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

                                    FORM 10-Q
(Mark One)

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

    For the quarterly period ended December 31, 1998

                                       or

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

For the transition period from              to
                               -----------      ------------

Commission File Number: 0-20244
                        -------

                         DATA RESEARCH ASSOCIATES, INC.
------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


MISSOURI                                              43-1063230
---------------------------------        ---------------------------------------
(State or other jurisdiction             (I.R.S. Employer Identification No.)
of incorporation or organization)

1276 NORTH WARSON RD.  ST. LOUIS, MISSOURI               63132
------------------------------------------            ----------
(Address of principal executive offices)              (Zip Code)

(314) 432-1100
----------------------------------------------------
(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
                                        ---     ---

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

At January 15, 1999,  there were  5,363,175  shares of the  registrant's  common
stock outstanding.

<PAGE>

                                     INDEX

                DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES


PART I.  FINANCIAL INFORMATION
------------------------------

Item 1.  Financial Statements (Unaudited)

         Consolidated balance sheets           - December 31, 1998
                                                 and September 30, 1998

         Consolidated statements of income     - Three months ended December 31,
                                                 1998 and 1997

         Consolidated statements of cash flows - Three months ended December 31,
                                                 1998 and 1997

         Notes to the unaudited consolidated financial statements

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


PART II. OTHER INFORMATION
--------------------------


SIGNATURES


<PAGE>


                DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except per share data)

                                                     December 31,  
                                                         1998      September 30,
                                                      (Unaudited)      1998
                                                      -----------   ------------
                                      ASSETS
CURRENT ASSETS
  Cash and cash equivalents                                $4,747        $8,710
  Short-term investments                                   13,537         8,493
  Accounts receivable less allowance for doubtful
    accounts of $101:
      Billed                                                6,935         8,092
      Unbilled                                              1,464         2,445
                                                           ------        ------
                                                            8,399        10,537
  Income taxes receivable                                     477           278
  Inventories                                                 134           136
  Prepaid expenses                                            857           542
  Deferred income taxes                                       269           263
  Other current assets                                        190           202
                                                           ------        ------
        TOTAL CURRENT ASSETS                               28,610         29,15

PROPERTY AND EQUIPMENT
  Land and improvements                                       504           504
  Buildings and improvements                                2,719         2,719
  Data processing equipment                                 6,913         6,525
  Furniture, fixtures, and other                            4,210         3,724
                                                           ------        ------
                                                           14,346        13,472
  Less accumulated depreciation                             7,215         6,752
                                                           ------        ------
                                                            7,131         6,720
NOTE RECEIVABLE                                                34            43

DEFERRED SOFTWARE COSTS (net of accumulated
  amortization of $2,086 at December 31, 1998
  and $1,711 at September 30, 1998)                         4,521         4,365

INTANGIBLE ASSETS (net of accumulated
  amortization of $2,601 at December 31, 1998
  and $4,221 at September 30, 1998)                           253           443
                                                           ------        ------
                                                          $40,549       $40,730
                                                           ======        ======

<PAGE>

                     (In thousands, except per share data)
                                                     December 31,  
                                                         1998      September 30,
                                                     (Unaudited)       1998
                                                      -----------  -------------

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                        $ 1,476       $ 1,030
  Employee compensation                                       371           375
  Deferred revenue                                          4,322         4,511
  Customer deposits                                           697           695
  Other accrued liabilities                                   328           595
                                                           ------        ------
        TOTAL CURRENT LIABILITIES                           6,717         6,928

DEFERRED INCOME TAXES                                       2,006         2,019

SHAREHOLDERS' EQUITY
  Preferred stock, par value $.01 per share--
    1,000 shares authorized, no shares issued                   -             -
  Common stock, par value $.01 per share--10,000
    shares authorized, 5,557 shares issued at
    December 31, 1998, and September 30, 1998                  56            56
  Additional paid-in capital                                5,660         5,763
  Accumulated other comprehensive income                     (231)         (239)
  Retained earnings                                        29,013        28,887
                                                           ------        ------
                                                           34,498        34,467
  Less cost of treasury stock, 193 shares
  at December 31, 1998, 179 shares
  at September 30, 1998                                   (3,149)       (2,962)
                                                           ------        ------
        TOTAL SHAREHOLDERS' EQUITY                         31,349        31,505
                                                           ------        ------
                                                          $40,549       $40,730
                                                           ======        ======


See notes to unaudited consolidated financial statements.

<PAGE>

                 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                        (In thousands, except share data)

                                                            Three months ended
                                                               December 31,
                                                              1998      1997
                                                             ------    ------

REVENUES
  Hardware                                                  $   474   $ 1,150
  Software                                                    1,214     1,634
  Service and other                                           4,699     4,669
                                                             ------    ------
                                                              6,387     7,453
EXPENSES
  Cost of revenues
    Hardware                                                    338       828
    Software                                                    376       308
    Service and other                                         1,295     1,369
                                                             ------    ------
                                                              2,009     2,505

  Salaries and employee benefits                              2,442     2,485
  General and administrative expenses                         1,548     1,486
  Depreciation and amortization                                 467       381
                                                             ------    ------
                                                              6,466     6,857

    INCOME FROM OPERATIONS                                      (79)      596

OTHER INCOME                                                    264       236
                                                             ------    ------
     Income before income taxes                                 185       832

PROVISION FOR INCOME TAXES                                       60       340
                                                             ------    ------
    NET INCOME                                              $   125   $   492
                                                             ======    ======

Basic earnings per share                                       $.02      $.09
                                                              =====     =====
Diluted earnings per share                                     $.02      $.08
                                                              =====     =====


See notes to unaudited consolidated financial statements.


<PAGE>

                 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (In thousands)

                                                           Three months ended
                                                               December 31,
                                                              1998     1997
                                                            -------  -------
OPERATING ACTIVITIES

  Net income                                                $   125   $  492
  Adjustments to reconcile net income
    to net cash provided by operating activities:
      Depreciation and amortization                             885      692
      Provision for deferred income taxes                       (22)     (54)
      (Gain)loss on disposal of property and equipment            5        -
      Changes in operating assets
        and liabilities:
          Accounts receivable                                 2,150      579
          Inventories                                             2        3
          Prepaid expenses and
            other current assets                               (302)     (18)
          Accounts payable and
            other current liabilities                          (225)    (888)
          Note receivable                                        10        9
                                                             -------  -------
            NET CASH PROVIDED BY
                OPERATING ACTIVITIES                          2,628      815
                                                             -------  -------

INVESTING ACTIVITIES

  Purchase of property and equipment                           (876)    (596)
  Deferred software cost                                       (386)    (250)
  Purchase of short-term investments                         (9,961)       -
  Proceeds from short-term investment                         4,918        -
                                                             -------  -------
            NET CASH USED BY INVESTING ACTIVITIES            (6,305)    (846)
                                                             -------  -------

FINANCING ACTIVITIES

  Proceeds from options exercised                               141      150
  Purchase of treasury shares                                  (430)    (186)
                                                             -------  -------
            NET CASH USED BY
              FINANCING ACTIVITIES                             (289)     (36)
                                                             -------  -------

            EFFECT OF EXCHANGE RATE CHANGES ON
              CASH AND CASH EQUIVALENTS                           3      (32)
                                                             -------  -------

 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS            (3,963)     (99)
                                                             -------  -------
            CASH AND CASH EQUIVALENTS
              AT BEGINNING OF PERIOD                          8,710   19,734
                                                             -------  -------
            CASH AND CASH EQUIVALENTS
              AT END OF PERIOD                               $4,747  $19,635
                                                            ======== ========

See notes to unaudited consolidated financial statements.


<PAGE>


                 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
            NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

Note 1.  Basis of Presentation

The unaudited  consolidated  financial  statements of Data Research  Associates,
Inc. (the "Company")  have been prepared in accordance  with generally  accepted
accounting principles for interim financial  information.  Accordingly,  they do
not include all of the information and footnotes  required by generally accepted
accounting  principles for complete financial statements and, therefore,  should
be read in conjunction with the Company's  consolidated financial statements and
the notes  thereto  for the year ended  September  30,  1998,  contained  in the
Company's annual report for the year ended September 30, 1998. In the opinion of
management,   all  adjustments  (consisting  only  of  normal  recurring  items)
considered necessary for a fair presentation have been included.  The results of
operations  for the three months ended  December 31, 1998,  are not  necessarily
indicative of the results that may be expected for the year ending September 30,
1999.

Note 2.  Inventories

Inventories  consist  primarily of computer  equipment  and  supplies  which are
stated at the  lower of cost  (first-in,  first-out  method)  or market  and the
unamortized cost of computer software purchased for resale. The Company had only
finished goods in inventory at December 31, 1998, and September 30, 1998.

Note 3. Income Taxes

The  provision  for income taxes is computed  using the  liability  method.  The
difference between the effective income tax rate and the U.S. federal income tax
rate is a result of state taxes and  subsidiaries'  losses for which there is no
current tax benefit.


<PAGE>

                 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
      NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 1998

Note 4.  Earnings per share

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):

                                           Three Months
                                              Ended
                                           December 31,
                                        -----------------
                                         1998       1997
                                        -----------------
Numerator for basic earnings
per share and diluted earnings
per share:
  Net Income                            $ 125       $ 492
                                        =====      ======
Denominator:
  Basic earnings per share-
  Weighted-average shares               5,368       5,541

  Effect of dilutive securities:
    Stock options                          14          26
                                        -----       -----
  Denominator for diluted earnings
  per share--adjusted weighted-
  average shares and assumed
  conversions                           5,382       5,567
                                        =====       =====
Basic earnings per share                 $.02        $.09
                                        =====       =====
Diluted earnings per share               $.02        $.08
                                        =====       =====

Note 5.  Revenue Recognition

As of October 1, 1998,  the Company  adopted AICPA SOP 97-2,  "Software  Revenue
Recognition,"  which was effective for  transactions  of the Company on or after
that date. Prior years were not restated.

The Company derives revenue from software licenses,  hardware sales, maintenance
and other services. Maintenance includes telephone support, software patches and
rights to  upgrades on a  when-and-if-available-basis.  Other  services  include
installation,  training,  consulting,  data  conversion,  networking  and system
support.  In  software  agreements  that  include  rights to  multiple  software
products,  maintenance,  and/or other services,  the Company allocates the total
agreement fee among each deliverable based on the relative fair value of each of
the deliverables determined by vendor-specific objective evidence.

Software and Hardware

The Company  recognizes the revenue allocable to software licenses upon delivery
of the  software  product  to the  end  user,  unless  the fee is not  fixed  or
determinable or  collectibility  is not probable.  For agreements  involving the
sale of hardware  and the  licensing  of  software,  revenue  for the  processor
hardware and the software is recognized  only upon delivery of both the software
and the processor hardware which is required to render the software operable.

Additional hardware, other than the processor, is recognized when the product is
shipped.  Software license revenue may include  customization or modification of
the  Company's   software  to  meet  specific   customer   needs.   Revenue  for
customization is recognized using contract accounting which generally results in
using a completed contract basis.

<PAGE>

                 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
      NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 1998

Maintenance

The Company recognizes revenue for maintenance on a straight-line basis over the
period the maintenance is provided.

Other Services

Agreements that include other services are evaluated to determine  whether those
services are essential to the  functionality of other elements of the agreement.
If a service is considered essential,  revenue recognition on the elements whose
functionality depends on the service is deferred until the service is performed.
In multiple element agreements that include software  installation,  the Company
generally  considers  software  installation  to be an  essential  service.  The
Company  generally  considers other services  included in an agreement not to be
essential to the functionality of other elements of the agreement and revenue is
recognized upon completion of the service. Such other services include training,
consulting,  data  conversion,  network  installation  and  network  and  system
support.

Note 6. Comprehensive Income

As  of  October  1,  1998,  the  Company  adopted   Statement  130,   "Reporting
Comprehensive   Income."   Statement  130  requires   that  all   components  of
comprehensive  income,  including  net  income,  be  reported  in the  financial
statements in the period in which they are recognized.  Comprehensive  income is
defined  as the change in equity  during a period  from  transactions  and other
events and circumstances from non-owner sources.  The adoption of this Statement
had no impact on the Company's net income or shareholders' equity. Statement 130
requires foreign currency translation adjustments,  which prior to adoption were
reported   separately  in  shareholders'   equity,   to  be  included  in  other
comprehensive  income.  The  presentation  of prior  year  financial  statements
reflects  reclassification  of data to conform to the  requirements of Statement
130.

The components of comprehensive  income, net of related tax, for the three-month
period ended December 31, 1998 and 1997 are as follows:

                                                       Three Months Ended
                                                       ------------------
                                                   Dec 31, 1998     Dec 31, 1997
                                                   -----------------------------
     Net income                                         $125             $492
     Foreign currency translation adjustment               8              (25)
                                                    --------------------------
     Comprehensive income                               $133             $467
                                                    ==========================

The components of accumulated other comprehensive income, net of related tax, at
December 31, 1998 and September 30, 1998, are as follows:

                                                   Dec 31, 1998    Sept 30, 1998
                                                   -----------------------------
     Foreign currency translation adjustment            $(231)           $(239)
                                                   -----------------------------
     Accumulated other comprehensive income             $(231)           $(239)
                                                   =============================

Note 7. Segment Information

Effective  with the fiscal  year  ending  September  30,  1999,  and for interim
reporting  for fiscal years  beginning  after  October 1, 1999,  the Company has
adopted SFAS No. 131, Segment Information.  SFAS No. 131 amends the requirements
for public enterprises to report financial and descriptive information about its
reportable operating segments.  Operating segments,  as defined in SFAS No. 131,
are  components of an enterprise  for which  separate  financial  information is
available and is evaluated  regularly by the Company in deciding how to allocate
resources and in assessing performance. The financial information is required to
be reported on the basis that it is used  internally  for evaluating the segment
performance.  Management  believes  the  Company  operates in one  business  and
operating  segment  and  that  the  adoption  of this  standard  will not have a
material impact on the Company's financial statements.

Note 8. New Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities,  which is required
to be adopted for years beginning after June 15, 1999.  Because of the Company's
minimal use of derivatives,  management does not anticipate that the adoption of
the new Statement  will have a  significant  effect on earnings or the financial
position of the Company.


<PAGE>

DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES


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

Overview

The Company's revenue recognition policy is discussed in Note 5 to the unaudited
consolidated financial statements. The components of the cost for development of
software  primarily  include salaries and employee  benefits and are expensed as
incurred until such costs qualify as deferred software costs which are amortized
over the estimated  useful life of the product.  The amortization of capitalized
software is allocated as a direct cost of licensing  DRA  software.  The Company
typically  experiences  greater  gross margin on software  licenses and services
than on sales of hardware.  The Company's  profitability  depends in part on the
mix of its revenue components and not necessarily on total revenues.

The  Company's  revenues  and  earnings  can  fluctuate  from quarter to quarter
depending upon, among other things, such factors as the complexity of customers'
procurement processes,  new product and service introductions by the Company and
other  vendors,   delays  in  customer   purchases  due  to  timing  of  library
professional  conferences and trade shows,  installation scheduling and customer
delays in facilities  preparation.  In addition,  a  substantial  portion of the
Company's  revenues  for each  quarter is  attributable  to a limited  number of
orders and tends to be realized  towards  the end of each  quarter.  Thus,  even
short delays or deferrals of sales near the end of a quarter can cause quarterly
results to fluctuate  substantially.  In the future, the Company's revenues will
be  increasingly  dependent  on sales of  its  next-generation  system  which is
currently being  developed.  The timing of the completion of this system,  Taos,
which is based on  object-oriented  client/server  design,  may  be affected  by
multiple  factors,   including  rapid   technological   change,   dependence  on
third-party  suppliers and the relative  scarcity of qualified  technical staff.
The company  recognized  the first  revenue  from Taos in the fourth  quarter of
fiscal 1998 and currently has a backlog of revenue related to nine contracts for
the Taos  system.  Recognition  of  revenue  from this  backlog  is  subject  to
completion of all required  modules  mandated by each  contract,  along with the
logistical  considerations  that accompany the initial release of a new product.
See Exhibit 99.1  "Cautionary  Statements - Additional  Important  Factors To Be
Considered", in the Company's Form 10-K for the year ended September 30, 1998.

Year 2000 Readiness Disclosure

The arrival of the year 2000 poses certain  technological  challenges  resulting
from a reliance of some  computer  technologies  on two digits  rather than four
digits to represent the calendar year (e.g.,  "98" for "1998").  It is generally
believed that computer technologies programmed in this manner, if not corrected,
may produce inaccurate or unpredictable results or system failures in connection
with the  transition  from 1999 to 2000,  when  dates will begin to have a lower
two-digit  number than dates in the prior century.  This problem,  the so-called
"Year 2000  Problem"  or "Y2K  Problem,"  could  have an  adverse  effect on the
Company's  financial  condition,  results of  operations,  business  or business
prospects because,  in order to function  properly,  the Company's products must
interface  with a multitude of software and hardware  products  manufactured  by
unrelated third parties.  The Company has been working  diligently to prevent or
mitigate disruptions relating to the year 2000.

As of  December  31,  1998,  the  Company has  reviewed  all of its  proprietary
software  products and believes that all of such software products are currently
capable of  accurately  processing  date data related to the change from 1999 to
2000,  if used with third party  products  that are also  capable of  accurately
processing such data.

The  Company  has formed an  oversight  committee  and has  developed  a plan to
coordinate  identification,  evaluation  and  implementation  of  any  necessary
changes to the computer systems, applications and business processes used by the
Company in the operation of its business. As of December 31, 1998, the oversight
committee  had  identified  the  Company's  systems  that could  potentially  be
impacted  by the Y2K  Problem.  The  Company  is  currently  in the  process  of
prioritizing  the  identified  systems and  undertaking  three  primary steps to
validate systems readiness. The three steps are (1) obtaining a vendor readiness
statement  (2)  internal  testing,  and (3)  third-party  validation  through an
authorized  organization that has already tested the systems.  The Company plans
to obtain a vendor readiness statement for all identified systems and to perform
internal testing on those identified as critical to its operations that have not
already  been  validated  through a  third-party  authorized  organization.  The
Company expects to have finished prioritizing systems by March 31, 1999. By June
30, 1999, the Company will have completed  necessary testing of critical systems
and will have compiled a list of identified problems and recommended  solutions.
Beginning in July 1999,  the Company will begin  applying  solutions,  verifying
that such solutions make the system(s)  avoid the Y2K Problem,  and developing a
contingency  plan for any critical  system that remains  susceptible  to the Y2K
Problem. The Company plans to be complete with all Y2K readiness and contingency
planning well before December 31, 1999.

<PAGE>

The Company anticipates that its Y2K action plan discussed above will be carried
out solely by existing  employees  without  significantly  impacting their other
duties. Accordingly, the Company has not incurred any material incremental costs
and has not  identified any  incremental  future costs  associated  with the Y2K
Problem.

No assurances can be given that the Company will be able to completely  identify
or address all issues  related to the Year 2000 Problem that affect the Company,
or that third parties with whom the Company does  business  will not  experience
system failures as a result of the Year 2000 Problem,  nor can the Company fully
predict the consequences of any such failure.

There  is  no  single  customer  or  product  vendor  which,  in  the  Company's
assessment,  is or may be likely to present any significant  exposure due to the
Year  2000  Problem.  However,  management  anticipates  that  there may be some
negative impact on the timely receipt of accounts  receivable due to the failure
of certain  customers  to prepare  adequately  for the Year 2000  Problem.  In a
worst-case  scenario,  these  accounts  receivable  related  difficulties  might
require  the Company to draw down its own credit line or to reduce the amount of
available cash on hand.

The Company also could face some risk from the  possible  failure of one or more
of its third party vendors to continue to provide  uninterrupted service through
the changeover to the year 2000.  Because the Company outsources the delivery of
hardware to its customers,  such a failure could affect the  installation of the
Company's products at customer  locations.  While an evaluation of the Year 2000
preparedness  of its third  party  vendors  has been part of the  Company's  Y2K
action plan, the Company's  ability to evaluate is limited to some extent by the
willingness  of  vendors  to supply  information  and the  ability of vendors to
verify  the Y2K  preparedness  of their  own  systems  or  their  sub-providers.
However,  the Company has received  assurances from its significant vendors that
there  will  not be any  such  disruption;  accordingly  the  Company  does  not
currently  anticipate that any of its  significant  vendors will fail to provide
continuing service due to the Year 2000 Problem.

The Company, like similarly-situated enterprises, is subject to certain risks as
a result of possible  industry-wide or area-wide  failures triggered by the Year
2000  Problem.  For example,  the failure of certain  utility  providers  (e.g.,
electricity,   gas,  telecommunications)  to  avoid  disruption  of  service  in
connection  with the  transition  from 1999 to 2000 could  adversely  affect the
Company's  results  of  operations,   liquidity  and  financial  condition.   In
management's  estimate,  such a  system-wide  or  area-wide  failure  presents a
significant risk to the Company in connection with the Year 2000 Problem because
the resulting  disruption  may be entirely  beyond the ability of the Company to
cure,  and the  Company  relies on such  utilities  for the  delivery of its own
products,  particularly   telecommunications.   The  significance  of  any  such
disruption  would depend on its duration and systemic and geographic  magnitude.
Of course,  any such disruption  would likely impact  businesses other than just
the Company.

Forward Looking Statements

Except for the historical  information and statements  contained in Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
("MD&A"),  the matters and items  contained in this  document,  including  MD&A,
contain a substantial  number of forward-looking  statements,  indicated by such
words   as   "expects,"   "believes,"   "estimates,"   "anticipates,"   "plans,"
"assessment,"   "should,"  "will,"  and  similar  words.  These  forward-looking
statements  are based on the Company's and  management's  beliefs,  assumptions,
expectations,  estimates  and  projections  any or all of which are  subject  to
future   change,   depending   on  unknown   developments   and   facts.   These
forward-looking statements should be read in conjunction with the disclosures in
Exhibit  99.1  "Cautionary  Statements  -  Additional  Important  Factors  to Be
Considered," in the Company's Form 10-K for the year ended September 30, 1998.

Results of Operations

Three Months Ended December 31, 1998 compared to Three Months Ended December 31,
1997

Hardware  revenues  decreased $.7 million,  or 59%, to $.5 million for the three
months ended  December  31,  1998,  from $1.2 million for the three months ended
December 31, 1997.  The decrease is primarily due to one hardware  shipment that
generated $.4 million in the quarter ended  December 31, 1997, and to customers'
ability to buy high-performance  systems at lower prices. The Company had no new
contract shipments in the quarter ended December 31, 1998, as some customers are
deferring  purchase  decisions or system deliveries in anticipation of Taos. The
gross margin  percentage on hardware was 29% in the three months ended  December
31, 1998, and 28% in the three months ended December 31, 1997.

Software license revenues decreased $.4 million,  or 26%, to $1.2 million in the
three  months ended  December  31,  1998,  from $1.6 million in the three months
ended  December 31, 1997.  The  decrease is  primarily  attributable  to one new
software  contract  that  generated  $.6 million of revenue in the three  months
ended  December  31,  1997.  The Company had no new  contract  shipments  in the
quarter  ended  December 31, 1998,  as some  customers  are  deferring  purchase
decisions  or system  deliveries  in  anticipation  of Taos.  The  gross  margin
percentage on software was 69% in the three months ended December  31,1998,  and


<PAGE>

81% in the three months ended  December 31, 1997.  The decrease is primarily due
to the amortization of $.2 million of capitalized  development  costs related to
the Taos product in the quarter ended December 31, 1998.

Service and other  revenues were $4.7 million in the three months ended December
31, 1998,  remaining  consistent  with the three months ended December 31, 1997.
Management  expects that software  maintenance  revenues,  a major  component of
service and other  revenues,  will  continue to increase as the base of licensed
software  products  increases.  The continued  increase in software  maintenance
revenue was offset by a decrease in revenues from the Company's  other services,
many of which are  associated  with new system sales,  in the three months ended
December 31, 1998. The gross margin percentage on service and other revenues was
72% in the three  months ended  December  31, 1998,  and 71% in the three months
ended December 31, 1997.

Salaries and employee benefits decreased $.1 million,  or 2%, to $2.4 million in
the three months ended December 31, 1998,  from $2.5 million in the three months
ended December 31, 1997. This decrease is attributable to greater capitalization
of software development salaries in the quarter ended December 31, 1998.

General  and  administrative  expenses  increased  $.1  million,  or 4%, to $1.6
million in the three  months ended  December 31, 1998,  from $1.5 million in the
three months ended December 31, 1997. This increase is attributable to increased
tradeshow  activity in the quarter ended  December 31, 1998, and to the increase
in the  current  year  of  the  Company  401(k)  match  by  $500  per  employee.
Approximately  30% of the  annual  match is earned in the first  quarter  of the
fiscal year.

Income from operations  decreased $.7 million,  or 113%, to ($.1) million in the
three months ended December 31, 1998, from $.6 million in the three months ended
December 31, 1997.  The  decrease is primarily  attributable  to the decrease in
hardware and software  sales in the three months ended  December 31, 1998,  from
December 31, 1997.

The Company's consolidated effective tax rate was 32% for the three month period
ended  December 31, 1998,  and 41% for the three month period ended December 31,
1997.  The  decrease  is a result of  research  and  development  credits  being
utilized in 1998.

Liquidity and Capital Resources

The  Company's  cash  needs  are  primarily  for  working  capital  and  capital
expenditures and historically have been met by cash flows from operations,  bank
borrowings,  and equipment  leases.  At December 31, 1998, the Company's working
capital was $21.4 million and its ratio of current assets to current liabilities
was 4.2 to 1, as  compared  to working  capital of $22.5  million and a ratio of
current assets to current liabilities of 4.2 to 1 at December 31, 1997.

Net cash provided by operating  activities was $2.6 million for the three months
ended  December  31,  1998,  compared to $.8 million for the three  months ended
December  31,  1997.  The increase in net cash  provided by  operations  was due
primarily to the receipt in the three months  ended  December 31, 1998,  of over
$1.2 million from one customer.

Net cash used by  investing  activities  was $6.3  million for the three  months
ended  December  31,  1998,  compared to $.8 million for the three  months ended
December 31, 1997.  The  increase in net cash used by  investing  activities  is
primarily due to the fact that during the quarter ended  December 31, 1998,  the
company purchased $10 million of short-term  instruments with maturities greater
than 90 days while  purchases for the  comparable  period of fiscal 1998 were of
shorter maturities and were classified as cash equivalents.

Net cash used by financing  activities was negligible for the three months ended
December 31, 1998, as well as for the three months ended December 31, 1997.

Management  believes  that,  with the current  cash  position  of $4.7  million,
short-term  investments of $13.5 million,  accounts  receivable of $8.4 million,
continued cash flow from  operations,  availability  of the $6.0 million line of
credit, and total current liabilities of $6.7 million,  the Company will be able
to meet both its short-term  liquidity needs and short-term capital  expenditure
needs.  In  October  1998,  the  Company's  Board of  Directors  authorized  the
repurchase of the Company's common stock in an amount of up to $3 million,  such
purchases to be made from time to time during the following  twelve months.  For
the three months ended December 31, 1998,  the amount used to repurchase  common
stock was $430,375. No material commitments with respect to capital expenditures
have been made for fiscal 1999.  Management  believes that with total  long-term
liabilities  of  approximately   $2.0  million  and  no  other  known  long-term
commitments or demands,  the Company will be able to satisfy its known long-term
liabilities and liquidity needs through the funding sources identified above.

<PAGE>

                 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES


PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is not a party to any litigation except the following:

In October 1998,  Sector 7 U.S.A.,  Inc.  ("Sector  7"),  filed suit against the
Company in the United States  District Court for the Western  District of Texas,
Austin Division (Civil Action No. A98CA 58-575JN) seeking a declaratory judgment
that  Sector 7 did not  breach a computer  software  development  contract  (the
"Contract") between the Company and Sector 7.

Shortly  thereafter,  the Company filed a lawsuit against Sector 7 in the United
States  District Court for the Eastern  District of Missouri,  Eastern  Division
(Cause No.  4:98 CV  01335ERW),  claiming  breach of the  Contract  and  seeking
$750,000  for breach of warranty and other  damages for fraud in the  inducement
with respect to such Contract.

The Company  believes  the  allegations  of the  lawsuit  pending in Texas to be
without merit and the Company  intends to vigorously  defend this matter (and to
prosecute the corresponding action pending in the Eastern District of Missouri).

At this time, the Company cannot predict the probable  outcome of these lawsuits
but does not anticipate any material  adverse  consequences  to the Company as a
result of these lawsuits.

Item 2. Changes in Securities.

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 5. Other Information.

Not applicable.

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

    (a) No  exhibits  are  required  to  be filed  for  the three  months  ended
        December 31, 1998.

    (b) Reports on Form 8-K

        A report  on Form  8-K (the  earliest  event  reported  having a date of
        September  30, 1997) was filed on December 3, 1998.  The items  reported
        were Item 5 Other Events and Item 7 Financial Statements, Pro Forma
        Financial Information and Exhibits.

<PAGE>
                 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES


                                   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.


                                       DATA RESEARCH ASSOCIATES, INC.



February 12, 1999                      /s/ Michael J. Mellinger
-----------------                      -----------------------------------------
Date                                   Michael J. Mellinger
                                       Chairman, President, and
                                       Chief Executive Officer
                                       (Principal Executive Officer)

February 12, 1999                      /s/ Katharine W. Biggs
-----------------                      -----------------------------------------
Date                                   Katharine W. Biggs
                                       Vice President, and
                                       Chief Financial Officer
                                       (Principal Accounting Officer)