<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549

                                  FORM 10-QSB

                  QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                        
     For the Fiscal Quarter Ended              Commission File Number

           DECEMBER 31, 1998                          1-11747
           -----------------                          -------




                       THE ASHTON TECHNOLOGY GROUP, INC.
                       ---------------------------------
       (Exact name of small business issuer as specified in its charter)
                                        


           Delaware                                  22-6650372
           --------                                  ----------
    (State of Incorporation)         (I.R.S. Employer Identification Number)



             1900 MARKET STREET, SUITE 701, PHILADELPHIA, PA 19103
             -----------------------------------------------------
                    (Address of principal executive offices)

         Issuer's telephone number, including area code:  215-751-1900
                                                          ------------
                                        

   (Former name, former address and former fiscal year if changed since last
                                    report)


Number of shares of common stock outstanding on December 31, 1998:  15,046,409
                                                                    ----------

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 (of 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 
                              -----        -----  
<PAGE>
 
                       THE ASHTON TECHNOLOGY GROUP, INC.
                                        
                              INDEX - FORM 10-QSB

                               DECEMBER 31, 1998
                                        

                                        


PART I - FINANCIAL INFORMATION                                              PAGE
-------------------------------                                             ----

ITEM 1.  FINANCIAL STATEMENTS

      Consolidated Balance Sheets  December 31, 1998 and March 31, 1998...   4

      Consolidated Statements of Operations -                    
      For the Three and Nine Months Ended December 31, 1998 and 1997......   5

      Consolidated Statements of Cash Flows -
      For the Nine Months Ended December 31, 1998 and 1997................   6

      Notes to Unaudited Consolidated Financial Statements................   7

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS............................................   15

 
PART II - OTHER INFORMATION
---------------------------
 
Item 1.    Legal Proceedings..............................................   20
 
Item 2.    Changes in Securities and Use of Proceeds......................   20
 
Item 3.    Defaults Upon Senior Securities................................   20
 
Item 4.    Submission of Matters to a Vote................................   20 
 
Item 5.    Other Information..............................................   20 
 
Item 6.    Exhibits and Reports on Form 8-K...............................   21 

Signatures................................................................   22
<PAGE>
 
                         PART I - FINANCIAL INFORMATION
                                        


FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-QSB 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-QSB.  Such forward-looking statements speak
only as of the date of this Form 10-QSB.  For discussion of the factors that
might cause performance of the Company to differ with actual results, see Item
2:  Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Company's other periodic reports and registration statements
filed with the Securities Exchange Commission (the "SEC" or "Commission").  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.


ITEM 1.               FINANCIAL STATEMENTS
<PAGE>
 
<TABLE>
<CAPTION>
                        The Ashton Technology Group, Inc. and Subsidiaries
                                   Consolidated Balance Sheets
                            As of December 31, 1998 and March 31, 1998
 
                                                             DECEMBER 31, 1998    MARCH 31, 1998
                                                            -------------------  -----------------
                                                                (UNAUDITED)          (AUDITED)
<S>                                                         <C>                  <C>
ASSETS
 
Cash and cash equivalents.................................       $  513,750            $  815,680
Accounts receivable and prepayments.......................          715,909               130,843
Current portion of notes receivable.......................          100,676               103,619
Stock subscriptions receivable............................              ---               245,000
                                                          -----------------    ------------------
     Total current assets.................................        1,330,335             1,295,142
Notes receivable, net of current portion..................          755,717               458,040
Property and equipment, net...............................        1,053,502               849,799
Investment in E.Com International, Inc....................          105,000               105,000
Capitalized software development costs....................          143,030               224,686
Other assets..............................................          100,162                65,353
                                                          -----------------    ------------------
         TOTAL ASSETS                                            $3,487,746            $2,998,020
                                                          =================    ==================
</TABLE>

LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
 
<S>                                                         <C>                     <C>
Accounts payable and accrued expenses.....................      $    177,621           $  1,736,447
Notes payable.............................................            25,000                 25,000
Other liabilities.........................................           141,049                    ---
                                                          ------------------      -----------------
     Total current liabilities............................           343,670              1,761,447
 
STOCKHOLDERS' EQUITY:
Preferred stock  Series A - par value: $10; shares
 authorized:
 3,000,000; shares issued and outstanding; 206,844 and             2,068,438              2,500,000
  250,000.................................................
Preferred stock  Series B - par value: $10; shares
 authorized:                                                       5,825,000              3,188,875
 590,000; shares issued and outstanding; 582,500 and
  460,000.................................................
Preferred stock  Series C - par value: $10; shares
 authorized:                                                             ---                550,000
 590,000; shares issued and outstanding; none and 55,000..
Preferred stock  Series D - par value: $1,000,000; shares
 authorized: 10; shares issued and outstanding; .428 and             428,225                    ---
  none....................................................
Preferred stock  Series E - par value: $1,000,000; shares
 authorized: 10; shares issued and outstanding; 1.263 and          1,263,000                    ---
  none....................................................
Common stock - par value: $.01; shares authorized:
 60,000,000;                                                         150,464                 81,436
 shares issued and outstanding;  15,046,409 and 8,143,571.
Additional paid-in capital................................        30,592,123             15,730,870
Deferred consulting expense...............................          (213,281)              (438,281)
Accumulated deficit.......................................       (36,969,893)           (20,376,327)
                                                          ------------------      ----------------- 
Total stockholders' equity................................         3,144,076              1,236,573
                                                          ------------------      -----------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $  3,487,746           $  2,998,020
                                                          ==================      =================
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
              The Ashton Technology Group, Inc. and Subsidiaries
                     Consolidated Statements of Operations
        For the Three and Nine Months Ended December 31, 1998 and 1997
                                  (UNAUDITED)

<TABLE> 
<CAPTION> 
 
                                                             FOR THE THREE MONTHS ENDED              FOR THE NINE MONTHS ENDED
                                                                    DECEMBER 31,                            DECEMBER 31,
                                                             1998                 1997                1998               1997
                                                      -------------------   -----------------   -----------------  -----------------

<S>                                                   <C>                   <C>                 <C>                <C>
Revenues............................................        $    427,884         $   505,310        $  1,079,836       $ 3,340,367
                                                                                                                      
Costs and expenses:                                                                                                   
 Cost of revenues...................................              56,250             431,233             168,750         2,620,896
 Amortization of software development costs.........              47,677              49,500             143,031           147,700
 Depreciation and amortization......................              92,499             120,880             279,128           364,834
 Noncash compensatory charges.......................                 ---                 ---           4,626,136               ---
 Selling, general and administrative................           2,535,181           1,001,451           7,284,864         3,137,755
                                                            ------------         -----------        ------------      ------------
     Total costs and expenses.......................           2,731,607           1,603,064          12,501,909         6,271,185
                                                            ------------         -----------        ------------      ------------  
Loss from operations................................          (2,303,723)         (1,097,754)        (11,422,073)       (2,930,818)
                                                                                                                      
Other income/(expenses):                                                                                              
 Loss on sale of subsidiary.........................                 ---            (385,930)                ---          (385,930)
 Net interest income (expense)......................              35,640             (55,043)            111,081          (142,070)
 Other income.......................................             290,080                 ---             290,080               ---
                                                            ------------         -----------        ------------      ------------  
     Total other income (expenses)..................             325,720            (440,973)            401,161          (528,000)
                                                            ------------         -----------        ------------      ------------  
                                                                                                                      
Loss before provision for income taxes and minority                                                                   
 interest in earnings of subsidiary.................          (1,978,003)         (1,538,727)        (11,020,912)       (3,458,818)
                                                                                                                      
Provision for income taxes..........................                 ---              27,749                 ---            41,775
                                                            ------------         -----------        ------------      ------------
Loss before minority interest in earnings of                  
 subsidiary.........................................          (1,978,003)         (1,566,476)        (11,020,912)       (3,500,593) 
                                                                                                                                    
Minority interest in earnings of subsidiary.........                 ---              10,223                 ---           (11,464)
                                                            ------------         -----------        ------------      ------------
Net loss............................................        $ (1,978,003)        $(1,556,253)       $(11,020,912)      $(3,512,057)
                                                            ============         ===========        ============      ============
Net loss per share..................................               $(.18)              $(.21)             $(1.07)            $(.46)
                                                                                                                      
Dividends attributed to preferred stock.............            (129,471)                ---            (489,170)              ---
Beneficial conversion feature of preferred stock....                 ---            (926,282)         (5,083,484)         (926,282)
Dividends in arrears on preferred stock.............             (98,507)                ---            (312,467)               --
                                                            ------------         -----------        ------------      ------------  
Net loss applicable to common stock.................        $ (2,205,981)        $(2,482,535)       $(16,906,033)      $(4,438,339)
                                                            ============         ===========        ============      ============ 
Net loss applicable per common share................               $(.20)              $(.33)             $(1.63)            $(.59)
                                                            ============         ===========        ============      ============  
Weighted average number of common shares outstanding          10,907,910           7,562,500          10,350,524         7,562,500
                                                            ============         ===========        ============      ============ 
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
 
                            The Ashton Technology Group, Inc. and Subsidiaries
                                   Consolidated Statements of Cash Flows
                           For the Nine Months Ended December 31, 1998 and 1997
                                                (UNAUDITED)

<TABLE>  
<CAPTION>  

                                                                     FOR THE NINE MONTHS ENDED DECEMBER 31,
                                                                           1998                    1997
                                                                       ------------            -----------
<S>                                                               <C>                      <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................       $(11,020,912)           $(3,512,057)
Adjustments to reconcile net loss to net cash (used in) provided
  by operating activities:
 Depreciation and amortization..................................            422,159                554,081
 Increase in minority interest in subsidiary....................                ---                 11,464
 Loss on sale of subsidiary.....................................                ---                385,930
 Noncash compensatory charge for common stock options...........          4,626,136                    ---
 Deferred consulting costs......................................            509,375                    ---
Changes in operating asset and liabilities
 (Increase) in receivables and prepayments......................           (585,066)              (310,411)
 (Increase) in notes receivable.................................           (380,000)              (594,125)
 Decrease in stock subscription receivable......................            245,000                    ---
 (Increase)/Decrease in other assets............................            (34,809)                39,088
 (Decrease) in accounts payable and accrued expenses   expenses          (1,558,826)              (495,850)
 Increase (Decrease) in other liabilities   expenses                        141,049                (52,722)
                                                                -------------------      -----------------
   Net cash used in operating activities........................         (7,635,894)            (3,974,602)
                                                                -------------------      -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of fixed assets.......................................           (481,237)              (121,797)
 Investment in E.Com International, Inc.   expenses                             ---               (105,000)
 Net proceeds from sale of subsidiary   expenses                                ---                554,552
 Cash received from notes receivable............................             85,266                  8,026
 Capitalized software development costs.........................            (61,375)              (365,640)
                                                                -------------------      -----------------
   Net cash used in investing activities........................           (457,346)               (29,859)
                                                                -------------------      -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Preferred stock dividends paid in cash.........................           (319,062)                   ---
 Issuance costs for preferred stock and notes payable...........           (864,628)              (702,997)
 Issuance costs for common stock................................           (300,000)                   ---
 Proceeds from issuance of notes payable   expenses                             ---              3,000,000
 Proceeds from issuance of preferred stock......................          6,275,000              2,500,000
 Proceeds from issuance of common stock.........................          3,000,000                    ---
                                                                -------------------      -----------------
   Net cash provided by financing activities....................          7,791,310              4,797,003
                                                                -------------------      -----------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS............           (301,930)               792,542
Cash and cash equivalents, beginning of period..................            815,680                 60,841
                                                                -------------------      -----------------
 
Cash and cash equivalents, end of period........................       $    513,750            $   853,383
                                                                ===================      =================  
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
<PAGE>
 
THE ASHTON TECHNOLOGY GROUP, INC. AND SUBSIDIARIES NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.   DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
     -------------------------------------------------

The accompanying unaudited consolidated financial statements for the three
months and nine months ended December 31, 1998 include the accounts of The
Ashton Technology Group, Inc. ("ATG(TM)" or the "Company") and its subsidiaries,
Universal Trading Technologies Corporation ("UTTC(TM)"), Gomez Advisors, Inc.
("GA"), ATG(TM)" International ("International") and Electronic Market Center,
Inc. ("EMC").   As of December 31, 1998, all subsidiaries are wholly-owned by
ATG(TM) except UTTC(TM), of which the Company owns approximately 96% of the
common stock.  Also included is REB Securities, Inc. ("REB"), a wholly-owned
subsidiary of UTTC(TM).  The financial statements for the year ended March 31,
1998 do not include International, EMC, or REB, which were formed by ATG(TM) in
July, June and April 1998, respectively.  All significant intercompany accounts
and transactions have been eliminated.

The accompanying unaudited consolidated statements of operations for the three
months and nine months ended December 31, 1997, respectively, and the
accompanying unaudited consolidated statements of cash flows for the nine months
ended December 31, 1997 include the results of Computer Science Innovations,
Inc. ("CSI(R)"). CSI(R) was a subsidiary of the Company during these periods.
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 fiscal year
ended March 31, 1998, 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) forgiveness 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.  In addition, the Company received cash in the
amount of approximately $340,000 due to a Tax Allocation Agreement.  The Company
recognized a loss on the sale of $385,930.

The accompanying unaudited consolidated financial statements have been prepared
by the Company in accordance with generally accepted accounting principles for
interim financial statements and in accordance with the instructions for Form
10-QSB.  Accordingly, they do not contain all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.  In the opinion of management, the accompanying unaudited
consolidated financial statements have been prepared on the same basis as the
audited statements and include all adjustments, consisting only of normal
recurring adjustments, which are necessary for a fair statement of the results
of the interim periods presented.  These financial statements should be read in
conjunction with the footnotes contained in the Company's 10-KSB for the fiscal
year ended March 31, 1998.  The Statements of Operations for the nine months
ended December 31, 1998 are not necessarily indicative of the results that may
be expected for the fiscal year ended March 31, 1999.

The preparation of interim financial statements, in conformity with generally
accepted accounting principles, also requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities; the
disclosure of contingent assets and liabilities at the date of the interim
statements; and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those estimates.

2.   ACCOUNTS RECEIVABLE  AND PREPAYMENTS
     ------------------------------------

Accounts receivable includes $290,080 from Alliant Techsystems, Inc. ("Alliant")
payable as a result of judgements rendered in favor of the Company (See "Part
II, Item 1. Legal Proceedings"). Such judgements were recorded as other income
during the quarter ended December 31, 1998.  The cash payment from Alliant was
received on January 12, 1999.  Excluding the receivable from Alliant, accounts
receivable and prepayments are primarily attributable to GA and consist of
billed receivables arising from recognized revenues.  Revenues include GA
advisory service fees and advertising fees.
<PAGE>
 
3.   CERTAIN TRANSACTIONS
     --------------------

The Company and Raymond T. Tate ("Tate"), formerly Chairman of the Board of
Directors, 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, the
Company agreed to pay Raymond Tate Associates and Tate $120,000 per annum and
certain other expenses.  The total cost of the Consulting Agreement was charged
to operations during the year ended March 31, 1997 and was 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.  For the nine months
ended December 31, 1998, the Company paid Raymond Tate Associates and Tate
$91,692.  As of December 31, 1998, all payments to Raymond Tate Associates and
Tate pursuant to the Consulting Agreement have been completed.

On May 1, 1997, David N. Rosensaft ("Rosensaft") commenced an action in the U.S.
District Court for the Southern District of New York captioned Rosensaft v. The
Ashton Technology Group, Inc., et al, No. 97 Civ. 3138 ("the Rosensaft
lawsuit").  On January 14, 1998, the Company entered into an agreement with The
Dover Group, Inc. ("Dover") and Fredric W. Rittereiser (the Company's President,
Chief Executive Officer and a director of the Company), whereby Dover and Mr.
Rittereiser agreed to reimburse $413,980 in legal costs associated with the
Rosensaft lawsuit to the Company to the extent such costs were not covered by
the Company's directors' and officers' liability insurance carrier.  Dover and
Mr. Rittereiser pledged 333,334 shares of UTTC(TM) stock as collateral in
support of their agreement to pay the legal costs.  The Company has submitted a
claim to its insurance carrier in the full amount of such legal costs. To date,
the Company and its insurance carrier have not reached agreement as to whether
the legal costs are covered by the Company's directors' and officers' liability
insurance policy.  On March 4, 1998, the U.S. District Court entered an order
awarding damages against Dover and Mr. Rittereiser in the amount of $1.2
million.  Mr. Rittereiser is the sole shareholder, director and officer of
Dover.  Dover and Mr. Rittereiser offered to settle the litigation for, among
other things, a cash payment of $1.2 million.  On April 7, 1998, the Company's
Board of Directors, after due deliberation, concluded that the Company and its
UTTC(TM) subsidiary derived mutual benefit from the Rosensaft settlement by
Dover and Mr. Rittereiser.  The Board resolved to fund one-third of the $1.2
million settlement amount.  Separately, UTTC(TM) agreed to fund one-third of the
Rosensaft settlement amount.  On April 8, 1998, the Company loaned $380,000 to
Dover and Mr. Rittereiser at an annual rate of 9%, for thirty months.  In
exchange for the loan to satisfy the Rosensaft settlement, Dover pledged 300,000
shares of the Company's common stock ("Common Stock") under its control and
entered into a Promissory Note in favor of the Company.

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.  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.  As of December 31, 1998, the outstanding balance of the note
is $476,393.

Since 1996, the Company has utilized Dover for various services including
advising the Company on its acquisitions of  UTTC(TM) and CSI(R) and consulting
services related to the Company's financings and product development efforts.
Mr. Rittereiser, is the Chairman of  Dover.  For the nine months ended December
31, 1998, the Company paid consulting fees to Dover amounting to $135,000
compared to $25,000 for the same period of 1997.

During 1998, the Company retained Richard Butler, a member of the Company's
Board of Directors, to provide strategic marketing services.  For the nine
months ended December 31, 1998, the Company paid consulting fees to Richard
Butler amounting to $60,000 compared to $0 for the same period of 1997.
<PAGE>
 
During 1997, the Company retained Adirondack Capital, L.L.C. ("Adirondack") to
provide investment banking and financial advisory services.  K. Ivan F. Gothner,
a member of the Company's Board of Directors, is the Managing Director of
Adirondack.  For the nine months ended December 31, 1998, the Company paid
consulting fees and reimbursed expenses to Adirondack amounting to $114,131
compared to $114,532 for the same period of 1997.  Additionally, the Company has
paid Adirondack $300,000 (an amount equal to 5% of the proceeds from the sale of
the Series C Preferred, the Series D Preferred and the Series E Preferred) and
an option to purchase 600,000 shares of Common Stock at $1.875 per share and an
option to purchase 600,000 shares of UTTC(TM) common stock at $1.00 per share.
Pursuant to the Private Equity Line of Credit Agreement (the "Private Equity
Agreement" or "Agreement"), the Company has also agreed to pay Adirondack an
amount equal to 5% of the proceeds from the sale of Common Stock (each such sale
a "Put").  As of December 31, 1998, Adirondack has been paid $150,000 pursuant
to the Private Equity Agreement.  (See "Notes to Unaudited Financial Statements
Shareholders' Equity").

4.   PROPERTY AND EQUIPMENT
     ----------------------

Property and equipment are carried at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets (generally
three to five years).  Leasehold improvements are amortized over the term of the
lease, which is shorter than the estimated useful life of the leasehold
improvements.

5.   CAPITALIZED SOFTWARE DEVELOPMENT COSTS
     --------------------------------------

The Company capitalizes internally generated software development costs in
compliance with SFAS No. 86, Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed.  The Company capitalizes software
development costs where technological feasibility of the product has been
established.  The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs require
considerable judgement by management.  Capitalized software development costs
related to the VWAP(R) Trading System ("VTS(TM)") amounted to $61,375 and
$365,640 for the nine months ended December 31, 1998 and 1997, respectively.

Capitalization of computer software costs is discontinued when the computer
software product is available to be sold, leased or otherwise, marketed.
Amortization begins when the product is available for release to customers.  The
Company is amortizing capitalized software costs related to the VTS(TM) using
the straight-line method over the estimated economic useful life, which is
estimated at two years.

6.   INVESTMENT IN E.COM INTERNATIONAL, INC.
     ---------------------------------------

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 is 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.  The Company has 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.

On October 2, 1998, E.Com filed a Current Report on Form 8-K stating E.Com is
exploring various alternative financing strategies, including private and public
financing, selling assets and bank borrowings.  Absent successful completion of
such a financing, E.Com has indicated it will not have sufficient liquid assets
to continue operations as currently conducted.  The Company is monitoring
E.Com's progress in obtaining such financing and the impact of any such
financing upon the value of the Company's investment in E.Com.  Any decrease in
the value of the Company's investment is not expected to have a material impact
on the Company's consolidated financial position.
<PAGE>
 
7.   SHAREHOLDERS' EQUITY
     --------------------

On April 3, 1998 (the "Subscription Date"), the Company entered into the Private
Equity Agreement with a group of accredited investors (the "Private Equity
Investors") which provided 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 SEC under the Securities Act of 1933, as amended, 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 and it became
effective on August 13, 1998.  The Agreement provided that the Private Equity
Investors would be obligated to purchase 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.  The Private Equity Investors
purchased such shares of Series E Preferred on July 15, 1998.

In addition, 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 received additional Warrants to purchase up to an aggregate of
100,000 of such shares on July 15, 1998.  The Warrants are exercisable for five
years at an exercise price of $4.58 per share.

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.  Between August 20, 1998 and December 31, 1998, 2.745
shares of the Series D Preferred were converted into 2,694,948 shares of Common
Stock.  Between December 1, 1998 and December 31, 1998, .84 shares of the Series
E Preferred were converted into 763,497 shares of Common Stock.

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 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.  The Private Equity Investors are not obligated to purchase any Put
shares unless, among other things, (i) the Registration Statement is effective,
(ii) the Company is listed and its Common Stock is trading on a national
exchange or quotation system, (iii) the closing bid price of the Common Stock on
the day immediately preceding such purchase is at least $1.50 per share, and
(iv) 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.

Between August 20, 1998 and December 31, 1998, the Company exercised four Puts
to the Private Equity Investors in the aggregate amount of $3,000,000.  The
Company has issued 2,423,802 shares of Common Stock to the Private Equity
Investors in connection with the Puts.

On September 1, 1998, the Company entered into an agreement with the Private
Equity Investors to amend the Private Equity Agreement.  The amendment clarifies
that each of the Private Equity Investors may not beneficially own more than
4.99 percent of the Company's Common Stock at one time, including Common Stock
underlying convertible securities that would be deemed to be beneficially owned
pursuant to section 13(d) of the Securities Exchange Act of 1934 and Rule 13d-3
promulgated thereunder.
<PAGE>
 
On the Subscription Date, the Company paid Settondown Capital International Ltd.
(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.  On July 15,
1998, the Company paid the Placement Agent, $100,000 and 0.1 shares of Series E
Preferred and a Warrant to purchase up to 60,000 shares of Common Stock, on the
same terms as the Warrant issued on the Subscription Date.  In addition, on the
completion of each Put by the Company pursuant to the Private Equity Agreement,
the Company has agreed to pay the Placement Agent an amount equal to 5% of the
proceeds of each such Put.

In November 1998, the Company amended a consulting agreement with Continental
Capital & Equity Corporation whereby the Company issued 175,000 additional
shares of Common Stock, with a fair market value of $284,375, in exchange for
additional advisory and promotional services, a reduction in cash payments
required pursuant to a previous consulting agreement and extended the term of
the consulting agreement. During the quarter, the Company recorded a deferred
consulting expense of $284,375 as a reduction to stockholders' equity as a
result of amending the consulting agreement. The consulting cost will be
amortized over the revised term of the agreement. For the nine months ended
December 31, 1998, the Company charged $509,375 to selling, general and
administrative expenses for amortization of deferred consulting expenses related
to the consulting agreement and the amended consulting agreement.

8.   EMPLOYEE STOCK OPTION PLAN
     --------------------------

Stock options are granted to officers, directors, employees and others who
provide services to the Company at the discretion of the Board of Directors.
During the quarter ended September 30, 1998, the Company issued options to
purchase 4,760,000 shares of the Company's Common Stock to officers, directors
and employees of the Company pursuant to the Company's plan to grant 6,000,000
shares of Common Stock at $1.875.  On November 11, 1998, the Board of Directors
authorized the adoption of a non-qualified stock plan for one million shares of
Common Stock.  Options to purchase 410,000 shares of Common Stock were issued to
newly hired officers and employees pursuant to the terms of employment offers
made to the new officers and employees.  Options to purchase 590,000 shares of
Common Stock will be issued in the future to employees and others as determined
by the Board of Directors.  The exercise price of the remaining options was set
at $2.00 per share (which was approximately 60% above the price of the Common
Stock on November 11, 1998).

A summary of the status of the Company's employee stock options outstanding as
of December 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                                                     December 31, 1998
                                                       --------------------------------------------
                                                               OPTIONS          WEIGHTED-AVERAGE
                                                                                 EXERCISE PRICE
                                                       --------------------------------------------
<S>                                                      <C>                  <C>
Outstanding at beginning of year.......................              450,000                  $6.28
Granted during period..................................            5,170,000                   1.92
                                                       --------------------------------------------
Outstanding at end of period...........................            5,620,000                  $2.27
                                                       ============================================
</TABLE>


The following table summarizes information about employee stock options
outstanding and exercisable at December 31, 1998:

<TABLE>
<CAPTION>

                              NUMBER OUTSTANDING    WEIGHTED-AVERAGE REMAINING
  RANGE OF EXERCISE PRICE      AND EXERCISABLE           CONTRACTUAL LIFE          EXERCISE PRICE
--------------------------------------------------------------------------------------------------
<S>                           <C>                  <C>                           <C>
         $1.40-2.00                           ---                  ---                         ---
         $3.00-4.00                       210,000           7.25 years                      $ 4.00
           14.25                           60,000           7.25 years                      $14.25
</TABLE>
<PAGE>
 
Stock options granted during the nine months ended December 31, 1998 vest over
one-to-three years and have a maximum exercise term of five years.  Stock
options issued during the fiscal year ended March 31, 1997 had a maximum
exercise term of ten years.  All stock options granted by the Company include
provisions for: (i) forfeiture in the event the employee dies or ceases to be in
the employment of ATG(TM), or one of its subsidiaries, during the first year of
employment; and (ii) immediate vesting upon a merger, consolidation or change of
control of the Company.  The Company has not registered the Common Stock
underlying the stock options. The Company's assumptions used to calculate the
fair values of options issued to employees include: (i) a risk-free interest
rate of 5.6%, (ii) an expected life of five years, (iii) expected stock
volatility of 20%, and (iv) expected stock dividends of zero.

In addition, as of December 31, 1998, the Company had reserved options to
purchase 7,045,000 shares of GA's common stock for issuance to directors,
officers and employees of GA and ATG(TM) in connection with employment
agreements or as incentives for attracting employees to GA and the Company.  See
"Subsequent Events".

The Company also grants stock options to third parties in consideration for
services rendered to the Company.  During the nine months ended December 31,
1998, 150,000 options to purchase Common Stock were issued to a consultant who
provides marketing services to the Company.  A summary of the status of the
stock options issued to  third parties as of December 31, 1998 is as follows:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31, 1998
                                                       --------------------------------------------
                                                                                WEIGHTED-AVERAGE
                                                               OPTIONS           EXERCISE PRICE
                                                       --------------------------------------------
<S>                                                      <C>                  <C>
Outstanding at beginning of year.......................            1,090,000                  $1.88
Granted during period..................................              150,000                   1.88
                                                       --------------------------------------------
Outstanding at end of period...........................            1,240,000                  $1.88
                                                       ============================================
</TABLE>


The following table summarizes information about third party stock options
outstanding and exercisable at December 31, 1998:

<TABLE>
<CAPTION>
  RANGE OF EXERCISE PRICE     NUMBER OUTSTANDING    WEIGHTED-AVERAGE REMAINING
                               AND EXERCISABLE           CONTRACTUAL LIFE         EXERCISE PRICE
--------------------------------------------------------------------------------------------------
<S>                           <C>                  <C>                           <C>
           $1.88                        1,240,000           4.5 years                        $1.88
</TABLE>


Stock options were granted to third parties pursuant to the Company's plan to
grant 6,000,000 shares of Common Stock at $1.875 to officers, directors,
employees and others who provide services to the Company.  Stock options
granted to third parties vest immediately and have a maximum exercise term of
five years.  The Company has not registered the Common Stock underlying the
stock options.  The Company recognizes a non-cash compensation charge for
options granted to third parties in compliance with SFAS No. 123, Accounting for
Stock-Based Compensation.  The Company's assumptions used to calculate the fair
values of options issued to third parties include: (i) a risk-free interest rate
of 5.6%, (ii) an expected life of five years, (iii) expected stock volatility of
20%, and (iv) expected stock dividends of zero.

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 stock options issued to employees and has
adopted the disclosure-only provisions of SFAS No. 123.  During the quarter
ended September 30, 1998, the Company recognized a noncash compensation charge
of $4,367,809 to reflect the excess of the fair value of the GA options granted
over the exercise price of the GA options granted.  The Company also recognized
a noncash compensatory charge of $258,327 related to the 150,000 options granted
to a consultant who provides marketing services to the Company.
<PAGE>
 
If the Company had elected to recognize compensation cost based on the fair
value of the options granted to directors and employees at the grant date as
prescribed by SFAS No. 123, net loss per share would have been adjusted to the
pro forma amounts indicated in the table below:

<TABLE>
<CAPTION>
                                         AS REPORTED                                              PRO FORMA
                  ---------------------------------------------------------------------------------------------------------------
                       FOR THE NINE MONTHS      FOR THE NINE MONTHS ENDED      FOR THE NINE MONTHS     FOR THE NINE MONTHS ENDED
                     ENDED DECEMBER 31, 1998        DECEMBER 31, 1997        ENDED DECEMBER 31, 1998       DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>                        <C>                          <C>                        <C>
Net loss..........              $(11,020,912)                 $(3,512,057)              $(17,169,095)                $(3,512,057)
Loss per share....              $      (1.07)                 $      (.46)              $      (1.66)                $      (.46)
</TABLE>


9.    ACCOUNTS PAYABLE AND ACCRUED EXPENSES
      -------------------------------------
 
Accounts payable and accrued expenses consist entirely of accrued professional
fees and other expenses.

10.  NOTES PAYABLE
     -------------
    
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").  One holder of UTTC(TM) convertible and non-convertible
notes totaling $25,000 did not exchange notes for the Series B Preferred.

11.  COMPUTATION OF PER SHARE INFORMATION
     ------------------------------------

Basic loss per share is computed by dividing net loss attributed to common stock
by the weighted average common share outstanding for the period.  Basic loss per
share for the nine months ended December 31, 1998 and 1997 are calculated as
follows:

<TABLE>
<CAPTION>
                                                            NINE MONTHS ENDED DECEMBER 31,
                                                            1998                      1997
                                                 --------------------------------------------------
<S>                                                <C>                      <C>
Net loss.........................................            $(11,020,912)              $(3,512,057)
Dividends paid on preferred stock................                (489,170)                      ---
Dividends in arrears on preferred stock1.........                (312,467)                      ---
Recognition of beneficial conversion feature of                (5,083,484)                 (926,282)
 preferred stock2................................
                                                 --------------------------------------------------
Net loss available to common stockholders........            $(16,906,033)              $(4,438,339)
                                                 ==================================================
 
Net loss per common share........................                 $(1.63)               $     (.59)
                                                 ==================================================
</TABLE>
--------------------------------------------------------------------------------
1 Dividends in arrears represent the accumulated but unpaid dividends for the
Series A Preferred, Series B Preferred, Series D Preferred and Series E
Preferred through December 31, 1998.
2 The "Recognition of Beneficial Conversion Feature of Preferred Stock" reflects
the position of the Financial Accounting Standards Board Emerging Issues Task
Force Topic D-60 ("Topic D-60").  Topic D-60 addresses the position of the
accounting staff of the SEC regarding conversion features of convertible
preferred stock and convertible debt securities that are "in the money" upon
issuance, i.e. the conversion price is below the market price for the common
stock.  According to Topic D-60, an issuer of an equity security containing such
a "beneficial conversion feature" must allocate to additional paid-in capital an
amount equal to the intrinsic value of such conversion feature.  The discount
resulting from the allocation of proceeds to the "beneficial conversion feature"
is analogous to a dividend and should be recognized as a return to the preferred
shareholders over the minimum period in which the preferred stockholders can
realize that return.  The net effect of Topic D-60 causes an increase in the net
loss applicable to common stock in computing net loss per common share.  There
is no impact on the Company's net loss, cash flows or stockholders' equity.
<PAGE>
 
12.  RECLASSIFICATIONS
     -----------------

Certain reclassifications have been made to prior year's amounts to conform to
the current year's presentation.

13.  RECENTLY ADOPTED ACCOUNTING STANDARDS
     -------------------------------------

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 periods ended December 31, 1998 and
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 had no significant impact on the Company's
consolidated financial position, results of operations or cash flows.

In April, 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of Start-
Up Activities.  SOP No. 98-5 requires all costs associated with pre-opening,
pre-operating, organization activities to be expenses as incurred.  The Company
will adopt SOP No. 98-5 beginning April 1, 1999.  Adoption of this Statement is
not expected to have a material impact on the Company's consolidated financial
position or results of operations.
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NINE MONTHS OF FISCAL 1998 COMPARED TO NINE MONTHS OF FISCAL 1997.
------------------------------------------------------------------

OVERVIEW

The Company is engaged in the development and commercialization of on-line
transaction systems for participants in the U.S. and international financial
markets.  The Company was founded in 1994 to apply advanced telecommunication
and computing technologies to the area of electronic commerce ("e-commerce").
The Company is currently organized as a parent company which has 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. ("International").  As of December 31, 1998, all
subsidiaries are wholly-owned, except for UTTC(TM), of which the Company owns
approximately 96% of the common stock.  REB Securities Inc. ("REB") is a wholly-
owned subsidiary of UTTC(TM).

The Company's limited operating history and dependence upon the operation of its
VTS(TM) makes the prediction of future operating results difficult.  Although
the Company has undertaken several initiatives to activate its VTS(TM) and
develop additional sources of revenue, there can be no assurance that the
Company's products will become operational or the Company will become
profitable.  For the nine months ended December 31, 1998, GA generated all of
the Company's revenues.  GA provides consumer-based e-commerce research and
analysis concerning on-line financial services.  GA also provides clients in the
financial services industry with advisory services.

The Company intends to continue to increase its investments in research and
development, sales and marketing and related infrastructure.  Such increases
will be dependent upon factors including, but not limited to, operation of the
VTS(TM), success in hiring the appropriate personnel, market acceptance of the
Company's products, and development of a revenue stream from the Company's
products.  Due to the anticipated increases in the Company's operating expenses,
the Company's operating results are materially and adversely affected while
revenue is not generated from the Company's products.

At December 31, 1998, the Company's consolidated total assets were $3,487,746
compared to $2,998,020 at March 31, 1998.  Current assets totaled $1,330,335
compared to current liabilities of $343,670.

Stockholders' equity at December 31, 1998 increased to $3,144,076 from
$1,236,573 at March 31, 1998 due to the issuance of $1,275,000 of the Series B
Preferred, $3,150,000 of the Series D Preferred, $2,100,000 of the Series E
Preferred and the issuance of 2,423,802 shares of Common Stock for $3,000,000;
partially offset by the net loss of $11,020,912 and issuance costs of
$1,164,628.  Preferred stock dividends of $489,170 for the nine months ended
December 31, 1998 represent cash dividends of $319,062 and stock dividends
comprised of 1,968.75 shares of Series A Preferred, .02395 shares of Series D
Preferred, and 135,051 shares of Common Stock issued to the Series D and Series
E Preferred stockholders upon conversion of shares of the Series D Preferred and
Series E Preferred.

RESULTS OF OPERATIONS

The results for the periods ended December 31, 1998 are not comparable to the
same periods ended December 31, 1997 primarily due to the sale of the Company's
CSI(R) subsidiary in November 1997, which had been the Company's primary source
of revenue during the fiscal year ended March 31, 1998.

During the quarter ended December 31, 1998, the Company incurred a net loss of
$1,978,003 as compared to a net loss of $1,556,253 for the same quarter the year
before.  The net loss for the nine months ended December 31, 1998 was
$11,020,912 compared to $3,512,057 for the same period the previous year.
Excluding CSI(R), the net loss for the nine months ended December 31, 1997 would
have been $3,580,217.
<PAGE>
 
On a consolidated basis, the Company's revenue for the quarter ended December
31, 1998 totaled $427,884 compared to $505,310 for the same quarter of 1997.
For the nine months ended December 31, 1998, the Company had revenues of
$1,079,836 compared to revenues of $3,340,367 for the same nine months of 1997.
For the three months and nine months ended December 31, 1998, GA generated all
of the Company's revenue.  Excluding CSI(R), revenue for the three months and
nine months ended December 31, 1997 would have amounted to $79,750 and $159,750,
respectively.  Costs of revenues for the three months and nine months ended
December 31, 1998 represent the costs associated with the delivery of GA's
advisory services, and include the costs of salaries for personnel providing the
advisory services.

All of GA's revenue for the period from Inception (May 22, 1997) to December 31,
1997 was generated from advisory engagements with clients seeking to improve the
quality of their Internet service offerings.  For the nine months ended December
31, 1998, GA's consulting revenue increased by $570,250 compared to the same
period last year.  For the nine months ended December 31, 1998, advertising
revenue totaled $349,836 or 32% of total revenue compared to no advertising
revenue during the period from Inception to December 31, 1997.  GA anticipates,
on a forward-looking basis, that the acceptance of its internally developed
Scorecard and the proprietary research and analysis underlying its news and
editorial website ("Gomezwire") will enable GA to increase revenue by expanding
its advisory services, attracting advertising from e-commerce vendors and by
introducing other e-commerce segments on its Scorecard.

On April 8, 1997, the Company announced that UTTC(TM) had completed development
of its VTS(TM).  Although the VTS(TM) has been operational since April of 1997,
trading on the system as a facility of the PHLX could not begin until the SEC
approved Rule 237 as proposed by the PHLX.  An amendment to the proposed rule,
reflecting enhancements made to the system since the SEC first published the
proposed rule in the Federal Register on September 4, 1996, was submitted by the
PHLX to the SEC on October 27, 1997.

On April 16, 1998, the SEC proposed new rules and rule amendments that would
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
(the "Pilot Rule") to be launched by national securities exchanges and self-
regulatory organizations collectively, ("SROs").  Anticipating adoption of these
new regulations, the Company has explored the best structure for launching the
VTS(TM) and other electronic trading products while at the same time maintaining
operating flexibility.  On December 2, 1998, the SEC adopted new rules and rule
amendments, which were similar to the proposed ATS regulations.  The ATS
regulations and Pilot Rule permit the Company to introduce its products,
regardless of whether the PHLX rule proposal is approved by the SEC.  The ATS
regulations and Pilot Rule were published in the Federal Register on December
11, 1998.  Such regulations are anticipated to become effective in approximately
mid-April 1999.  Company personnel have been conducting preparatory system
launch sessions with the staff of the PHLX and joint, full-scale production
testing of the VTS(TM) and PHLX systems has commenced.  On a forward-looking
basis, the VTS(TM) is expected to be fully tested for deployment prior to the
effective date of the Pilot Rule.  As such, ATG(TM), UTTC(TM) and the PHLX
continue to seek SEC approval of the PHLX's pending rule change filing to permit
the VTS(TM) to commence operations prior to mid- April 1999.

In order to pursue launching the VTS(TM) through a broker-dealer, the Company
formed REB in April 1998. On October 20, 1998, REB was admitted to membership on
the PHLX subject to acquisition of a seat on the PHLX.  In response to a SEC
request, ATG(TM) and UTTC(TM) have agreed to operate the VTS(TM) through REB.
REB will operate as the facilities manager for the VTS(TM).  On September 24,
1998, REB filed applications with the National Association of Securities Dealers
("NASD") to operate as a registered broker-dealer providing execution service
for institutional investors.  REB is awaiting final approval from the NASD.  In
addition, REB continues to negotiate a final agreement with a clearing firm.

The PHLX entered into an agreement on June 9, 1998 in which the American Stock
Exchange ("AMEX") would acquire it.  The Company's contract with the PHLX is
assignable by its terms with the consent of both parties to the contract.  The
Company has stated it does not intend to agree to the assignment of the
contract.  Public reports indicate the structure and terms under which the
acquisition of the PHLX by the AMEX would occur are still being negotiated.  The
Company cannot predict the impact the proposed merger, should it occur, would
have upon the Company's contract with the PHLX or the operation of the VTS(TM).
<PAGE>
 
During the three months and the nine months ended December 31, 1998, the Company
incurred total costs and expenses of $2,731,607 and $12,501,909, respectively,
compared to $1,603,064 and $6,271,185 for the same periods ended December 31,
1997.   Excluding CSI(R), total costs and expenses for the three months and nine
months ended December 31, 1997 would have been $1,074,314 and $3,159,598,
respectively.

During the three months and nine months ended December 31, 1998, the Company
capitalized system development costs related to the VTS(TM) totaling $0 and
$61,375, respectively, compared to $44,850 and $365,640 for the same periods
last year. The Company believes the VTS(TM) is available and ready to be
marketed and has therefore ceased capitalization of computer software costs
related to the VTS(TM).

Pursuant to APB Opinion No. 25, Accounting for Stock Issued to Employees, the
Company recognized a noncash compensation charge of $4,367,809 to reflect the
excess of the fair value of the GA options granted over the exercise price of
the GA options granted.  See "Subsequent Events".  The Company also incurred a
noncash charge of $258,327 related to the issuance of non-employee stock options
to a consultant who provides marketing services to the Company.  The charges do
not materially affect the balance sheet as the reduction in shareholders' equity
is offset by an increase in additional paid-in capital.

Selling, general and administrative expenses ("SG&A"), excluding the noncash
compensatory charge, totaled $2,535,181 and $7,284,864 for the three months and
nine months ended December 31, 1998, respectively, as compared to $1,001,451 and
$3,137,755 for the same periods of 1997.   Excluding CSI(R), SG&A for the three
months and nine months ended December 31, 1997 were $957,965 and $2,704,672,
respectively.

For the nine months ended December 31, 1998, GA's SG&A totaled $1,466,790 or 20%
of the Company's total SG&A.  GA's SG&A increased by $1,172,293 from the period
from Inception (May 22, 1997) to December 31, 1997 due primarily to the full
nine months of operation, growth in staff, leasing of office facilities and
other expenses incurred in building GA's infrastructure.  The remaining increase
of $3,407,899 in the Company's SG&A for the nine months ended December 31, 1998
relative to the same period last year (excluding CSI(R)) is primarily a result
of growth in staff and increases in marketing, consulting and professional fees.

The Company continues to invest in the enhancement, marketing and deployment of
the VTS(TM) as well as pursuing opportunities to deploy the Company's trading
systems in the Asian and Canadian markets.  The Company's efforts are focused on
(i) enhancements to the VTS(TM), (ii) development of the eMCTM, and (iii)
development of the electronic Options Exchange System ("eOXTM "), an electronic
crossing network for derivative products.  The Company also continues to refine
the design requirements and evaluate market acceptance of the electronic Auction
System ("eASTM") and the electronic Public Limit Order Book ("ePLOBTM ").

The Company believes, on a forward-looking basis, that expenses will increase
for the fiscal year ended March 31, 1999 as a whole, when compared to the prior
fiscal year.  The Company believes that significant spending related to the
enhancement, development and marketing of its products is required to remain
competitive and establish the necessary trading volumes once the systems are
implemented.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, the Company's principal source of liquidity consisted of
cash and cash equivalents of $513,750.  On April 3, 1998, the Company entered
into the Private Equity Agreement with the Private Equity Investors, which
provided for an aggregate commitment of $18,000,000 to the Company, subject to
the satisfaction of certain conditions (See "Notes to Unaudited Consolidated
Financial Statements  Shareholders' Equity").  As of December 31, 1998, the
Company has drawn $8,000,000 of the total $18,000,000.
<PAGE>
 
The Company believes, on a forward-looking basis, it will begin to generate
revenues, in addition to those generated by GA, during its fiscal year ending
March 31, 2000.  The level and timing of such revenue are dependent, among other
factors, upon the Company's assumptions regarding (i) the date the VTS(TM)
becomes operational; (ii) the trading volume experienced by the VTS(TM); and
(iii) the pricing the Company is able to obtain.  Until adequate revenue is
derived from the VTS(TM), the Company's cash, cash equivalents and cash flow
from operations will not be sufficient to meet the presently anticipated cash
requirements.  Therefore, the Company anticipates placing additional Puts to the
Private Equity Investors.  Based upon the Company's current plan of operations,
it is anticipated that the remaining amount available under the Private Equity
Agreement will provide sufficient working capital for at least the next 12
months.

The Company's future capital requirements will depend on many factors, including
the timing for launch of the VTSTM, market acceptance of the Company's products,
the timing and extent of spending to support new product development efforts and
the timing of introductions of new products and enhancements to existing
products. The Company may need additional financing in the future if (i) the
Company experiences unexpected costs, (ii) there are further delays in the
introduction of the VTS(TM), or (iii) the Company fails to develop successfully
the market for its products.  The Company will require additional financing to
fund development of its products such as eMC(TM).  Such financing may be raised
through spin-offs, additional equity offerings, borrowings, or other
collaborative relationships, which may require the Company to share revenue from
its products.  There can be no assurance that additional equity or debt
financing, if required, will be available on acceptable terms or at all.  In
addition, in order to exercise Puts pursuant to the Private Equity Agreement,
the Company must satisfy certain conditions as required in the Private Equity
Agreement.

YEAR 2000 COMPUTER COMPLIANCE

The Company has assessed the potential impact of what is commonly referred to as
the "Year 2000" or "Y2K" 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 is subject to the
potential impact of the Y2K issue due to the nature of financial information and
the potential impacts which may arise from software, hardware, and equipment
both within the Company's direct control and outside of the Company's control.

The Company views its Y2K risks as arising from three primary sources: (i)
internal software, hardware and equipment utilized in the operations of the
Company; (ii) applications the Company has developed or is developing for use by
its customers; and (iii) third parties with which the Company has material
relationships.

The Company has determined that none of its critical internal systems and
equipment presents Y2K issues.  The Company is continuously acquiring and
replacing both hardware and software and is obtaining Y2K compliance
certifications with such purchases.  The Company's systems interface
electronically and operationally with software, hardware and equipment outside
of the Company's control.  The Company also contracts with third parties for
such services as telecommunications.  These third party vendors with whom the
Company has material agreements are large publicly traded organizations.  The
Company is reviewing the publicly available Y2K disclosures of these vendors;
however there can be no assurance that the Company will not be adversely
affected by the failure of these third parties to become Y2K compliant.  The
Company is not independently verifying the Y2K compliance of these vendors.

The Company has also determined that none of the applications it has developed
for use by its customers present Y2K issues.  The Company is in the process of
obtaining an independent certification of its VTS(TM)'s Y2K readiness.  In
addition, the Company's customers cannot enter or export non-Y2K compliant dates
into the VTS(TM) and all VTSTM business partners interact with the VTS(TM) via
Y2K compliant interfaces.
<PAGE>
 
Since the Company's VTS(TM) has not been activated, the potential liabilities
and costs associated with the Y2K compliance issue cannot be estimated with
certainty at this time.  The potential costs, including any potential loss of
revenue, would be dependent upon several factors including, but not limited to,
the volume transacted through the Company's products, the Y2K readiness of
customers utilizing the Company's products and the concentration of volume among
the Company's customers.  Because of these uncertainties regarding others, there
can be no assurance that the Y2K issue will not have a material financial impact
in any future period.  Because of these factors, the Company has no Y2K
contingency plan and does not intend develop such a plan at this time.  Should
the Company become aware that certain products or services provided by third
parties are not Y2K compliant, then the Company will develop contingency plans
for those affected services and vendors.

SUBSEQUENT EVENTS

On January 12, 1999, the Company filed a registration statement on Form S-3 with
the Commission to register additional 3,734,000 shares of Common Stock pursuant
to the Private Equity Line Agreement.  The registration statement is not yet
effective.

At a meeting of the Board of Directors on January 14, 1999, Mr. Rittereiser was
named Chairman of the Board of Directors and Arthur J. Bacci, the Company's
Chief Financial Officer, was named Corporate Secretary.

On January 22, 1999, the Company, Company management, and management of GA
consummated a recapitalization of outstanding equity securities of GA whereby
(i) the GA common stock owned by the Company was exchanged for preferred stock
of GA; (ii) all existing GA stock options were canceled; (iii) GA common stock
was issued to management and directors of GA; and (iv) a new stock option plan
was adopted for GA employees.  As a result of the restructuring, the Company's
initial voting equity ownership of GA will be reduced from 100% to approximately
70%.

On February 8, 1999, GA commenced a private placement of equity securities.
The proceeds from the private placement will be used to expand staffing, for
capital expenditures to build an on-line research station and advanced database
system, to develop and market new products and services, and for general
corporate purposes.  The securities offered in the private placement will not be
registered under the Securities Act of 1933, as amended, and may not be sold in
the U.S. absent registration or an applicable exemption from the registration
requirements.  GA is also exploring additional financing strategies including an
initial public offering of common stock.
<PAGE>
 
                          PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

Alliant with whom the Company had a contract for the production of certain ATED
Encryption Devices ("ATEDs") had demanded payment of approximately $292,000,
under the contract between Alliant and the Company, which the Company was
contesting.  On October 22, 1997, the Company filed a Complaint against Alliant
in the Court of Common Pleas, County of Philadelphia, Pennsylvania ("PA") for
damages and failure of Alliant to perform its obligations under its contract
with the Company.  On December 15, 1997, Alliant filed its Answer and
Counterclaims totaling $292,000.  Since the filing of this original lawsuit on
October 22, 1997, the Company encountered warranty-related problems while
testing the ATEDs.  Alliant had failed to address the reported problems.  As a
result, the Company filed a second Complaint against Alliant for breach of
warranty.  The second action was commenced on July 20, 1998 and sought damages
in excess of $50,000.

On November 16, 1998, a non-jury civil trial commenced related to the Company's
first Complaint as well as Alliant's Counterclaim.  On November 23, 1998,
judgements were rendered in favor of the Company in the amount of $316,000 (plus
interest of approximately $28,000) that resolved both pending Complaints by the
Company against Alliant.  Additionally, a judgement for Company was rendered
which dismissed Alliant's Counterclaims against the Company.  See Item 8-
Exhibits and Reports on Form 8-K.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE

None.

ITEM 5. OTHER INFORMATION

See "Subsequent Events" in Item 2 of Part I above.
<PAGE>
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A)  Exhibits

     Exhibit 3.1 - By-Laws, amended and restated effective November 11, 1998

     Exhibit 11 - Earnings per share computation.

     Exhibit 27 - Financial Data Schedule.

(B)  Reports on Form 8K

     December 10, 1998 - Judgements in Alliant Litigation.
<PAGE>
 
                                   SIGNATURES


In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                                   The Ashton Technology Group, Inc.
                                   ---------------------------------
                                        (Registrant)



  Date:    February 10, 1999                By:


                                   /s/     Arthur J. Bacci
                                   --------------------------------------------
                                      Arthur J. Bacci
                                      Senior Vice President, Chief Financial
                                        Officer and Treasurer
<PAGE>
 
                                 EXHIBIT INDEX


                                                                Page
                                                                ----

EXHIBIT 3.1
-----------

By-Laws, amended and restated effective November 11, 1998......  24


EXHIBIT 11
----------

Earnings per share computation.................................  36


EXHIBIT 27
----------

Financial Data Schedule........................................  37