Fixed point multiplication with negative numbers
When multiplying two's complement numbers, you have to perform sign extensions to the operands to meet the number of digits your multiplication will yield, i.e., in your case $4 + 4 = 8$ digits. 

$$
11111110_2 \times 00000111_2 = 11110010_2
$$

As there are $2 * 3$ fractional bits, the result is $1.110010_2 = \frac{-14}{2^6} = -0.21875$. Normalizing this number to $3$ fractional bits in Q0.3 format yields $1.110_2 = -0.25$.