<PAGE>

================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                            ______________________

                                   Form 10-Q


    [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934

                For the Quarterly Period Ended: March 31, 2000

                       Commission File Number:  0-27705


                               WEB STREET, INC.
            (Exact name of registrant as specified in its charter)


               Delaware                                      36-4212401
    (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                     Identification No.)


                 510 Lake Cook Road, Deerfield, Illinois 60015
             (Address of principal executive offices and zip code)

      Registrant's telephone number, including area code:  (847) 444-4700

                            ______________________

     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 __
                                               ---

     The number of shares of the registrant's Common Stock outstanding as of May
11, 2000, was 25,704,652.

================================================================================
<PAGE>

                               WEB STREET, INC.

                         QUARTERLY REPORT ON FORM 10-Q
                   FOR THE THREE MONTHS ENDED MARCH 31, 2000

                                     INDEX

<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----
<S>                                                                             <C>
PART I - FINANCIAL INFORMATION
  Item 1. Financial Statements
          Condensed Consolidated Balance Sheets as of March 31, 2000
            (unaudited) and December 31, 1999.................................   3
          Condensed Consolidated Statements of Operations (unaudited) for
            the three months ended March 31, 2000 and 1999....................   4
          Condensed Consolidated Statements of Cash Flows (unaudited) for
            the three months ended March 31, 2000 and 1999....................   5
          Notes to Condensed Consolidated Financial Statements................   6
  Item 2. Management's Discussion and Analysis of Financial Condition and
            Results of Operations.............................................   9
  Item 3. Quantitative and Qualitative Disclosures about Market Risk..........   16

PART II - OTHER INFORMATION
  Item 2. Changes in Securities and Use of Proceeds...........................   17
  Item 6. Exhibits and Reports on Form 8-K....................................   17

SIGNATURES....................................................................   18
</TABLE>

                                       2
<PAGE>

                        PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                        WEB STREET, INC. AND SUBSIDIARY

                     CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                      December 31,
                                                                               March 31, 2000             1999
                                                                              ----------------       --------------
                                                                                 (Unaudited)
<S>                                                                           <C>                    <C>
                                 ASSETS

Cash and cash equivalents................................................       $ 32,008,412          $ 39,189,362
Receivable from clearing broker..........................................          4,022,823             2,395,679
Other receivables........................................................            450,188               359,917
Property and equipment, net..............................................          5,590,288             3,994,411
Prepaid expenses and other...............................................          2,465,902             1,851,534
                                                                              --------------         -------------
Total assets.............................................................       $ 44,537,613          $ 47,790,903
                                                                              ==============         =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
 Accounts payable........................................................       $  3,398,135          $  2,705,228
 Accrued compensation and benefits.......................................            433,736             1,202,561
 Other accrued expenses..................................................          1,154,212               774,072
 Deferred rent...........................................................            145,008               146,082
                                                                              --------------         -------------
Total liabilities........................................................          5,131,091             4,827,943

Commitments and contingencies

Stockholders' equity:
 Preferred stock ($.01 par value; 2,000,000 shares authorized; no shares
  issued and outstanding)                                                                 --                    --
 Common stock ($.01 par value, 100,000,000 shares authorized; 25,702,777
  shares issued and outstanding at March 31, 2000 and 25,660,402 shares
  issued and outstanding at December 31, 1999)...........................            257,028               256,604
 Additional paid-in capital..............................................         65,552,753            65,317,651
 Accumulated deficit.....................................................        (26,403,259)          (22,611,295)
                                                                              --------------         -------------
Total stockholders' equity...............................................         39,406,522            42,962,960
                                                                              --------------         -------------
Total liabilities and stockholder's equity...............................       $ 44,537,613          $ 47,790,903
                                                                              ==============         =============
</TABLE>

           See notes to condensed consolidated financial statements.

                                       3
<PAGE>

                        WEB STREET, INC. AND SUBSIDIARY

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                                   Three months ended March 31,
                                                                            ---------------------------------------
                                                                                2000                      1999
                                                                            -------------             -------------
                                                                                           (Unaudited)
<S>                                                                         <C>                      <C>
Revenues:
 Transaction revenue.....................................................     $12,077,940               $ 4,271,268
 Interest income.........................................................         734,549                   147,800
 Other revenue...........................................................         242,727                   217,527
                                                                            -------------             -------------
  Total revenues.........................................................      13,055,216                 4,636,595
Cost of services:
 Clearance and execution.................................................       5,353,579                 1,717,696
 Employee compensation and benefits......................................         966,935                   550,121
 Communication and data processing.......................................         657,712                   288,199
                                                                            -------------             -------------
  Total cost of services.................................................       6,978,226                 2,556,016
Operating expenses:
 Marketing and advertising...............................................       5,591,869                   633,148
 Technology development..................................................         709,240                   314,220
 General and administrative..............................................       3,567,845                 1,118,620
                                                                            -------------             -------------
  Total operating expenses...............................................       9,868,954                 2,065,988
                                                                            -------------             -------------
Net income (loss)........................................................     $(3,791,964)              $    14,591
                                                                            =============             =============
Basic and diluted net income (loss) per common share.....................     $     (0.15)              $      0.00
                                                                            =============             =============
Weighted-average common shares used in computation of basic and diluted
 net income (loss) per common share......................................      25,674,219                20,092,013
                                                                            =============             =============
</TABLE>

           See notes to condensed consolidated financial statements.

                                       4
<PAGE>

                        WEB STREET, INC. AND SUBSIDIARY

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                         Three months ended March 31,
                                                                                --------------------------------------------
                                                                                       2000                     1999
                                                                                -------------------      -------------------
                                                                                                 (Unaudited)
<S>                                                                             <C>                      <C>
Cash flows from operating activities:
 Net income (loss).......................................................               $(3,791,964)             $    14,591
 Adjustments to reconcile net income (loss) to net cash provided by
  (used in) operating activities:
   Depreciation and amortization.........................................                   407,830                  107,186
   Compensation and other expenses incurred through issuance of stock
    options and warrants.................................................                   233,174                   93,012
   Deferred rent amortization............................................                    (1,074)                  (1,074)
   Changes in operating assets and liabilities:
     Receivable from clearing broker.....................................                (1,627,144)                 168,061
     Other receivables...................................................                   (90,271)                 349,956
     Prepaid expenses and other assets...................................                  (614,368)                (326,499)
     Accounts payable....................................................                   692,907                 (614,822)
     Accrued compensation and benefits...................................                  (768,825)                 (18,848)
     Other accrued expenses..............................................                   380,140                  353,972
                                                                                -------------------      -------------------

Net cash provided by (used in) operating activities......................                (5,179,595)                 125,535

Cash flows from investing activities:
 Purchases of property, equipment and software...........................                (2,003,707)              (1,071,671)

Cash flows from financing activities:
 Proceeds from issuance of common stock, net of issuance costs...........                        --                5,005,740
 Redemption of preferred stock...........................................                        --                 (400,000)
 Payment from related party..............................................                        --                  190,000
 Proceeds from the exercise of stock options.............................                     2,352                       --
                                                                                -------------------      -------------------
Net cash provided by financing activities................................                     2,352                4,795,740
                                                                                -------------------      -------------------

Increase (decrease) in cash and cash equivalents.........................                (7,180,950)               3,849,604
Cash and cash equivalents at beginning of period.........................                39,189,362                1,579,639
                                                                                -------------------      -------------------
Cash and cash equivalents at end of period...............................               $32,008,412              $ 5,429,243
                                                                                ===================      ===================

Supplemental disclosures of cash flow information:
 Interest paid...........................................................               $     2,218              $       319
 Income taxes paid.......................................................                        --                       --
 Eliminate common stock put rights.......................................                        --                  624,375
</TABLE>


           See notes to condensed consolidated financial statements.

                                       5
<PAGE>

                        WEB STREET, INC. AND SUBSIDIARY

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

  1. Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements
include the accounts of Web Street, Inc. and its wholly-owned subsidiary, Web
Street Securities, Inc. (collectively, the Company), and have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly, they do not include all of the information required by
generally accepted accounting principles for complete financial statements.  In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.

     The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

     For further information, refer to the consolidated financial statements and
footnotes thereto included in the Web Street, Inc. annual report on Form 10-K
for the year ended December 31, 1999.

  2. Receivable from Clearing Broker

     Receivable from clearing broker represents the net settlement due to the
Company for customer trading activity payable by its clearing broker. The
receivable from clearing broker at March 31, 2000 and December 31, 1999 consists
of the following:

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                       March 31, 2000             1999
                                                                     -----------------     -----------------
<S>                                                                  <C>                   <C>
Rebates receivable from payment for order flow.....................         $2,706,590            $1,566,091
Commissions receivable.............................................          1,316,233               829,588
                                                                     -----------------     -----------------
                                                                            $4,022,823            $2,395,679
                                                                     =================     =================
</TABLE>

  3. Property and Equipment

     Property and equipment, net at March 31, 2000 and December 31, 1999
consists of the following:

<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                        March 31, 2000               1999
                                                                      -----------------      -----------------
<S>                                                                     <C>                    <C>

Hardware and equipment.............................................         $ 3,768,861            $ 2,813,417
Furniture and fixtures.............................................             501,832                438,576
Software...........................................................           1,269,282                872,458
Buildings and leasehold improvements...............................           1,719,398              1,151,101
Land and improvements..............................................              44,886                 25,000
                                                                      -----------------      -----------------

Total cost.........................................................           7,304,259              5,300,552
Less accumulated depreciation......................................          (1,713,971)            (1,306,141)
                                                                      -----------------      -----------------
                                                                            $ 5,590,288            $ 3,994,411
                                                                      =================      =================
</TABLE>

                                       6
<PAGE>

  4. Commitments and Contingencies

     During the three months ended March 31, 2000, the Company entered into
various operating leases principally for office facilities.  The Company's
aggregate future minimum lease payments on various leases expiring through 2010
were approximately $16,500,000 at March 31, 2000.

     The Company has commitments for marketing and advertising of approximately
$2,470,000. Prepaid expenses at March 31, 2000 include $1,390,000 related to
these commitments.

     The Company has entered into employment agreements with several of its key
executive officers.  These employment agreements provide for annual base salary
compensation, annual incentive compensation and severance payments in the event
of termination of employment under defined circumstances, including changes in
the Company's control.

     The Company is, from time to time, a party to certain pending and
threatened legal actions arising in the ordinary course of business.  Management
does not believe that any such current matters, either individually or in the
aggregate, will have a material adverse effect on the Company's results of
operations, financial condition or cash flows.

  5. Related Party Transactions

     As of March 31, 2000, the Company was owed approximately $332,000 from
officers of the Company.

  6. Stock Options

     During the three months ended March 31, 2000, the Company granted to
employees options on 293,400 shares of the Company's common stock.  The
weighted-average exercise price on these options was $6.68 a share.

  7. Regulatory Requirements

     As a registered broker-dealer, Web Street Securities, Inc. is subject to
the Uniform Net Capital Rule, Rule 15c3-1 under the Securities Exchange Act of
1934, which requires that it maintain minimum net capital, as defined, of
6 2/3% of aggregate indebtedness or $100,000, whichever is greater. At March 31,
2000, Web Street Securities had net capital of $1,818,319, which exceeded the
minimum net capital requirements by $1,582,408, and a ratio of aggregate
indebtedness to net capital of 1.95 to 1.

     Web Street Securities, Inc. is exempt from the customer protection rule,
Rule 15c3-3 under the Securities Exchange Act of 1934, under paragraph
(k)(2)(ii) of that rule because it introduces customers to a clearing broker on
a fully-disclosed basis and does not hold customer funds or securities.

     In January, 2000, the Company filed to become a self-clearing broker-
dealer. Clearing services include the confirmation, receipt, settlement, custody
and delivery functions involved in securities transactions.  Once it is self-
clearing, the Company will assume responsibility for the possession and control
of customers' securities and other assets and the clearance of customers'
securities transactions.  The Company will then be required to record on its
balance sheet the customer receivables and customer payables to the Company that
are the result of customer margin loans (i.e., loans made to customers that are
collateralized by securities held in the customer's margin accounts at the
Company) and customer free credit balances (i.e., customer cash balances
maintained at the Company), respectively.

                                       7
<PAGE>

  8. Earnings per Share

     The weighted-average common shares used in computation of basic and diluted
net income per common share for the three months ended March 31, 1999 presented
in the condensed consolidated statements of operations represents shares used in
computing basic net income per common share; 20,485,997 shares were used in
computing diluted net income of $0.00 per common share for that period.

                                       8
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

     You should read the following discussion along with our Condensed
Consolidated Financial Statements and the related notes included in this
quarterly report. The following discussion contains forward-looking statements
that are subject to risks, uncertainties and assumptions. Our actual results,
performance and achievements in 2000 and beyond may differ materially from those
expressed in, or implied by, these forward-looking statements. See "Cautionary
Note Regarding Forward-Looking Statements."

Overview

     We provide online brokerage services to individual investors, primarily in
the United States, Europe, Asia and Latin America, through our wholly owned
subsidiary, Web Street Securities, Inc., a registered broker-dealer.  Through
our web site, located at www.webstreet.com, our customers can quickly execute
equity, option and mutual fund trades at a low cost, and conveniently access
real-time trading information, financial market data and account information.

     We continued to experience significant growth in our business during the
three months ended March 31, 2000.  Our revenues, total trades executed and
total customer accounts increased by 182%, 151% and 106%, respectively, during
the first quarter of 2000 compared to the corresponding period in 1999.  We also
continued our international expansion, as we began providing investors in Hong
Kong with online access to the U.S. securities markets through our strategic
alliance with Sun Hung Kai & Co. Securities Ltd.'s online unit, SHK Online
Limited.  In February 2000, we significantly increased efforts to promote our
brand with the launch of our new national advertising campaign employing the
tagline "Invest with Ambition."  We expect to continue expanding this initiative
in existing and new target markets through additional broadcast, print and
direct marketing efforts.  Furthermore, during the first quarter, we eliminated
all Web Street commissions on the purchase, sale and exchange of mutual funds in
transactions of $500 or more on our Mutual Fund SuperSite.

     Toward the end of the first quarter of 2000, we took steps to increase our
brick-and-mortar presence, with the signing of leases in the financial districts
of San Francisco, Boston and Denver.  These street-level locations will house
our state-of-the-art financial service centers and will enable us to provide
customers with in-person educational seminars, access to information on various
financial markets, and demonstrations detailing our product services and
offerings.  In light of the fact that the Internet tends to be very impersonal,
we believe that our existing and potential new customers will benefit from, and
favor, the opportunity for face-to-face interaction with us.  We intend to open
additional financial service centers in other select locations in the United
States and internationally.

     We believe we now have in-place the required systems and personnel to
effectively convert to self-clearing status.  Because the April monthly meeting
of the National Securities Clearing Corporation (NSCC) was delayed until May, we
had not obtained all the necessary regulatory approvals for us to begin
providing self-clearing services by our original May 1, 2000 goal.  On April 30,
2000, our initial clearing arrangement with U.S Clearing Corp. expired.  Since
then U.S. Clearing has provided clearing and execution services for our
customers' accounts under an interim clearing agreement.  We expect to receive
the necessary approval from the NSCC in May, 2000 and expect to complete the
conversion to self-clearing operations at the end of June 2000.  By the end of
June 2000, when we expect to end our association with U.S. Clearing, we expect
to have completed the transfer of all of our customer accounts and we do not
foresee any lapses in customer service.  While operating under the interim
agreement with U. S. Clearing, we are receiving lower payments for order flow as
the payments are now based on actual, current-market rebates received from the
market makers that process our orders.  Additionally, we are experiencing a
$1.25 increase in clearing costs per trade compared to what we had been charged
by U.S. Clearing under the terms of the initial agreement.  In addition, as a
result of our postponement of the conversion to self-clearing status, we will
not experience the benefits of the increased interest income that

                                       9
<PAGE>

we expect to derive from carrying our customers' accounts until the conversion
is completed. We expect that the combination of these factors will result in
significantly slower revenue growth during the second quarter compared to our
recent quarterly revenue growth rates. The expected decrease in revenue per
trade, combined with a temporary increase in clearing costs through the
completion of the conversion period, will also lead to lower gross profit
margins. However, we expect to carefully manage discretionary spending,
including marketing, during the second quarter in order to mitigate the impact
on net profit margins. Beyond the second quarter, we anticipate important
positive customer benefits, a return to strong revenue growth and increased
profitability for the firm following this transition to self-clearing. However,
anticipated positive effects of becoming self-clearing will not be fully
realized immediately.

     Above-market order flow payments received under our initial agreement with
U.S. Clearing allowed us to offer our customers commission-free trades on over-
the-counter orders of 1,000 or more shares priced at more than $2.00 per share.
Because of the decrease in order flow payments that resulted from the expiration
of our initial agreement with U.S. Clearing and that will continue upon our
conversion to self-clearing operations, we anticipate that we will limit and may
eventually no longer offer these commission-free trades and, thus, we may lose
the competitive advantage we gain by doing so.

     Towards the end of the first quarter and into the beginning of the second
quarter of 2000, the U.S. equity markets experienced an increase in price
volatility followed by a decrease in the volume of shares transacted on the
major exchanges.  To the extent this trend persists, our transaction volumes and
results of operations and cash flows will be adversely affected.

                                       10
<PAGE>

Results of Operations

     In the discussion below, we compare our results of operations for the three
months ended March 31, 2000 and 1999.

     The following table shows for the periods presented (a) the percentage of
total revenues represented by items on our condensed consolidated statements of
operations and other operating data, and (b) the percentage change in each item
from the prior period.

<TABLE>
<CAPTION>
                                                                         Percentage of Total Revenues
                                                                       ---------------------------------
                                                                          Three months ended March 31,
                                                                       ---------------------------------      Period-to-Period
                                                                            2000                1999          Percentage Change
                                                                       --------------      -------------      -----------------
<S>                                                                    <C>                 <C>                <C>
Revenues:
 Transaction revenue...............................................             93%                 92%                    183%
 Interest income...................................................              6                   3                     397
 Other revenue.....................................................              1                   5                      12
                                                                       -----------       -------------
   Total revenues..................................................            100                 100                     182

Cost of services:
 Clearance and execution...........................................             41                  37                     212
 Employee compensation and benefits................................              7                  12                      76
 Communication and data processing.................................              5                   6                     128
                                                                       -----------       -------------

  Total costs of services..........................................             53                  55                     173

Operating expenses:
 Marketing and advertising.........................................             43                  14                     783
 Technology development............................................              6                   7                     126
 General and administrative........................................             27                  24                     219
                                                                       -----------       -------------
  Total operating expenses.........................................             76                  45                     378
                                                                       -----------       -------------
Net income (loss)..................................................            (29)%                --%                    n/m
                                                                       ===========       =============

Other Data:
Total trades.......................................................        469,000             187,200                     151
Average trades per day.............................................          7,444               3,069                     143
Total customer accounts /(1)(2)/...................................        112,000              54,500                     106
Total customer assets (millions of dollars) /(1)/..................       $  1,095            $    348                     215
Total employees /(1)/..............................................            166                  80                     108
</TABLE>

n/m - not meaningful
(1) As of the end of each period presented.
(2) Represents open accounts, regardless of whether there have ever been any
    funds or securities in the account.

  Revenues

     Total revenues increased to $13,055,000 in the first quarter of 2000, up
182% from $4,637,000 in the first quarter of 1999.  Our transaction volumes,
total customer accounts and customer asset balances grew rapidly through 1999
and the first quarter of 2000.  We executed 7,444 trades per day in the three
months ended March 31, 2000 compared to 3,069 trades per day during the same
period of 1999.  Total customer accounts increased from 54,500 at March 31, 1999
to 112,000 at March 31, 2000.  Customer asset balances increased from
$348,308,300 at March 31, 1999 to $1,094,745,000 at March 31, 2000.

     Transaction revenue increased to $12,078,000 in the first quarter of 2000,
up 183% from $4,271,000 in the first quarter of 1999.  Transaction revenue
represented 93% of total revenue in the first three months of 2000, compared to
92% in the same period in 1999.  Brokerage commissions declined to

                                       11
<PAGE>

49% of total revenues in the first quarter of 2000 from 55% in the first quarter
of 1999, while order flow-related rebates increased to 44% of total revenue in
the first quarter of 2000 from 37% in the corresponding period in 1999. For the
three months ended March 31, 2000, equity transactions represented 91% and
option transactions represented 9% of our total transaction volumes. This
compares to 83% for equity transactions and 17% for option transactions for the
three months ended March 31, 1999. Average transaction revenue increased to
$25.75 per trade in the first quarter of 2000 from $22.82 in the first quarter
of 1999, as a result of the increase in average order flow-related payments per
trade, offset slightly by the shift in trade mix away from the higher commission
option trades. Transaction revenue from our international partnerships,
principally our agreement with ConSors Discount-Broker (ConSors), represented
approximately 23% of our total revenues in the first three months of 2000. Our
relationship with ConSors became operational at the end of the first quarter of
1999. We expect revenues from our international relationships to increase as a
percentage of our total revenues in the future.

     Interest income increased to $735,000, or 6% of total revenue, in the first
quarter of 2000, up 397% from $148,000, or 3% of total revenue, in the first
quarter of 1999 due primarily to increases in our average cash balances.  Our
average cash balances increased from approximately $3.5 million during the first
quarter of 1999 to approximately $35.6 million during the first quarter 2000 as
a result of the receipt of approximately $41 million from the offering of
4,192,500 shares of our common stock to the public during the fourth quarter of
1999.  Also contributing to the increase in interest income were increases in
customer money market and margin debit balances.  We expect interest income to
increase as a percentage of total revenue in the future as we convert to self-
clearing, retain the full interest spread that we currently share with U.S.
Clearing, and experience additional growth in customer credit and debit
balances.

     Other revenue increased to $243,000 in the first quarter of 2000, up 12%
from $218,000 in the first quarter of 1999.  The increase was due to a
comparable increase in the number of subscribers to our automatically updating
real-time quote services at prices ranging from $19.95 to $79.95 per month.
Other revenue declined to 1% of total revenue in the first three months of 2000
from 5% in the same period in 1999, as transaction revenues and interest income
grew at a more rapid rate.

  Cost of Services

     Total cost of services increased to $6,978,000 in the first quarter of
2000, up 173% from $2,556,000 in the comparable quarter of 1999.  This increase
was due primarily to the increase discussed above in the number of securities
transactions we executed during the first quarter of 2000.  Clearance and
execution costs increased to $5,354,000 in the first three months of 2000, up
212% from $1,718,000 in the same period in 1999.  The transaction-based fees
paid to U.S. Clearing for trade execution, as well as to various market data
vendors, increased throughout 1999 and into the first quarter of 2000 as
transaction volumes increased.  In April 1999, we began making margin-sharing
payments for trades directed to us under agreements with our international
partners that we also recorded as clearance and execution costs.  These margin-
sharing payments caused the average clearance and execution cost per trade to
increase by $2.08 in the first quarter of 2000 compared to the first quarter of
1999.  As a result of initiating these margin-sharing payments, clearance and
execution costs increased to 41% of total revenues in the first quarter of 2000
from 37% in the first quarter of 1999.

Employee compensation and benefits increased to $967,000 in the first quarter of
2000, up 76% from $550,000 in the first quarter of 1999.  Communication and data
processing costs increased to $658,000 in the first quarter of 2000, up 128%
from $288,000 in the first quarter of 1999.  These increases resulted from our
addition of licensed brokers and other customer service personnel, as well as
third party market data services, communication lines and equipment, to
accommodate the increased number of customer accounts and associated traffic to
our web site and to our customer service call center.  Additionally, in December
1999, we moved the brokerage operations of Web Street Securities into 33,000
square feet of

                                       12
<PAGE>

newly leased space in downtown Chicago, Illinois and significantly upgraded the
telecommunications systems and equipment in our call center. These enhancements
to our operations resulted in greater personnel, occupancy and communication
costs in the first quarter of 2000 compared to the same period in 1999. Total
employees involved in brokerage, customer service and technical support
activities increased to 114 at March 31, 2000 from 51 at March 31, 1999. As a
percentage of total revenues, however, employee compensation and benefit costs
decreased to 7% in the three months ended March 31, 2000, from 12% in the same
three-month period of 1999. Communication and data processing costs as a
percentage of total revenues were essentially unchanged in the first quarter of
2000 compared to the same period in 1999.

  Operating Expenses

     Total operating expenses increased to $9,869,000 during the three months
ended March 31, 2000, up 378% from $2,066,000 during the three months ended
March 31, 1999.  The majority of this increase was due to increased costs
associated with marketing and advertising to develop brand awareness for our web
site, as described in further detail below.  We expect to spend significant
amounts in the future to market our brand and expand our customer base, to
continue developing and delivering to our customers state-of-the-art online
financial products and services, and to increase the number of our financial
services centers.  We also plan to continue enhancing financial, operational and
management controls and reporting systems and procedures in support of the
continued expansion of our operations.  As a consequence, we intend to increase
expenditures in all operating areas.  However, as previously mentioned, we may
scale-back or delay planned increases in our marketing efforts until the
transition to self-clearing status is completed at the end of June, 2000.

     Marketing and advertising expenses increased to $5,592,000 in the first
quarter of 2000, up 783% from $633,000 in the first quarter of 1999.  During the
fourth quarter of 1999, we began production of a new national advertising
campaign, employing the tagline "Invest with Ambition," that launched in
February 2000.  As of December 31, 1999, approximately $684,000 of production
costs related to this campaign were deferred and included in prepaid expenses
and other assets in our consolidated balance sheet.  These costs were charged to
expense in the first quarter of 2000 upon the first airing of these
advertisements.  We expect this advertising campaign to result in substantially
increased levels of advertising expense in the foreseeable future as we attempt
to attract new customer accounts and accelerate our revenue growth rate.
However, in the second quarter of 2000, we also expect much of the growth in
revenue from the expected increase in customer accounts to be offset by declines
in revenue per trade from the expected decrease in order flow-related payments
resulting from the expiration of our initial clearing agreement with U.S.
Clearing on April 30, 2000.

     Technology development expenses increased to $709,000 in the first quarter
of 2000, up 126% from $314,000 in the same period in 1999.  The increased
spending was due to an increase in the number of technology department employees
and expenses related to software development by third parties to enhance our web
site and expand our product and service offerings.  However, in the first
quarter of 2000, technology development expenses decreased slightly to 6% of
total revenues, from 7% in the first quarter of 1999.  We expect that technology
development expenditures will continue to increase in the future, but may
fluctuate as a percentage of revenues over time depending on the timing of
future development projects.

     General and administrative expenses increased to $3,568,000 in the first
quarter of 2000, up 219% from $1,119,000 in the first quarter of 1999.  This
increase was due to a variety of factors, all related to the significant growth
of our business that we experienced during the intervening period. Among these
factors, an increase in the number of employees, conversion of our operations to
self-clearing, and improved compensation and benefit levels to attract and
retain qualified employees were the primary causes of the increase.  Other
factors that contributed to the increase were increased consulting

                                       13
<PAGE>

expenses and other professional fees; increased occupancy costs related to
opening our new brokerage operation facilities in Chicago, Illinois in December
1999; and increased costs for insurance and postage associated with the higher
customer and trading activity levels. Additionally, we recorded higher non-cash
charges for stock options and warrants, granted at or above then-current market
values, to vendors and an international partner in the second half of 1999. The
values associated with these grants are amortized over the period over which
services are rendered. This non-cash expense also includes charges related to
stock options granted to employees below the current market value of our stock
at the time of the grants. The non-cash expense associated with vendor and
employee-related grants was $93,000 in the first three months of 1999 and
$233,000 in the first three months of 2000. We have not granted any options with
exercise prices below the current market value of our stock to employees since
September 1, 1998, nor do we expect to make any such grants in the future. As a
result, the charges against income associated with the employee grants will
decline in future periods. However, we have granted and may continue to grant
options and warrants to third parties, for services rendered and on which we
will be required to recognize future charges against income. We anticipate
hiring additional personnel and incurring increased administrative costs related
to being a public company and to support the expected future growth of our
business. We incurred approximately $750,000 of start-up costs related to our
self-clearing conversion during the quarter ended March 31, 2000. Prior to these
costs, general and administrative expenses declined from 24% to 22% of total
revenues compared to the year-ago period. We anticipate incurring between
$750,000 and $1,000,000 in nonrecurring expenses during the second quarter of
2000 to complete the conversion to self-clearing, consisting primarily of
consulting, personnel and training costs. We do not expect to incur significant
self-clearing conversion costs after the second quarter of 2000.

Liquidity and Capital Resources

     As of March 31, 2000, we had cash and cash equivalents of $32,008,000 and
no bank debt.  Our cash used in operating activities was $5,180,000 in the first
quarter of 2000, compared to cash provided by operations of $126,000 in the
first quarter of 1999.  Our operating cash inflows consist principally of
brokerage commissions and order flow-related payments collected, and other
revenue and interest received.  Our operating cash outflows consist principally
of clearing and execution costs, employee compensation and benefit costs,
marketing and advertising costs, and general and administrative costs paid.  The
increase in operating cash outflows for the first three months of 2000 compared
to the same period in 1999 is attributable to greater amounts paid for marketing
and advertising.  We paid $6,357,000 in marketing and advertising costs in the
first quarter of 2000, including the prepayment of $1,390,000 in advertising
expenses related to the second quarter of 2000.

     Cash used in investing activities, all of which has represented capital
expenditures, increased to $2,004,000 for the three months ended March 31, 2000,
compared to $1,072,000 for the three months ended March 31, 1999.  We continued
to acquire, build or develop facilities, fixed assets and software for cash and
under operating leases during the first three months of 2000 to support the
continued rapid growth of the business.  During the three months ended March 31,
2000, we signed leases increasing our aggregate commitments under non-cancelable
operating leases for facilities and equipment to $16,500,000 at March 31, 2000.
Cash flows related to operating leases are included in net cash provided by or
used in operating activities.

     In May, 2000, we expect to receive the final regulatory approval to become
a self-clearing broker-dealer.  Clearing services include the confirmation,
receipt, settlement, custody and delivery functions involved in securities
transactions.  We believe we have hired the necessary experienced clearing-
operations personnel, and have appropriately modified our systems and
operations, so that we will be prepared to convert from fully disclosed to self-
clearing at the end of the second quarter of 2000.

                                       14
<PAGE>

     Once we are self-clearing, we will assume responsibility for the possession
and control of our customers' securities and other assets, and the execution and
clearance of our customers' securities transactions.  Accordingly, we will
recognize on our balance sheet the customer receivables and customer payables to
us that are the result of customer margin loans (i.e., loans made to customers
for the purchase of securities that are collateralized by securities held in the
customers' margin accounts with us) and customer free credit balances (i.e.,
customer cash balances deposited with us), respectively.  In addition, to the
extent that our customer debit balances exceed customer free credit balances, we
may be required to finance any excess debit balances.  On April 27, 2000, we
secured an $8 million line of credit.  Borrowings on this line will be secured
by customers' margin account securities and will bear interest at the federal
funds rate plus 1.25%.  Either party can cancel this borrowing arrangement with
60 days' prior notice.

     Additionally, once we are self-clearing, we will be required to maintain
significantly higher minimum net capital.  See note 7 to the Condensed
Consolidated Financial Statements.  During April, 2000, we contributed $6
million in capital to our wholly owned subsidiary, Web Street Securities, Inc.
Management expects that this contribution will provide us net capital
approximately $5 million in excess of the minimum net capital that will be
required once we become self-clearing.

     In the future, we expect to incur significantly higher costs, particularly
marketing and advertising, technology development, payroll and occupancy costs,
to grow our business. We anticipate increased levels of capital expenditures in
the remainder of 2000 to continue construction of a second data center, which we
expect to complete in the second quarter, and to continue to expand our existing
systems and network of online financial service centers over the next year. It
is our intention to finance certain of these capital expenditures with
additional lease financing that we expect to be available to us.

     We believe that our current cash and cash equivalents, supplemented with
lease financing that we expect to be available, will be sufficient to meet our
anticipated cash needs for working capital, regulatory capital and capital
expenditures for at least the next 12 months.  However, during this period, we
may need to seek additional capital in the private and/or public equity markets
in order to support more rapid growth, to respond to competitive pressures, to
develop new products and services and to acquire complimentary businesses.
After that 12-month period, if cash generated from operations is insufficient to
satisfy our liquidity requirements, we may need to raise additional funds
through public or private financing, strategic relationships or other
arrangements.  If we receive additional funds through the issuance of equity
securities, our existing stockholders may experience significant dilution and
these equity securities may have rights, preferences or privileges senior to
those of our common stock.  Further, we may not be able to obtain additional
financing when needed or on terms favorable to us or our stockholders.  If we
are unable to obtain additional financing when needed, or to do so on acceptable
terms, we may be unable to develop or enhance our products or services, take
advantage of business opportunities or respond to competitive pressures.

Cautionary Note Regarding Forward-Looking Statements

     Because we want to provide you with more meaningful and useful information,
this quarterly report includes forward-looking statements that reflect our
current expectations and projections about our future results, performance,
prospects and opportunities.  These forward-looking statements include, without
limitation, the statements regarding the expected impact of the deferral of
self-clearing operations and regarding the expected benefits to us of becoming
self-clearing.  You can find many of these statements by looking for words such
as "may," "will," "expect," "anticipate," "believe," "intend," "estimate,"
"foresee" and similar expressions.  These forward-looking statements are based
on information currently available to us and are subject to a number of risks,
uncertainties and other factors

                                       15
<PAGE>

that could cause our actual results, performance, prospects or opportunities in
the remainder of 2000 and beyond to differ materially from those expressed in,
or implied by, these forward-looking statements. These risks, uncertainties and
other factors include, without limitation, our ability to successfully become
self-clearing, our need to maintain and increase our customer accounts, our
ability to establish additional international and content-provider
relationships, the intense competition among web sites providing online
financial services, existing and future regulations affecting our business or
the Internet generally, and other factors. We caution you not to place undue
reliance on any forward-looking statements. For further information about these
and other risks, uncertainties and factors, that could affect Web Street's
future results, performance, prospects and opportunities, please review the
disclosure included under the caption "Business-Risk Factors'" in Web Street's
annual report on Form 10-K for the year ended December 31, 1999, as filed with
the Securities and Exchange Commission. Except as otherwise required by federal
securities laws, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, changed circumstances or any other reason after the date of this
quarterly report.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

     Our primary financial instruments are cash in banks, money market
instruments and short-term certificates of deposit.  We do not believe that
these instruments are subject to material potential near-term losses in future
earnings from reasonably possible near-term changes in market rates or prices.
We do not have derivative financial instruments for speculative or trading
purposes.  In the normal course of business, our customers enter into
transactions where the risk of potential loss due to market fluctuations or
failure to perform exceeds the amounts reported for the transaction.  We have
established policies, procedures and internal processes governing our management
of market risks in the normal course of our business operations.  We, along with
U.S. Clearing, continuously monitor our exposure to market and counterparty risk
through the use of a variety of financial, position and credit exposure
reporting and control procedures. In addition, we review the credit-worthiness
of each customer and/or other counterparty with which we conduct business.  We
are not currently exposed to any material currency exchange risks because the
risk is borne by our international customers and our international partners, and
we do not hold any assets or incur any liabilities denominated in foreign
currencies.

                                       16
<PAGE>

                          PART II - OTHER INFORMATION

Item 2.  Changes in Securities and Use of Proceeds

     On November 16, 1999, our registration statements on Form S-1 (File No.
333-85849 and File No. 333-91087) relating to the initial public offering (IPO)
of our common stock was declared effective by the SEC.  After payment of the
underwriting discount of $3,228,225 and expenses of $1,911,082, we received net
proceeds of $40,978,193 from the offering.  We have used approximately $7.9
million to market our online brokerage services and other financial services and
products, approximately $2.0 million for the acquisition, construction or
development of property, equipment and software, and approximately $1.8 million
for working capital and general corporate purposes.  The above-mentioned uses of
the offering proceeds are before consideration of cumulative cash flow from
operating activities exclusive of these uses since the IPO of approximately $1.9
million.  We have invested the remaining net proceeds, pending their use, in
short-term, investment grade, interest-bearing obligations.

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

     a)   We have filed, or incorporated by reference, the following exhibits
          with this quarterly report.


          Exhibit
          Number                     Exhibit
           10.1+    Co-operation Agreement dated as of January 17, 2000 between
                    Web Street Securities and ConSors Discount-Broker.

           10.2+    Master Services Agreement dated March 24, 2000 between Web
                    Street Securities and Securities Industry Software, a
                    division of ADP Financial Information Services, Inc.

           27       Financial Data Schedule

           +        A portion of the exhibit has been omitted pursuant to a
                    request for confidential treatment.

     b)   Reports on Form 8-K.

      We did not file any Current Reports on Form 8-K during the first quarter
      of 2000.

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<PAGE>

                                   SIGNATURES

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

Date: May 15, 2000            By:   /s/ JOSEPH J. FOX
                                    -----------------------------------------
                                    Joseph J. Fox
                                    Co-Chief Executive Officer (principal
                                    executive officer) and Co-Chairman of the
                                    Board



Date: May 15, 2000            By:   /s/ JOSEPH A. BARR
                                    -----------------------------------------
                                    Joseph A. Barr
                                    President, Chief Financial Officer
                                    (principal financial and accounting officer)
                                    and Treasurer

                                       18
<PAGE>

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

Exhibit Number             Exhibit
--------------      ------------------------------------------------------------
     10.1+          Co-operation Agreement dated as of January 17, 2000 between
                    Web Street Securities and ConSors Discount-Broker.

     10.2+          Master Services Agreement dated March 24, 2000 between Web
                    Street Securities and Securities Industry Software, a
                    division of ADP Financial Information Services, Inc.

     27             Financial Data Schedule

     +    A portion of the exhibit has been omitted pursuant to a request for
          confidential treatment.