<PAGE>
 
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

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


       For the quarter ended March 31, 1999 Commission File Number 0-21860

                           DATAWARE TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)


               DELAWARE                                   06-1232140
    (State or other jurisdiction of            (IRS Employer Identification No.)
     incorporation or organization)


            One Canal Park                                  02141
            Cambridge, MA                                 (Zip Code)
(Address of principal executive offices)


                                  617-621-0820
              (Registrant's telephone number, including area code)


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 [ ]

         Number of shares outstanding of the issuer's classes of common stock as
of April 30, 1999:

                Class                            Number of Shares Outstanding
--------------------------------------           ----------------------------
Common Stock, par value $.01 per share                    9,571,471
<PAGE>
 
                           DATAWARE TECHNOLOGIES, INC.



                                      INDEX


                                                                           PAGE
                                                                          NUMBER
                                                                          ------

PART I.   FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements

          Consolidated Balance Sheets as of
          March 31, 1999 and December 31, 1998                                3

          Consolidated Statements of Operations for the Three
          Months Ended March 31, 1999 and 1998                                4

          Consolidated Statements of Cash Flows for the
          Three Months Ended March 31, 1999 and 1998                          5

          Notes to 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         12

PART II.  OTHER INFORMATION

Item 6.   Exhibits and Reports Filed on Form 8-K                             13


SIGNATURE                                                                    14

EXHIBIT INDEX                                                                15



                                       
<PAGE>
 
                          Part I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

                           Dataware Technologies, Inc.
                           Consolidated Balance Sheets
                        (In thousands, except share data)


<TABLE>
<CAPTION>
                                                                                    March 31,     December 31,
                                                                                      1999            1998
                                                                                  ----------       ----------
                                                                                  (unaudited)
<S>                                                                                 <C>            <C>     
ASSETS 
Current assets:
       Cash and cash equivalents                                                    $ 10,289       $ 12,468
       Accounts receivable, less allowance for doubtful
             accounts of $860 and $846 at March 31, 1999
             and December 31, 1998, respectively                                       4,621          4,248
       Prepaid expenses and other current assets                                       1,336          1,355
                                                                                    --------       --------
             Total current assets                                                     16,246         18,071

Property and equipment, net                                                            3,406          3,394
Computer software costs, net                                                           3,425          3,540
Investment in Northern Light, LLC                                                        512            512
Goodwill                                                                               3,070          3,232
                                                                                    --------       --------

             Total assets                                                           $ 26,659       $ 28,749
                                                                                    ========       ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
       Short-term borrowings                                                        $  1,350       $  1,350
       Accounts payable                                                                2,395          2,538
       Accrued acquisition-related costs                                                 333            578
       Accrued non-recurring charges                                                     357            559
       Accrued compensation                                                            1,057          1,976
       Other accrued expenses                                                          1,796          2,345
       Income taxes payable                                                              645            720
       Deferred revenue                                                                3,737          2,330
                                                                                    --------       --------
             Total current liabilities                                                11,670         12,396
                                                                                    --------       --------

Stockholders' equity:
       Preferred stock, $.01 par value, 8,000,000 shares authorized,
             none issued and outstanding                                                --             --
       Common stock, $.01 par value, 14,000,000 shares authorized;
             9,508,036 shares issued and 9,434,036 shares outstanding at March
             31, 1999; 9,465,305 shares issued and 9,391,305 shares
             outstanding at December 31, 1998                                             95             95
       Additional paid-in capital                                                     47,618         47,323
       Accumulated deficit                                                           (32,236)       (30,625)
       Accumulated other comprehensive loss                                             (230)          (182)
       Treasury stock, 74,000 shares at cost                                            (258)          (258)
                                                                                    --------       --------

             Total stockholders' equity                                               14,989         16,353
                                                                                    --------       --------

             Total liabilities and stockholders' equity                             $ 26,659       $ 28,749
                                                                                    ========       ========
</TABLE>




                 The accompanying notes are an integral part of
                     the consolidated financial statements


                                        3
<PAGE>
 
                           Dataware Technologies, Inc.
                      Consolidated Statements of Operations
                 (In thousands except per share data, unaudited)

<TABLE>
<CAPTION>
                                                                      Three months ended
                                                                           March 31,
                                                                      1999          1998
                                                                     -------       -------
<S>                                                                  <C>           <C>    
Revenues:
        Software license fees                                        $ 3,929       $ 4,600
        Services                                                       3,130         3,237
                                                                     -------       -------

                Total revenues                                         7,059         7,837
                                                                     -------       -------

Cost of revenues:
        Software license fees                                            864           455
        Services                                                       2,069         1,938
                                                                     -------       -------

                Total cost of revenues                                 2,933         2,393
                                                                     -------       -------

Gross profit                                                           4,126         5,444
                                                                     -------       -------

Operating expenses:
        Sales and marketing                                            2,863         2,672
        Product development                                            2,038         1,522
        General and administrative                                     1,198         1,224
        Acquired in-process research and development                    --             450
                                                                     -------       -------

                Total operating expenses                               6,099         5,868
                                                                     -------       -------

Loss from operations                                                  (1,973)         (424)

Interest income (expense), net                                           405            86
Other income (expense), net                                              (43)           (3)
                                                                     -------       -------

Net loss                                                             $(1,611)      $  (341)
                                                                     =======       =======

Net loss per common share -- basic                                   $ (0.17)      $ (0.04)
                                                                     =======       =======

Net loss per common share -- diluted                                 $ (0.17)      $ (0.04)
                                                                     =======       =======

Weighted average number of common shares outstanding -- basic          9,429         9,296
                                                                     =======       =======

Weighted average number of common shares outstanding -- diluted        9,429         9,296
                                                                     =======       =======
</TABLE>


                 The accompanying notes are an integral part of
                     the consolidated financial statements


                                        4
<PAGE>
 
                           Dataware Technologies, Inc.
                      Consolidated Statements of Cash Flows
                                 (In thousands, unaudited) 
<TABLE> 
<CAPTION> 
                                                                              Three months ended March 31,
                                                                                   1999           1998
                                                                                 --------       --------
<S>                                                                              <C>            <C>      
Cash flows provided by (used in) operating activities:
Net loss                                                                         $ (1,611)      $   (341)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
    Depreciation and amortization                                                   1,246            835
    Provision for doubtful accounts                                                   106            467
    Gain on foreign currency transactions                                             (43)          --
    Acquired in-process research and development                                     --              450
    Stock options issued to consultants and bank                                     --               17
    Changes in operating assets and liabilities, net of  
      effects from acquisitions of businesses:
    Accounts receivable                                                              (578)           709
    Prepaid expenses and other current assets                                          (2)          (122)
    Accounts payable                                                                 (126)          (865)
    Accrued expenses and compensation                                              (1,441)           (15)
    Accrued acquisition costs                                                        (245)          --
    Income taxes payable                                                              (72)           (21)
    Deferred revenue                                                                1,428           (356)
                                                                                 --------       --------
                   Net cash provided by (used in) operating activities             (1,338)           758
                                                                                 --------       --------
Cash flows used in investing activities:
    Additions to property and equipment                                              (471)          (142)
    Acquisition of business, net of cash acquired                                    --             (450)
    Acquisition of third party software license                                      (130)          --
    Additions to capitalized software costs                                          (392)          (461)
                                                                                 --------       --------
                   Net cash used in investing activities                             (993)        (1,053)
                                                                                 --------       --------
Cash flows provided by financing activities:
       Proceeds from issuance of common stock and exercise of stock options            95            107
                                                                                 --------       --------
                   Net cash provided by financing activities                           95            107
                                                                                 --------       --------
Effect of exchange rate changes on cash and cash equivalents                           57             19
                                                                                 --------       --------
Net change in cash and cash equivalents                                            (2,179)          (169)

Cash and cash equivalents at beginning of period                                   12,468         13,231
                                                                                 --------       --------
Cash and cash equivalents at end of period                                       $ 10,289       $ 13,062
                                                                                 ========       ========
Supplemental disclosure of non-cash operating and financing transactions:
    Waiver of escrow shares transferred from accrued liabilities to 
    additional paid-in capital                                                   $    200       $      -
                                                                                 ========       ========

</TABLE>
                 The accompanying notes are an integral part of
                     the consolidated financial statements

                                        5
<PAGE>
 
                           DATAWARE TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

A.       Basis of Presentation

         These consolidated financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998, and the financial statements and footnotes included therein. The
interim financial data as of March 31, 1999 and for the three months ended March
31, 1999 and March 31, 1998 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. The year-end balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to Securities and
Exchange Commission rules and regulations.

B.       Net Income (Loss) per Share

         The Company computes basic and diluted earnings per share in accordance
with Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share."
The following table reconciles the numerator and denominator of the basic and
diluted earnings per share computations shown in the Consolidated Statements of
Operations:

<TABLE>
<CAPTION>
                                                   For the Three Months
                                                      Ended March 31,
(In thousands, except per share data)               1999          1998
                                                  -------       -------

<S>                                               <C>           <C>     
Basic and Diluted EPS
   Numerator:
   Net loss to common stockholders                $(1,611)      $  (341)
                                                  =======       =======

   Denominator:
   Common shares outstanding-basic                  9,429         9,296

   Dilutive options                                  --            --
                                                  -------       -------
   Common shares outstanding-diluted                9,429         9,296
                                                  =======       =======

                       Basic and Diluted EPS      $ (0.17)      $ (0.04)
                                                  =======       =======
</TABLE>

        Options to purchase 2,147,377 and 1,962,001 shares of common stock
outstanding with weighted average exercise prices of $3.22 and $2.97 as of the
three month periods ended March 31, 1999 and 1998, respectively, were excluded
from the calculation of diluted net loss per share as the effect of their
inclusion would have been anti-dilutive.

C.       Comprehensive Income (Loss)

         Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
This Statement establishes new rules for the reporting and display of
comprehensive income and its components; therefore, the adoption of this
Statement had no impact on the Company's net loss or stockholders' equity. The
Company's comprehensive losses were as follows:


                                       6
<PAGE>
 
<TABLE>
<CAPTION>
                                                  For the Three Months
                                                     Ended March 31,
(In thousands)                                      1999          1998
                                                  -------       -------

<S>                                               <C>           <C>     
Net loss to common stockholders                   $(1,611)      $  (341)
Foreign currency translation adjustment               (49)           33
                                                  -------       ------- 
       Total comprehensive loss                   $(1,660)      $  (308)
                                                  =======       =======
</TABLE>

D.       New Accounting Standard

On June 15, 1998, the Financial Accounting Standards Board issued SFAS 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is
effective for fiscal years beginning after June 15, 1999. SFAS 133 requires that
all derivative instruments be recorded on the balance sheet at their fair
values. Changes in fair values of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether or not a
derivative is designated as part of a hedge transaction and, if it is, depending
on the type of hedge transaction. We have not yet completed the evaluation of 
the impact of the adoption of this new standard.

E.       Segment Information

On December 31, 1998 the Company adopted Statement of Financial Accounting
Standard No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). The new rules establish revised standards for public
companies relating to the reporting of financial information about operating
segments.

Upon adoption of SFAS 131, the Company began to present segment financial
information for its three reportable operating segments: USLA (a unit focusing
on the sale of software and services for enterprise information access
("knowledge management") and professional electronic publishing applications in
the United States and Latin America); Eurasia (a unit focusing on the sale of
software and services for enterprise information access ("knowledge management")
and professional electronic publishing applications in Europe and the Pacific
Rim); and Multimedia (providing a complete array of multimedia application
development services to corporations, publishers and professional firms, mostly
in the United States).

The Company's executive management team reviews and evaluates performance based
on several factors, of which the primary financial measure is business segment
profit or loss from operations. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.

Although the Company prepares full balance sheets for the Eurasian business
unit, it reports to management only certain assets for the USLA and Multimedia
segments. These segments are not considered capital-intensive and, thus, other
balance sheet information is not considered meaningful on a segment basis.

A summary of the segment financial information reported is as follows:

<TABLE>
<CAPTION>
                                                                            CORPORATE AND
Three months ended March 31, 1999    USLA         EURASIA      MULTIMEDIA    ELIMINATIONS       TOTAL
                                    -----------------------------------------------------------------------
<S>                                <C>            <C>            <C>            <C>             <C>   
Revenues from unaffiliated                                                                             
  customers                        $3,594         $2,113         $1,352         $ --            $7,059 
Operating income (loss)             1,745            438             44         (4,200)         (1,973)
</TABLE>


<TABLE>
<CAPTION>
                                                                            CORPORATE AND
Three months ended March 31, 1998    USLA         EURASIA      MULTIMEDIA    ELIMINATIONS       TOTAL
                                    -----------------------------------------------------------------------
<S>                                <C>            <C>           <C>             <C>             <C>   
Revenues from unaffiliated                                                                             
  customers                        $ 3,885        $ 1,913       $ 2,039         $    --         $7,837 
Operating income (loss)              2,844            370           709          (4,347)          (424)
</TABLE>


                                       7
<PAGE>
 
F.       Pending Litigation

A lawsuit has been filed against the Company by a former consultant, with
allegations related to the value of compensation received and emotional
distress. The Company's motion for summary judgement was allowed in part and a
trial has not yet been scheduled.

The Company denies these charges and is vigorously defending them. At this time,
it is not possible to estimate the likelihood of damages related to these
charges.


                                       8
<PAGE>
 
Dataware Technologies, Inc.

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

Statements concerning the Company's anticipated performance, including future
revenues, costs and profits, or about the development of the Company's products
or markets, made throughout this Form 10-Q, may be deemed forward-looking
statements. Such statements are based on the current assumptions of the
Company's management, which are believed to be reasonable. However, they are
subject to significant risks and uncertainties, including but not limited to the
important factors described under "Certain Factors That May Affect Future
Results" below and in Exhibit 99.1 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 (which is incorporated herein by
reference), that could cause actual results to differ materially from those
described in the forward-looking statements.

Relationship with IHS 

On September 30, 1997, Dataware sold a portion of its data services business to
Information Handling Services Group, Inc. ("IHS") in exchange for cash and the
stock of IHS's subsidiary, Creative Multimedia Corporation. The portion of the
business sold included certain contracts and other assets of Dataware, as well
as the stock of the Company's Australian, Canadian, German, Italian and Swedish
subsidiaries. The activities of the data services business sold consisted of
processing customer text and data and using it to create information-
distribution products.

The Company also entered into a distribution agreement with IHS on September 30,
1997, under which IHS took over the software distribution activities formerly
performed by the five divested foreign subsidiaries (primarily involving the
Company's legacy products). In addition, the Company has entered into agreements
with IHS under which it provides software and multimedia services for use by IHS
internally and in its publishing activities, and IHS provides software that the
Company incorporates into certain of its products. These agreements may be
periodically reviewed and revised according to the circumstances of the parties.

As Dataware's largest distributor, IHS accounted for 42% of software license
revenues (27% of total revenues) in the first quarter of 1999 compared with 57%
and 33%, respectively, during the first quarter of 1998. The Company's plan is
that, as revenues from the existing IHS arrangements diminish during 1999 and
thereafter due to the winding down of the current agreements, they will be
replaced by increasing revenues from sales of the Company's newer products
through IHS and other channels. However, the current IHS relationship will
remain important for the near term and any unexpected disruption would likely
have a material adverse effect on Dataware.

RESULTS OF OPERATIONS

Revenues 

The Company's total revenues decreased 10% from $7.8 million in the first
quarter of 1998 to $7.1 million in the first quarter of 1999. The decline in
revenues resulted, in part, from the management change at the beginning
of the quarter and delays in finalizing our knowledge management products and in
establishing strong reference accounts to support further sales.

Quarter over quarter, software license fees decreased 15% from $4.6 million to
$3.9 million. Software license fees include revenues from systems and tools,
applications and custom software products.

Software license fees in the first quarter of 1998 and 1999 included $2.6 and
$1.7 million, respectively, in software revenues under agreements with IHS. As
part of the ongoing relationship, the Company and IHS amended existing
agreements during the third quarter of 1998 to provide for IHS to make
guaranteed minimum payments called for by those agreements, at the discretion of
the Company, on an accelerated, discounted basis. Software revenues in the first
quarter of 1999 include $.8 million of such discounted payments accelerated from
the years 1999 through 2002.


                                       9
<PAGE>
 
Service revenues decreased slightly from $3.2 million in the first quarter of
1998 to $3.1 million in the same period for 1999. Service revenues are primarily
derived from multimedia development, production services, software maintenance,
custom software development and project management.

Software revenues decreased slightly from 59% of total revenues in the first
quarter of 1998 to 56% in the first quarter of 1999, and services revenues
increased from 41% of total revenues in the first quarter of 1998 to 44% in the
first quarter of 1999.

The mix within the software revenues continues to favor the Company's legacy
products, although the newer Knowledge Management Suite and Dataware II
Publisher products began gaining momentum late in 1998 despite stiff competition
in the market.

Cost of Revenues 

Cost of revenues increased 23% from $2.4 million in the first quarter of 1998 to
$2.9 million during the same period in 1999. As a percentage of revenues, total
cost of revenues increased from 31% of total revenues for the three months ended
March 31, 1998 to 42% for the three months ended March 31, 1999.

The cost of software licenses as a percentage of software license fees increased
from 10% in the first quarter of 1998 to 22% during the first quarter of 1999.
This increase is principally caused by the decline in software revenues while
fixed costs such as amortization of capitalized software increased due to the
addition of purchased software in 1998.

The cost of services as a percentage of service revenues increased from 60% for
the first quarter of 1998 to 66% during the first quarter of 1999. The increase
quarter over quarter is primarily caused by underutilization of the knowledge
management consulting group in the first quarter of 1999.

Gross Profit 

Total gross profit was $5.4 million or 69% of total revenues for the first
quarter of 1998 and $4.1 million or 58% of total revenues for the first quarter
of 1999. Quarter to quarter, software margins decreased from 90% in 1998 to 78%
in 1999 and services margins decreased from 40% in 1998 to 34% in 1999.

Gross margins may improve in the long run if the Company attains additional
improvements in service margins. However, there are a number of important
factors that could adversely affect the Company's future gross margins,
resulting in higher than anticipated costs and/or lower than anticipated
revenues. In particular, the Company's increasing emphasis on providing
solutions in the knowledge management field, not just selling software, will
involve an increasing proportion of lower margin services. Other factors
include: the existence of strong competition for the Company's products and
services, including the introduction of new products from competitors, the
timing of which cannot be foreseen by the Company; the inherent risks of new
product introductions, including uncertainty of customer acceptance; increased
employment costs stemming from the high level of competition for qualified
personnel in the software industry; and the Company's reliance on third parties
for supply of certain product components.

Sales and Marketing Expenses 

Sales and marketing expenses increased 7% from $2.7 million during the first
quarter of 1998 to $2.9 million during the same period in 1999. Sales and
marketing expenses increased as a percentage of revenues from 34% to 41% on a
quarter to quarter basis due to the decline in revenues.

Product Development Expenses 

Product development expenses, which exclude capitalized software costs,
increased 34% from $1.5 million in the first quarter of 1998 to $2.0 million in
the first quarter of 1999. The increase is due primarily to the addition of the
Sovereign Hill development staff on December 31, 1998.

The Company capitalized software development costs in the amount of $575,000 in
the first quarter of 1999 as compared to $461,000 in the first quarter of 1998.


                                       10
<PAGE>
 
Product development expenses as a percentage of total revenues increased from
19% for the three months ended March 31, 1998 to 29% for the three months ended
March 31,1999.

General and Administrative Expenses 

General and administrative expenses were $1.2 million in the first quarters of
both 1998 and 1999. These expenses as a percent of total revenues were 16% and
17% for the quarters ended March 31, 1998 and 1999, respectively.

Our full-time employee headcount at March 31 was 236, which compares with 205 at
December 31, 1998. The increase includes 18 employees that came to Dataware as
part of the Sovereign Hill acquisition in December 1998.

Purchased In-Process Research and Development 

On January 23, 1998, the Company completed the acquisition of all of the
outstanding shares of Green Book International Corporation ("Gbook"), in
exchange for approximately $300,000 in cash. The Company incurred direct
expenses of $150,000 related to the transaction. Prior to the acquisition, Gbook
was the developer of a software package for the electronic publishing of
financial prospectuses. The acquisition was accounted for as a purchase and,
accordingly, the assets, liabilities and results of operations of Gbook are
included in the financial statements from the acquisition date. The results of
the continuing operations of Gbook are immaterial in the context of the results
of the Company.

Although the Company acquired 100% of the stock of Gbook, its intention was not
to carry on the operations of Gbook as a going concern. Rather, the Company's
objective in the transaction was to acquire control over the technology
underlying Gbook's electronic file compression and viewing software ("Viewer
Technology") and its object oriented electronic authoring system ("Authoring
Technology"). The Company's intention was to use the acquired Viewer Technology
to sell services and software to the Company's existing and future clients for
distributing relatively large, secure and searchable electronic publications
that are, by nature of their small size, uniquely able to be distributed on a
single floppy diskette or over the internet with commercially viable download
times. During 1998, the Company incorporated the Authoring Technology into a
product that allows customers to author publications in-house, rather than
relying on the Company as a service provider.

Because the technology acquired was incomplete and substantial additional
development effort by the Company was required before the Viewing and Authoring
Technology could be incorporated into future products and services, the Company
recorded a charge of $450,000 for purchased in-process R&D in the first quarter
of 1998.

The purchased technology was incomplete because the Company needed to make
substantial modifications to change user interfaces, fix software bugs, enhance
features and integrate the software into the Company's future products and
services. The underlying technology had no alternative future use, inasmuch as
the Company did not plan to commercialize the technology in its existing form,
had no other product, service or research and development project in which the
technology could be utilized, and did not intend to market the technology as a
stand-alone product without significant further development.

The Company successfully completed the further development necessary to complete
the required technology during 1998. The cost of completing the development
effort was in line with management's estimates at the time that the technology
was purchased. The product began shipping in June of 1998.

                                       11
<PAGE>
 
Other Income (Expense), Net 

During the first quarter of 1999, the Company reported approximately $405,000 in
net interest income as compared with approximately $86,000 in the first quarter
of 1998. The interest income earned during the first quarter of 1999 includes
interest collected on a secured note receivable. For the three months ended
March 31, 1999, the Company recorded $43,000 in net other expense compared with
$3,000 during the same period in 1998 (mostly foreign exchange losses on
intercompany balances).

Provision for Income Taxes 

The Company did not record a provision for income taxes for the quarters ended
March 31, 1999 or 1998, because of the losses incurred during those periods and
the substantial net operating loss carryforward from prior periods. At March 31,
1999, the Company had a net operating loss carryforward of approximately $13.2
million. Use of the Company's net operating loss carryforward is limited due to
changes in ownership of the Company's stock.

Year 2000

The "Year 2000 problem" refers to the operational failures that are expected to
arise in computer systems, microprocessors, and software that are not able to
properly interpret and sort dates beyond the year 1999. The Company recognizes
that the Year 2000 problem may have a material adverse effect on its results of
operations if its products and systems are not Year 2000 compliant or if those
of its principal suppliers and/or customers are not Year 2000 compliant. The
Company is continuing to implement the Year 2000 readiness program as described
in the Form 10-K for 1998, to try to assess this potential effect and to
remediate it where possible. There can be no assurance that the program will be
successful. The extent of the impact on the Company if such problems cannot be
assessed or remediated is not fully known.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 1999, the Company had cash and cash equivalents of $10.3 million
and working capital of $4.6 million. Operating activities used $1.3 million of
the Company's cash during the first three months of 1999. Days sales outstanding
increased from 44 days at December 31, 1998, to 50 days at March 31, 1999. The
Company had anticipated that its days sales outstanding would increase to their
traditional levels during 1999.

The Company's investing activities used cash of $1.0 million during the first
three months of 1999, consisting of additions to property and equipment,
internally developed capitalized software, and a third party license for
software that will be included in the Company's products and used to develop
custom applications for customers.

The Company's financing activities provided cash of $95,000 during the first
three months of 1999, which consisted of proceeds from the issuance of common
stock under the Company's Employee Stock Purchase Plan.

The Company believes that its cash, cash equivalents, and marketable securities,
together with anticipated cash from operations, will be sufficient to meet its
liquidity needs for the foreseeable future. However, working capital and other
capital requirements may change because of unanticipated changes in business
conditions or delays in market acceptance of new products, in addition to such
other considerations as expansion of operations or research and development
activities, competitive and technological developments, costs of remediation of
Year 2000 computer problems, and possible future acquisitions of businesses
and/or product rights. There can be no assurance that the Company may not
experience liquidity problems because of adverse market conditions or other
unfavorable events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change from the information provided in response to
Item 7A of the Company's 1998 annual report on Form 10-K.


                                       12
<PAGE>
 
PART II. OTHER INFORMATION

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

(a) Exhibits. See exhibit list on page 15.

(b) The Company filed a Form 8-K on January 14, 1999 to report the acquisition
    of assets of Sovereign Hill Software, Inc., and also filed amendments to
    that Form 8-K on March 16 and March 17, 1999.


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<PAGE>
 
                           DATAWARE TECHNOLOGIES, INC.
                                    SIGNATURE




         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.


                                    DATAWARE TECHNOLOGIES, INC.
                                          (Registrant)


Date: May 14, 1999
                                By: /s/ Michael Gonnerman
                                    --------------------------------------------
                                    Michael Gonnerman
                                    Vice President, Chief Financial Officer,
                                    Treasurer (Principal Financial and Principal
                                    Accounting Officer)


                                       14
<PAGE>
 
                                  Exhibit Index

         27.1     Financial Data Schedule.

         99.1     Important Factors Regarding Future Results 
                  (Exhibit 99.1 to 1998 Form 10-K)*.








* Incorporated by reference to the filing indicated in parentheses.



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