<PAGE>   1
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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                            ------------------------

                                 FORM 10-KSB/A
                                (AMENDMENT NO. 1)

                            ------------------------



(MARK ONE)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.

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

             FOR THE TRANSITION PERIOD FROM __________ TO __________.

                        COMMISSION FILE NUMBER 001-11773

                   PACIFIC RESEARCH & ENGINEERING CORPORATION
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

<TABLE>
<S>                                               <C>        
                 CALIFORNIA                                      95-2638420 
(STATE OR OTHER JURISDICTION OF INCORPORATION          (IRS EMPLOYER IDENTIFICATION NO.)
              OR ORGANIZATION)
</TABLE>

                              2070 LAS PALMAS DRIVE
                           CARLSBAD, CALIFORNIA 92009
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

                    ISSUER'S TELEPHONE NUMBER: (760) 438-3911

      SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:

  COMMON STOCK, NO PAR VALUE           
COMMON STOCK PURCHASE WARRANTS               AMERICAN STOCK EXCHANGE
      (TITLE OF CLASS)               (NAME OF EACH EXCHANGE ON WHICH REGISTERED)

    SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT: NONE

Check whether the issuer (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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

Issuers' revenues for the year ended December 31, 1998 were $14.052 million. The
aggregate market value of the registrant's voting Common Stock, held by
non-affiliates, based on the closing price for registrant's Common Stock as
reported by the American Stock Exchange on April 1, 1999 was approximately
$886,400. This amount was calculated by excluding shares of Common Stock held by
officers, directors, and stockholders owning in excess of 10% of the
registrant's common stock, as a group, from the total outstanding shares solely
for the purposes of this response. As of April 1, 1999 there were 2,305,500
shares of the issuers common stock and warrants to purchase 750,100 shares of
common stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


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<PAGE>   2

                                EXPLANATORY NOTE

This amendment No. 1 on From 10-KSB / A to the Annual Report on Form 10-KSB of
Pacific Research & Engineering Corporation (the "Company"), amends and restates
in their entirety Items 9, 10, 11 and 12 of PART III.


                                    PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

        Information relating to the executive officers of the Company is set
forth in Part I of this Report under the caption "Executive Officers of the
Registrant." The Company's Board of Directors currently consists of six
authorized directors. The following table sets forth the name, age and position
of each director of the Company:


<TABLE>
<CAPTION>
                                                                                  DIRECTOR
NAME                                    AGE                POSITION                SINCE
----                                    ---                --------                -----
<S>                                      <C>   <C>                                     <C> 
Jack Williams....................        57         Chairman of the Board,          1969
                                                   Chief Executive Officer

Donald Naab......................        46    President, Chief Operating Officer   1999
                                                         and Director

John Lane........................        51                 Director                1996
Michael Bosworth.................        52                 Director                1996
Herbert McCord...................        56                 Director                1997
John Robbins.....................        52                 Director                1996
</TABLE>


        Jack Williams has served as Chief Executive Officer and Chairman of the
Board of Directors since October 1969. Prior to founding the Company, Mr.
Williams was a professional recording engineer and an audio and video systems
designer at the University of California, San Diego.

        Donald Naab became a director of the Company on February 12, 1999. Mr.
Naab joined the Company as President and Chief Operating Officer in June 1998.
From 1995 through 1997, Mr. Naab was Group President of a unit of Kidde
International, a manufacturer of fire systems. From 1980 through 1995, Mr. Naab
was employed at Robertshaw Controls Company where his last position was Vice
President, General Manager. Mr. Naab holds a BSEE degree from the University of
Wisconsin and an MBA from the University of Notre Dame.

        John Lane has been a director of the Company since March 1996. Mr. Lane
has been Managing Director, Vice President of Capital Markets of Westport
Resources Investment Services, an investment-banking firm, since January 1997.
From 1989 to 1996, Mr. Lane was a partner at the investment-banking firm, Nutmeg
Securities, where his most recent position was Executive Vice President,
Syndicate. Mr. Lane has been an active member of the Security Industry
Association and has been active in the Membership and Local Firms committees.
Mr. Lane also serves as a director of the Regional Investment Brokers
Association.

        Michael Bosworth has been a director of the Company since February 1996.
Mr. Bosworth has over twenty years experience in the information technology
industry. Mr. Bosworth is the founder and author of Solution Selling, and since
1983 has operated his own sales training and consulting company.

        Herbert McCord has been a director of the Company since September 1997.
From 1980 to the present, Mr. McCord has served as Chairman of the Board,
President and Chief Executive Officer of Granum Communications Corporation
(formerly Granum communications, Inc.), a consulting company to the radio
broadcast industry.

<PAGE>   3

        John Robbins has been a director of the Company since May 1996. From
February 1997 to the present, Mr. Robbins has served as Chairman of the Board
and Chief Executive Officer of American Residential Investment Trust. From
January 1988 to 1994, he was Chairman of the Board and Chief Executive Officer
of American Residential Mortgage Corporation. Mr. Robbins is a director of
Garden Fresh Restaurant Corporation and American Residential Investment Trust,
both publicly held companies.

Compliance with Section 16(a) of the Exchange Act

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.

     Based solely on the Company's review of such forms furnished to the Company
and written representations from certain reporting persons, the Company believes
that all filing requirements applicable to the Company's executive officers,
directors and more than 10% shareholders were complied with.



ITEM 10.  EXECUTIVE COMPENSATION


                           Summary Compensation Table

     The following table sets forth information concerning the compensation paid
by the Company to its Chief Executive Officer and the four most highly
compensated executive officers ("named executive officers") of the Company for
the years indicated.


<TABLE>
<CAPTION>
                                                                             LONG-TERM
                                         ANNUAL COMPENSATION               COMPENSATION
                                     -------------------------------       ------------
                                                                               AWARDS     
                                                                           ------------
                                                                             SECURITIES
                                                                             UNDERLYING     ALL OTHER
NAME AND PRINCIPAL POSITION          YEAR       SALARY         BONUS           OPTIONS   COMPENSATION(1)
---------------------------          ----       ------         -----       -----------------------------
<S>                                  <C>       <C>           <C>             <C>           <C>     
Jack Williams .................      1998      $170,000          --               --        $  4,987
  Chief Executive Officer            1997      $170,000          --               --        $  4,877
  and Chairman of the Board          1996      $147,654          --            603,217      $  1,500

Donald Naab (2) ...............      1998      $ 98,250      $ 15,000(2)        75,000      $ 73,635(3)
  President and Chief                1997          --            --               --            --
  Operating Officer                  1996          --            --               --            --

Larry Eyler (4) ...............      1998      $117,211          --               --        $  2,500
  Chief Financial Officer            1997      $114,997          --               --        $  2,500
  and Secretary                      1996      $ 99,520          --             40,214      $  1,500

Michael Dosch (5) .............      1998      $125,000          --               --        $  4,923
  Vice President, Corporate          1997      $124,998          --               --        $  4,019
  Development                        1996      $ 99,520          --             40,214      $  1,500

Dave Pollard ..................      1998      $115,000          --               --        $  4,380
  Vice President, Engineering        1997      $114,998          --               --        $  4,360
                                     1996      $ 99,520          --             40,214      $  1,500

Susan Dingethal (6) ...........      1998      $115,000          --               --        $  4,982
  Vice Pres., Sales &                1997      $ 46,422        35,000(6)        60,000      $  1,625
  Marketing                          1996          --            --               --            --
</TABLE>

--------------------------------------------------------------------------------

(1)  Includes Company contributions under 401(k) defined contribution plan and
     automobile allowance paid by the Company for the benefit of these named
     executive officers.

<PAGE>   4

(2)  Mr. Naab became an executive officer of the Company on June 29, 1998. The
     amounts disclosed for 1998 reflect all compensation that he received from
     the Company since he joined it on June 29, 1998. Mr. Naab received a
     one-time cash bonus in December 1998 in accordance with the terms of his
     Employment Agreement.

(3)  Includes $71,535 paid to Mr. Naab with respect to relocation expenses.

(4)  Mr. Eyler resigned as an executive officer of the Company effective
     November 11, 1998. The amounts disclosed in the table reflect all
     compensation that he received from the Company through November 11, 1998.

(5)  Mr. Dosch resigned as an executive officer of the Company effective
     December 31, 1998. Pursuant to a letter agreement entered into in
     connection with his resignation, Mr. Dosch received $30,769 in salary for
     the period January 1, 1999 to April 1, 1999 and $14,423 in accrued vacation
     benefits.

(6)  Ms. Dingethal became an executive officer of the Company on July 28, 1997.
     The amounts disclosed in 1997 reflect all compensation that she received
     from the Company since she joined it on July 28, 1997. In 1997, Ms.
     Dingethal received a one-time cash bonus of $35,000 in accordance with the
     terms of her Employment Agreement.


     The following table sets forth information with respect to the persons
named in the summary compensation table concerning their exercise of options
during the 1998 fiscal year and the unexercised options held by them as of
December 31, 1998. No options were exercised during the fiscal year.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                      AND FISCAL YEAR-END OPTION VALUES (1)

<TABLE>
<CAPTION>
                                                              NUMBER OF SECURITIES
                                                         UNDERLYING UNEXERCISED OPTIONS 
                                                                   AT 12/31/98
                                                         ------------------------------
     NAME                                                 EXERCISABLE / UNEXERCISABLE
     ----                                                ------------------------------
<S>                                                                <C>     
     Jack Williams........................................         0 / 603,217
     Donald Naab..........................................         75,000 / 0
     Larry Eyler..........................................            0 / 0
     Michael Dosch........................................            0 / 0
     Dave Pollard.........................................         0 / 40,214
     Susan Dingethal......................................       24,000 / 36,000
</TABLE>
----------------

(1)  Based on a fair market value of $1.625, the closing price of the Company's
     Common Stock on December 31, 1998, none of the named executive officer's
     options were in the money as of such date.


Employment and Change of Control Arrangements

     In March 1996, the Company entered into an employment agreement with Mr.
Williams with an initial term of three years. Mr. Williams continues to serve as
Chairman and Chief Executive Officer of the Company pursuant to the terms of the
agreement, although the initial term expired in April 1999. Mr. William's base
salary is currently $170,000. He is also eligible to receive a bonus based upon
achievement of certain goals as determined by the Board of Directors. Mr.
Williams also receives an automobile allowance of $250 per month.

     In June 1998, the Company entered into an employment agreement with Mr.
Naab, pursuant to which he became President and Chief Operating Officer. The
initial term of the employment agreement continues until December 31, 1999, at
which time it may be renewed for a future unspecified term at the discretion of
the Company. The agreement provides for a base salary of $204,360 per annum and
a bonus based upon achievement of certain goals as determined by the Board of
Directors. In addition, the agreement provided for a one-time $15,000 bonus
payable upon the condition that Mr. Naab was employed by the Company on December
31, 1998. Furthermore, Mr. Naab was granted stock options to purchase an
aggregate of 75,000 shares of the Company's Common Stock at $3.625 per share and
the Company agreed to pay Mr. Naab the real estate agent commission on the sale
of his home totaling up to $57,109. Mr. Naab also receives an automobile
allowance of $250 per month.

<PAGE>   5
     The Company entered into employment agreements with Messrs. Dosch and
Pollard in 1996 and with Ms. Dingethal in 1997. The agreements provide for a
base salary and a bonus based upon achievement of certain goals as determined by
the Board of Directors over the term of the employment agreement, continuing
until April 1999. In the event an executive officer's employment with the
Company is terminated without cause, he or she will receive a lump sum payment
of his then current salary for the balance of the term of the Agreement.
Pursuant to the terms of his employment agreement, Mr. Dosch received a lump sum
payment of $30,769 for his base salary from January 1, 1999 to April 1, 1999 and
an additional payment of $14,423 for accrued vacation.


     In the event the Company enters into an agreement to dispose of
substantially all of the assets or stock of the Company, options outstanding
under the 1996 Omnibus Stock Plan ("the Plan") will vest in full and become
exercisable as of the date of such agreement. The Board of Directors may, at its
election and subject to the approval of the surviving corporation, arrange for
options outstanding to be substituted for new options covering shares of the
surviving corporation in the same proportion, at an equivalent option price and
subject to the same terms and conditions as the old option. Any outstanding
options which are not exercised or assumed will terminate as of the date of such
disposition.

Compensation of Directors

     Mr. Bosworth, Mr. Robbins, Mr. Lane, and Mr. McCord each receive $1,000 per
month as a retainer and $750 per directors' meeting and committee meeting
attended. In addition, Messrs. Bosworth, Robbins, Lane, and McCord each have
been granted options to purchase 10,000, 10,000, 5,000,and 7,500 shares of
Common Stock, respectively. For each meeting of the Board of Directors which
they attend, directors are reimbursed for reasonable travel expenses incurred.
See also "--Certain Relationships and Related Transactions."


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


     The following table sets forth certain information, as of April 15, 1999,
with respect to the beneficial ownership of the Company's Common Stock by (i)
all persons known by the Company to be the beneficial owners of more than 5% of
the outstanding Common Stock of the Company, (ii) each director and
director-nominee of the Company, (iii) the executive officers of the Company
named in the Summary Compensation Table, and (iv) all current executive officers
and directors of the Company as a group:

<TABLE>
<CAPTION>
                                                            SHARES OWNED
                                                     --------------------------
                                                      NUMBER         PERCENTAGE
     NAME AND ADDRESS (1)                            OF SHARES        OF CLASS
     ---------------------                           ---------       ----------
<S>                                                  <C>                <C>  
     Jack Williams (2).............................  1,061,000          46.0%
     Donald Naab (3)...............................    199,980           8.4
     Dave Pollard .................................     70,000           3.0
     Michael Bosworth (4)..........................     10,000           *
     John Lane (5) (6).............................     87,755           3.7
     John Robbins (7)..............................     22,500           *
     Herbert McCord ...............................     17,500           *
     Susan Dingethal  (8)..........................     24,000           1.0
     All Directors and Executive Officers as a
     Group (10 persons) (9)........................  1,492,735          59.7%
</TABLE>

-----------------------

*    less than one percent

(1)  Except as otherwise indicated, the address for all persons shown on this
     table is c/o the Company, 2070 Las Palmas Drive, Carlsbad, California,
     92009. Unless otherwise indicated in the footnotes to this table, the
     persons named in the table have sole voting and investment power with
     respect to all shares of Common Stock shown as beneficially owned by such
     persons, subject to applicable community property laws.

<PAGE>   6

(2)  Includes 1,054,000 shares held by The Williams Family Trust, U/A DTD
     3/12/81. Also includes 6,000 shares owned by Mr. William's spouse and 1,000
     shares owned by his children.

(3)  Includes 75,000 shares issuable pursuant to stock options that are
     exercisable or will become exercisable within 60 days of April 15, 1999.
     Includes 13,500 shares held by Mr. Naab's spouse.

(4)  Includes 10,000 shares issuable pursuant to stock options that are
     exercisable or will become exercisable within 60 days of April 15, 1999.

(5)  Mr. Lane may be reached at Westport Resources, 315 Post Road West,
     Westport, Connecticut 06880.

(6)  Includes 5,000 shares issuable pursuant to stock options that are
     exercisable or will become exercisable within 60 days of April 15, 1999.
     Also includes 61,755 shares that Mr. Lane has the right to acquire in the
     form of Warrant Securities issued in connection with the Company's initial
     public offering in May 1996.

(7)  Includes 12,500 shares held by The Robbins Family Trust, U/A DTD 6/1/87 and
     10,000 shares issuable pursuant to stock options that are exercisable or
     will become exercisable within 60 days of April 15, 1999.

(8)  Includes 24,000 shares issuable pursuant to stock options that are
     exercisable or will become exercisable within 60 days of April 15, 1999.

(9)  Includes an aggregate of 193,255 shares of Common Stock issuable pursuant
     to stock options and stock warrants that are currently exercisable or will
     become exercisable within 60 days of April 15, 1999.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     At the time of the Company's public offering in 1996, Mr. Lane was an
executive officer and controlling person of Nutmeg Securities, the principal
underwriter of such offering. The total underwriting discounts and commissions
paid by the Company with respect to such offering were $550,000. In addition,
Nutmeg Securities received (i) a non-accountable expense allowance of $165,000
and (ii) warrants to purchase up to 50,000 units at $17.05 per unit exercisable
over four (4) years commencing May 28, 1997, with each unit consisting of two
shares of the Company's Common Stock and one redeemable Common Stock Purchase
Warrant of the Company, and (iii) a consulting fee of $72,000.



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.





                                    PACIFIC RESEARCH & ENGINEERING CORPORATION
                                                      (Registrant)

                                    By:             /s/ Jack Williams           
                                            ------------------------------------
                                            Jack Williams
                                            Chief Executive Officer, 
                                            Chairman of the Board


Date:     April 29, 1999