100,000 by October 22, 2000.
The license fee will be reduced by the total amount of royalties paid to the
Company. Tate may assign the license to any person or entity controlled by
Tate.
 
  Additionally, the Company and Tate entered into a consulting agreement,
dated October 22, 1996 (the "Consulting Agreement"). Under the terms of the
Consulting Agreement, the Company retained Tate to act as a consultant to
CSI(R) for the period from October 22, 1996 to December 31, 1998. As
compensation for such services, for the period from October 22, 1996 through
December 31, 1996, the Company paid Tate $40,000. For the period from October
22, 1996 through December 31, 1998, the Company will also pay to Raymond Tate
Associates, Inc. $120,000 per annum which was charged to operations during the
year ended March 31, 1997 and is included in corporate restructuring costs.
Tate also agreed not to compete with the Company in the Financial Services
Industry (as such term is defined in the Consulting Agreement) during the term
of the Consulting Agreement.
 
  On October 24, 1996, the Securities and Exchange Commission (the "SEC")
commenced a private investigation concerning the circumstances under which
Ashton's subsidiary, UTTC(TM), obtained a contract with PHLX to develop and
install an electronic trading and pricing system. Ashton provided testimony to
the SEC
 
                                      30
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
on February 12, 1997 through its chairman, Robert Eprile, and has not been
contacted about the matter since that date. In March 1997, the SEC directed
PHLX to make certain changes in its governance procedures and in April 1997
PHLX announced a reorganization of its board of governors and changes in its
governance procedures.
 
  In addition to the above claims, the Company is involved in various claims
and legal actions arising in the ordinary course of business. Management is of
the opinion that the ultimate outcome of these matters would not have a
material adverse impact on the financial position of the Company or the
results of its operations.
 
15. SUBSEQUENT EVENTS:
 
  On April 3, 1998 (the "Subscription Date"), the Company entered into a
Private Equity Line of Credit Agreement (the "Private Equity Agreement") with
a group of accredited investors (the "Private Equity Investors") which
provides for an aggregate commitment of $18,000,000 to the Company. On the
Subscription Date the Private Equity Investors purchased three shares of
Series D Convertible Preferred Stock (the "Series D Preferred") with a
liquidation preference of $1,000,000 per share for an aggregate purchase price
of $3,000,000 and the Company agreed to promptly file a registration statement
(the "Registration Statement") under the Securities Act, registering shares of
the Company's common stock (the "Registered Common Stock") issuable in
connection with the transactions contemplated by the Private Equity Agreement.
The Private Equity Agreement provides that within five days after the
Registration Statement has been filed and subject to the satisfaction of
certain other conditions, the Private Equity Investors will purchase two
shares of Series E Convertible Preferred Stock (the "Series E Preferred") with
a liquidation preference of $1,000,000 per share for an aggregate purchase
price of $2,000,000. Following the purchase of the Series E Preferred and
subject to the satisfaction of certain other conditions, the Company may from
time to time put (each, a "Put") to the Private Equity Investors shares of the
Registered Common Stock for an aggregate Put price of $13,000,000. The Put
price per share is an amount equal to 85% of the average of the lowest bid
prices of such Registered Common Stock over the seven-day period beginning
three days before and ending three days after the Company gives notice of a
Put. On the completion of each Put, the Company has agreed to pay the
placement agent an amount equal to 5% of the proceeds of such Put.
 
  The Private Equity Investors are not obligated to purchase the Series E
Preferred or any Put shares unless, among other things, (i) the Company has
received the required approval, (ii) the Registration Statement is filed (the
Registration Statement must be effective in order for the Private Equity
Investors to be obligated to purchase any Put shares), (iii) the Company is
listed and trading on a national exchange or quotation system, (iv) the
closing bid price of the common stock on the day immediately preceding such
purchase is at least $1.50 per share, and (v) the common stock has traded at a
volume of at least 25,000 shares a day for the 30 trading days preceding such
purchase.
 
  The Series D Preferred may not be converted into common stock until the
earlier of (i) 60 days following the Subscription Date or (ii) the
Registration Statement has been filed. The conversion price of the Series D
Preferred is an amount equal to 75% of the Market Price. The conversion price
of the Series E Preferred is 80% of the Market Price. Each of the Series D
Preferred and Series E Preferred is entitled to a cumulative dividend of 8%
per annum on its respective liquidation preference.
 
  On the Subscription Date the Private Equity Investors received warrants
(each, a "Warrant") to purchase up to an aggregate of 250,000 shares of
Registered Common Stock and will receive additional Warrants to purchase up to
an aggregate of 100,000 of such shares on the completion of the purchase of
the Series E Preferred. The Warrants are exercisable for five years at an
exercise price of 120% of average closing bid price of the common stock over
the five trading days preceding the Subscription Date.
 
                                      31
<PAGE>
 
              THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  On the Subscription Date, the Company paid the placement agent a fee of (i)
$150,000, (ii) .15 shares of Series D Preferred, (iii) a Warrant, on the same
terms as the Warrants issued to the Private Equity Investors, to purchase up
to 190,000 shares of Registered Common Stock and (iv) 20,000 shares of common
stock.
 
  In addition, upon the completion of the purchase of Series E Preferred, the
Company will pay a placement fee of (i) 5% of the purchase proceeds and (ii)
 .10 shares of Series E Preferred and a warrant to purchase 60,000 shares of
common stock.
 
  In April 1998, the Company issued 127,500 shares of Series B Preferred and
3.15 shares of Series D Preferred. The Company received net proceeds from the
above transactions of approximately $3,790,000 after deducting issue costs of
approximately $485,000 of which $200,000 was paid to a member of the Company's
board of directors.
 
  The accompanying pro forma balance sheet presents the financial position of
the Company as it would have appeared at March 31, 1998 had the additional
Series B Preferred and Series D Preferred been issued on that date. The
issuance included a beneficial conversion feature aggregating $1,977,998.
 
  In April 1998, UTTC(TM) formed a wholly owned subsidiary, REB Securities,
Inc. ("REB"). REB will operate as a registered broker-dealer.
 
  Subsequent to March 31, 1998, the Company formed a wholly owned subsidiary,
Electronic Market Center, Inc. ("EMC"). EMC will develop and operate a
transactional Web site for the financial community.
 
                                      32
<PAGE>
 
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
  On June 3, 1996, the Company, with the approval of its Board of Directors,
decided not to continue its relationship with its independent public
accountants, Goldstein Golub Kessler & Company, P.C. ("GGK"), which principal
executive offices are in New York, New York. GGK served as the Company's
independent public accountants for the fiscal year ended March 31, 1995 and
for the Offering. However, as the Company was located in Columbia, Maryland at
that time, the Board of Directors of the Company decided to engage a Maryland-
based accounting firm. GGK's reports on the financial statements of the
Company did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. There were no disagreements with GGK on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of GGK, would have
caused it to make reference to the subject matter of the disagreement(s) in
connection with its report.
 
  The Baltimore, Maryland office of Arthur Andersen LLP ("Andersen") was
engaged as the Company's independent public accountants effective June 3, 1996
and performed the audit for the fiscal year ended March 31, 1996. However,
after the principal executive offices of the Company were relocated to
Philadelphia, Pennsylvania, the Company decided to re-engage GGK. The decision
to change accountants was approved by the Company's Board of Directors. On
April 30, 1997, Andersen was dismissed as the principal independent
accountants engaged in auditing the financial statements of the Company.
Andersen's report on the financial statements of the Company for the 1996
fiscal year (which was the only year for which Andersen acted as the Company's
principal independent accountants) did not contain an adverse opinion or a
disclaimer of opinion and was not modified as to uncertainty, audit scope or
accounting principles. There were no disagreements with Andersen on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which, if not resolved to the satisfaction of
Andersen, would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report.
 
  On April 30, 1997, GGK was re-engaged as principal independent accountants
to audit the financial statements of the Company and its subsidiaries. As
noted, GGK was the Company's auditor for its fiscal year ended March 31, 1995
and for Ashton's Offering.
 
                                   PART III
 
  The information called for by Item 9, Directors, Executive Officers,
Promoters and Control Persons, Compliance with Section 16(a) of the Exchange
Act, Item 10, Executive Compensation, Item 11, Security Ownership of Certain
Beneficial Owners and Management, and Item 12, Certain Relationships and
Related Transactions, is incorporated herein by reference to the Registrant's
definitive Proxy Statement for its Annual Meeting of Shareholders, presently
scheduled to be held on August 24, 1998, which will be filed with the
Securities and Exchange Commission within 120 days from the end of the
Registrant's fiscal year.
 
                                      33
<PAGE>
 
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
 
  (a) EXHIBITS
 
<TABLE>
<CAPTION>
 EXHIBIT
  NO.*                                 DESCRIPTION
 -------                               -----------
 <C>     <S>
  2      Agreement and Plan of Reorganization, dated as of October 25, 1995,
          among Ashton, Universal Trading Technologies Corp. ("UTTC(TM)"),
          Robert A. Eprile ("Eprile"), David N. Rosensaft ("Rosensaft"), The
          Dover Group, Inc. ("Dover") and Medford Financial Inc.(1)
 
  3      Certificate of Incorporation of Ashton filed February 16, 1994.(1)
  3.1    Certificate of Amendment of Ashton filed October 27, 1995.(1)
  3.1A   Certificate of Amendment of Ashton filed December 7, 1995.(1)
  3.2    Certificate of Amendment of Ashton filed in February 1996.(1)
  3.3    Bylaws of Ashton. (1)
  3.4    Amendment to Bylaws of Ashton, dated October 22, 1996.
  3.5    Certificate of Designation for Series A Convertible PIK Preferred
          Stock.
  3.6    Certificate of Designation for Series B Convertible Preferred Stock.
  3.7    Certificate of Designation for Series C Convertible Preferred
          Stock.(9)
  3.8    Certificate of Designation for Series D Convertible Preferred
          Stock.(9)
  3.9    Certificate of Designation for Series E Convertible Preferred
          Stock.(9)
  4.     Specimen of Common Stock.(1)
  4.1    Form of Representative's Warrant Agreement (including Specimen of
          Redeemable Common Stock Purchase Warrant).(1)
  4.2    Form of Warrant Agreement (including Specimen of Redeemable Common
          Stock Purchase Warrant).(1)
  4.3A   Form of 9% Subordinated Non-Convertible Promissory Note issued
          pursuant to UTTC(TM) Confidential Private Placement, dated December
          26, 1996.
  4.3B   Form of 9% Subordinated Convertible Promissory Note convertible into
          Shares of UTTC(TM) Common Stock at $1.00 per share issued pursuant to
          UTTC(TM) Confidential Private Placement, dated December 26, 1996.
 10      Agreement, dated as of September 18, 1995, between UTTC(TM) and the
          Philadelphia Stock Exchange.(1)
 10.1    Employment Agreement, dated as of January 1, 1996, between Ashton and
          Raymond T. Tate ("Tate").(1)
 10.2    Employment Agreement, dated as of January 22, 1996, between UTTC(TM)
          and Eprile.(1)
 10.3    Agreement, dated October 27, 1995, between Information Security
          Systems Incorporated and Ashton.(1)
 10.4    Agreement, dated as of March 7, 1995, among Dover, Ashton, Eprile and
          Rosensaft.(1)
 10.5    Agreement, dated as of November 29, 1995, between Ashton and Computer
          Science Innovations, Inc. ("CSI(R)").(1)
 10.5A   Agreement, dated February 7, 1996 between Ashton and CSI(R).(1)
 10.6    Agreement, dated as of January 19, 1996, among Ashton, UTTC(TM) and
          Rosensaft.(1)
 10.7    Escrow Agreement, dated as of January 19, 1996, among Ashton,
          Rosensaft and First United Equities Corporation.(1)
 10.8    Stock Purchase Agreement, dated as of January 19, 1996, between Ashton
          and Rosensaft.(1)
 10.9    Assignment and Termination Agreement, dated as of January 19, 1996,
          among Dover, Ashton, Eprile and Rosensaft.(1)
</TABLE>
 
 
                                       34
<PAGE>
 
<TABLE>
 <C>    <S>
 10.10  Promissory Note, dated as of January 19, 1996, in principal amount of
         $300,000 issued by Ashton in favor of Rosensaft.(1)
 10.11  Agreement, dated as of August 24, 1995, between Motorola, Inc. and
         CSI(R), as amended.(1)
 10.12  Letter, dated December 8, 1995, from CSI(R) to Ashton regarding
         issuance of Common Stock of CSI(R).(1)
 10.12A Letter, dated March 20, 1996, from George Milligan to Ashton regarding
         the transfer of Common Stock of CSI(R).(1)
 10.13  Sample CSI(R) Stockholder Letters, dated February 6, 1995 and January
         18, 1996, from Ashton to certain CSI(R) Shareholders.(1)
 10.13A Sample CSI(R) Stockholder Letter, dated March 27, 1996, from Ashton to
         certain CSI(R) Shareholders.(1)
 10.13B Sample CSI(R) Stockholder Letter, dated April 25, 1996, from Ashton to
         certain CSI(R) Shareholders.(1)
 10.14  Agreement, dated April 30, 1995, between Dover and Medford regarding
         consulting services to UTTC(TM).(1)
 10.15  Lease Agreement, dated September 8, 1995, between Columbia Mall, Inc.
         and Ashton.(1)
 10.16  Lease Agreement, dated April 22, 1992, between Overlook Development,
         Inc. and CSI(R).(1)
 10.17  Promissory Note, dated January 31, 1996, in principal amount of
         $150,000 issued by Ashton in favor of John A. Blohm.(1)
 10.18  Form of 10% Subordinated Promissory Note due April 10, 1997, dated
         October 10, 1995, issued by Ashton pursuant to a private placement.(1)
 10.19  Form of 10% Subordinated Convertible Promissory Note due October 10,
         1998, dated October 10, 1995, issued by Ashton pursuant to a private
         placement (including Form of Warrant issued upon conversion of the
         note not pursuant to a public offering).(1)
 10.20  Promissory Note, dated October 1, 1995, in principal amount of $43,430
         issued by UTTC(TM) in favor of Dover and guaranteed by Ashton.(1)
 10.21  Promissory Note, dated October 26, 1995, in principal amount of
         $100,000 issued by Ashton in favor of Medford.(1)
 10.22  Promissory Note, dated October 1, 1995, in principal amount of
         $615,175.83 issued by Ashton in favor of Dover.(1)
 10.23  Common Stock Purchase Warrant of Ashton, dated June 27, 1995, held by
         Dover.(1)
 10.24  Common Stock Purchase Option of Ashton, dated January 30, 1996, held by
         John A. Blohm.(1)
 10.25  Letter agreement, dated March 21, 1996, from Ashton to CSI(R) regarding
         software for ATED, including original letter agreement of December 11,
         1995 as Exhibit A thereto.(1)
 10.26  Promissory Note, dated April 16, 1996 in principal amount of $250,000
         issued by Ashton in favor of Ronnie J. Adams.(1)
 10.27  Pledge and Security Agreement, dated April 15, 1996, between Dover and
         Ronnie J. Adams.(1)
 10.28  Option to purchase Common Stock, dated as of March 15, 1996, between
         Rosensaft and Dover.(1)
 10.29  Option to Purchase Common Stock, dated as of March 15, 1996, between
         Eprile and Dover.(1)
 10.29A Agreement dated April 24, 1996 between Dover and Robert A. Eprile
         relating to Exhibit 10.29.(1)
 10.30  Form of Assignment Agreement, dated April 16, 1996, between Dover and
         Antebe Investment Gp. Limited.(1)
</TABLE>
 
 
                                       35
<PAGE>
 
<TABLE>
 <C>   <S>
 10.31 Employment Agreement between Fred S. Weingard and UTTC(TM), dated June
        21, 1996.(4)
 10.32 Settlement Agreement, dated October 22, 1996, by and among the Company,
        Raymond T. Tate, Helen J. Tate, as trustee for the Andrew Patrick Tate
        Trust, Helen J. Tate, as trustee for the Susan Katherine Tate
        Burrowbridge Trust, Helen J. Tate, as trustee for the Elizabeth Tate
        Winters Trust and Robert A. Eprile, John A. Blohm, Fredric W.
        Rittereiser, The Dover Group, Inc., F.E. Weimmer, Jr., F.E. Weimmer,
        Sr., F.E. Rittereiser, Sr. and, Thomas Rittereiser, as trustee for
        Alexis J. Rittereiser, Amanda Weimmer and John Weimmer.(3)
 10.33 License Agreement dated October 22, 1996, between the Company and
        Tate.(3)
 10.34 Consulting Agreement dated October 22, 1996, between the Company and
        Tate.(3)
 10.35 Settlement Agreement by and among Ashton, UTTC(TM), Rittereiser, Dover
        and Rosensaft, dated January 30, 1997.(5)(7)
 10.36 Stock Purchase Agreement by and among Ashton, Dover, Rittereiser, and
        Rosensaft, dated January 30, 1997.(5)
 10.37 Loan Agreement between CSI(R) and Sun Bank, National Association, dated
        January 8, 1991, as amended September 5, 1996.
 10.38 Short-Term Loan and Security Agreement between Ashton (Borrower) and
        CSI(R) (Lender), dated February 18, 1997.
 10.39 Tax Allocation Agreement, between Ashton, CSI(R) and UTTC(TM), dated
        March 27, 1997.
 10.40 Letters from Ashton to Alliant Techsystems, dated January 23, 1996,
        March 29, 1996 and August 1, 1996.
 10.41 Contracts between Motorola, Inc. and CSI(R): (1) Task Order No. 1,
        effective January 16, 1996; (2) Change Order/Contract Amendment No. 2,
        dated February 26, 1996; (3) Change Order/Contract Amendment No. 3,
        dated January 12, 1996; (4) Change Order/Contract Amendment No. 4,
        dated August 12, 1996; (5) Contract between Motorola, Inc. Government
        and Space Technology Group Satellite Communications Division and
        CSI(R), effective January 1, 1997.
 10.42 Letters from Ashton to CSI(R) re: ATED, dated May 15, 1996, December 16,
        1996, February 5, 1997.
 10.43 Letters from Ashton to CSI(R) re: Universal Trading System ("UTS"),
        dated March 22, 1996, May 15, 1996, December 16, 1996, February 5,
        1997.
 10.44 Memorandum of Understanding between Ashton and E. Com International,
        Inc., dated October 31, 1997.
 10.45 Network Services Agreement between Ashton and CompuServe Incorporated,
        as amended, dated January 13, 1998. Material omitted pursuant to a
        request for confidential treatment and filed separately with the
        Securities and Exchange Commission.
 10.46 Form of Nonqualified Employee Stock Option Agreement.
 10.47 Form of Nonqualified Deferred Stock Option Agreement.
 10.48 Form of Nonqualified Stock Option Agreement.
 16.1  Letter for Changes in Registrant's Certifying Accountant, dated June 18,
        1996.(2)
 16.2  Letter from Arthur Andersen LLP to the Securities and Exchange
        Commission regarding change in Certifying Accountant, dated May 5, 1997
        and received May 14, 1997.(8)
 21    Subsidiaries of Ashton.
 27    Financial Data Schedule.
 99.1  Press Release of the Company re: Raymond Tate Steps Down as Chairman and
        President of Ashton, dated October 1996.(3)
 99.2  Press Release of the Company, dated April 8, 1997, re: Ashton Completes
        Development of Initial Online Trading Product for the Financial
        Securities Industry.(6)
</TABLE>
 
                                       36
<PAGE>
 
--------
 * Incorporated by reference as indicated in the applicable footnote.
 
(1) Incorporated by reference to the Company's Form SB-2 Registration
    Statement No. 33-1182.
 
(2)Incorporated by reference to Form 8-K, dated June 18, 1996.
 
(3)Incorporated by reference to Form 8-K, dated October 22, 1996.
 
(4)Incorporated by reference to Form 10-QSB, for the period ended September
30, 1996.
 
(5)Incorporated by reference to Form 10-QSB, for the period ended December 31,
1996.
 
(6) Incorporated by reference to Form 8-K, dated April 15, 1997.
 
(7) Incorporated by reference to Amendment No. 1 to Form 10-QSB for the period
    ended December 31, 1996, filed April 18, 1997.
 
(8) Incorporated by reference to Form 8-K, dated April 30, 1997.
 
(9) Incorporated by reference to Registration Statement on Form S-3 filed June
    29, 1998.
 
  (b) REPORTS ON FORM 8-K
 
(1) Form 8-K, dated January 27, 1998 was filed pursuant to Item 5.
 
(2) Form 8-K, dated April 9, 1998 was filed pursuant to Item 5.
 
                                      37
<PAGE>
 
                                  SIGNATURES
 
  In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on July 9, 1998.
 
                                          The Ashton Technology Group, Inc.
 
                                                /s/ Fredric W. Rittereiser
                                          By: _________________________________
                                                 FREDRIC W. RITTEREISER 
                                                  PRESIDENT AND CHIEF 
                                                   EXECUTIVE OFFICER
 
                                                   /s/ Robert A. Eprile
                                          By: _________________________________
                                             ROBERT A. EPRILE CHIEF FINANCIAL
                                                        OFFICER
 
  In accordance with the Exchange Act, this report has been signed by the
following persons in the capacities and on the dates indicated.
 
              SIGNATURE                        TITLE                 DATE
 
     /s/ Fredric W. Rittereiser        Director, President       July 9, 1998
-------------------------------------   and Chief Executive
       FREDRIC W. RITTEREISER           Officer (Principal
                                        Executive Officer)
 
        /s/ Robert A. Eprile           Chairman of the           July 9, 1998
-------------------------------------   Board and Chief
          ROBERT A. EPRILE              Financial Officer
                                        (Principal
                                        Financial Officer)
 
          /s/ John A. Blohm            Director, Executive       July 9, 1998
-------------------------------------   Vice President,
            JOHN A. BLOHM               Secretary and
                                        Treasurer
                                        (Principal
                                        Accounting Officer)
 
        /s/ Fred S. Weingard           Director                  July 9, 1998
-------------------------------------
          FRED S. WEINGARD
 
       /s/ K. Ivan F. Gothner          Director                  July 9, 1998
-------------------------------------
         K. IVAN F. GOTHNER
 
         /s/ Richard Butler            Director                  July 9, 1998
-------------------------------------
           RICHARD BUTLER
 
       /s/ William W. Uchimoto         Director                  July 9, 1998
-------------------------------------
         WILLIAM W. UCHIMOTO
 
 
                                      38