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

                        FORM 10-KSB

(Mark One)
[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
         For the fiscal year ended March 31, 1999

[    ] TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 For the transition period from __________ to
     ----------

              Commission file number: 0-28560

                 RESEARCH ENGINEERS, INC.
 (Exact name of small business issuer as specified in its
                         charter)

         Delaware                        22-2356861
      (State or other                 (I.R.S. Employer
      jurisdiction of                Identification No.)
      incorporation)

 22700 Savi Ranch Parkway,                  92887
      Yorba Linda, CA                    (Zip Code)
   (Address of principal
    executive offices)

    Registrant's telephone number, including area code:
                      (714) 974-2500

  Securities registered pursuant to Section 12 (b) of the
                         Act: None

  Securities               registered pursuant to Section 12 (g) of the Act:

               Common Stock, $0.01 par value
                     (Title of Class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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  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]

State  issuer's  revenues for its most recent  fiscal year:
$10,745,000

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of June 23, 1999 was $20,550,430.

The number of shares outstanding of the registrant's only class of Common Stock,
$.01 par value, was 5,738,210 on June 23, 1999.

DOCUMENTS INCORPORATED BY REFERENCE:  None



<PAGE>




                          PART I

ITEM 1. DESCRIPTION OF BUSINESS.

Introduction

   Research  Engineers,  Inc. (the  "Company") was  incorporated  in 1981 and is
currently  headquartered  in Yorba Linda,  California.  The Company is a leading
provider of technically advanced  engineering software solutions.  The Company's
software  products provide fully integrated  easy-to-use  design  automation and
analysis  solutions  for use by  engineering  analysis and design  professionals
worldwide. The Company's comprehensive line of structural, mechanical, civil and
process/piping  engineering software products is designed to fully integrate the
functions of model generation,  analysis, design drafting and data presentation.
All of the  Company's  products  utilize a  proprietary  Windows-based  graphics
engine,  allowing the software to be used with or without  third-party  Computer
Aided Design  ("CAD")  software.  The  Company's  products  assist  engineers in
performing  a  myriad  of  mission-critical  engineering  tasks,  including  the
analysis  and  design of  industrial,  commercial,  transportation  and  utility
structures, pipelines, machinery, automotive and aerospace products, and survey,
contour  and digital  terrain  modeling.  Suggested  list prices for most of the
Company's products range from approximately $995 to $7,000.

   Through the acquisition of R-Cube Technologies ("R-Cube") in February 1999,
the Company has expanded  into the $90 billion IT services  industry,  providing
expertise in data-mining and embedded  technologies to Internet/Intranet  design
and communications. In addition, in April 1999 the Company announced that it has
launched the first of several  e-commerce special interest portals targeting the
90 million  expatriates of the Asia Pacific region now living  throughout Europe
and North America.

   The Company  currently  licenses  its  software  products to more than 19,000
customers  accounting  for  over  47,000  software   installations  and  140,000
concurrent users worldwide.  A selected list of the Company's customers include:
Bechtel Corporation,  Boston Edison,  British Telecom,  California Department of
Resources,  California  Institute of Technology,  Jet  Propulsion  Laboratories,
Exxon  Corporation,  Fluor Daniel,  Inc.,  General Dynamics,  NASA,  Rocketdyne,
Siemens AG and Toyo Engineering.  The Company's  products are sold and supported
domestically  and  internationally   through  its  network  of  branch  offices,
subsidiaries and representatives in the United States, United Kingdom,  Germany,
Japan, France,  Scandinavia,  Australia,  China,  Singapore,  India,  Indonesia,
Korea,  Thailand,  Malaysia,  South Africa,  Mexico, Russia, the Middle East and
Latin America.  The Company's  structural and civil engineering products provide
eight  international  language  options and local design  codes  required by its
worldwide markets.

Industry Background

   The   engineering   design   industry  is  comprised  of  a  broad  range  of
organizations  including small,  medium and large-sized  engineering  consulting
firms, manufacturing companies,  construction/fabrication  companies, utilities,
transportation companies and government agencies and is characterized by rapidly
changing  market  demands as a result of  evolving  quality/safety  regulations,
increasing   complexity  of   engineering   projects,   increasing   demand  for
interdisciplinary information integration and increasing competition.

   Historically, engineering design organizations relied on internally-developed
programs or  "public-domain"  software  that was developed by  universities  for
analysis and design tasks. These programs typically ran on expensive mainframes,
minicomputers or workstations in highly centralized environments. As a result of
the increased  availability of powerful desktop personal computers ("PCs") which
are capable of accommodating  the needs of sophisticated  engineering  software,
engineering   professionals   have  shifted  from  these  expensive   customized
hardware/software  solutions  to  commercial,  PC-based  solutions.  The Company
believes that the shift to powerful PCs has resulted in an increased  demand for
technically-sophisticated,   easy-to-use   engineering  software  products  that
automate,   simplify  and   integrate   analysis  and  design   functions  in  a
cost-effective  manner.  The  following  industry  dynamics  contribute  to this
increasing demand:


                                       2
<PAGE>


   Increasing  regulatory  and  compliance  requirements.  In recent years,  the
engineering  design  industry  has  been  subject  to  significant   changes  in
regulatory  and  compliance  requirements  resulting  from,  among other things,
natural  disasters such as Hurricane  Andrew and the Northridge and Loma Prieta,
California  earthquakes.  For  example,  in many of the  structural  engineering
segments  of the  industry,  all newly  constructed  structures  in a seismic or
critical wind load  (hurricane/tornado) zone are required to comply with certain
mandatory  design  requirements  irrespective of their size and  complexity.  In
addition,  with the widespread adoption of increased quality assurance standards
such as ISO 9000, even simple consumer  products,  such as toys, are now subject
to strict quality and safety  standards which require  computerized  stress test
analyses  on  such  products.   All  of  these  regulatory   requirements   have
significantly   increased  the  demand  for  highly   accurate,   cost-effective
engineering analysis and design automation software.

   Increased  use of  engineering  analysis  and  design  software  by small and
medium-sized   design/manufacturing   firms.  Although  the  engineering  design
industry was among the first industries to use  sophisticated  computer hardware
and    software,    a   significant    number   of   small   and    medium-sized
design/manufacturing companies could not fully utilize these products due to the
costs involved.  For example,  prior to the availability of PC-based  solutions,
the cost for a typical  hardware/software  system  capable of  full-scale  solid
modeling  functionality would start at approximately $70,000. With the advent of
moderately  priced  powerful  Pentium-based  PCs  (with  large  RAM and  storage
capabilities),  equipped  with  sophisticated  operating  systems such as 32-bit
Windows/NT, small and medium-sized design/manufacturing companies can now afford
the systems to run technologically  advanced engineering software. This decrease
in  the  cost  of   computing   power  has   allowed   small  and   medium-sized
design/manufacturing   firms  to  successfully   meet  the  new  regulatory  and
compliance  requirements  described  above in a  cost-efficient  manner  thereby
increasing competition in the engineering design industry.

   Growth in demand for  engineering  analysis  products with built-in  graphics
functionality.  Traditionally,  the  engineering  analysis and design market has
been dependent on third-party  CAD products to add graphics,  visualization  and
presentation  capabilities to engineering  software.  However,  the high cost of
third-party CAD software,  which can range from $6,000 to $24,000,  coupled with
its lack of application  specific details and potential  compatibility  problems
has created a demand for  engineering  products  with  incorporated  proprietary
fully integrated  graphics and/or CAD technology.  All of the Company's products
incorporate the Company's proprietary Windows-based graphics technology to allow
for  visualization,   verification  and  drawing  generation  capabilities.  See
"--Technology."

   Growth  in  international  engineering  software  market.  The  international
engineering  software  market  is  growing  rapidly  due in  large  part  to the
worldwide surge in  infrastructure-related  construction  activities.  The newly
industrialized and emerging growth areas of the world, including Southeast Asia,
China,  India  and  the  Latin  American  countries,   have  embarked  on  major
infrastructure  development and construction efforts. While the current economic
situation  in the region  has  resulted  in a  temporary  setback,  Asia/Pacific
remains a focal area for the worldwide  engineering software market. The Company
continues  to monitor  the  economic  situation  and  maintain a presence in the
region with the objective of taking advantage of the  opportunities  that emerge
as the economy improves.

   These  dynamics  have  increased  the volume and  complexity  of  information
analysis and exchange between engineering design organizations and organizations
in  related  disciplines,  such as  construction,  fabrication  and  production.
Consequently,   engineering  design  firms  require  more  powerful  and  better
integrated software products for their analysis and design activities.  In order
to operate efficiently within this environment, engineering design organizations
must  automate  and  integrate  their   mission-critical   and   labor-intensive
functions,  including (i) model development,  (ii) engineering  analysis,  (iii)
graphical  visualization/verification,  (iv)  engineering  design  based on code
requirements  and (v) report  generation.  Modern  engineering  concepts such as
"concurrent  engineering"  (i.e.,  performance  of all  process  functions  in a
concurrent manner) are becoming  increasingly  important in today's  competitive
environment. See "--Technology."


                                       3
<PAGE>


Business Strategy

   The Company's  mission is to become one of the world's  leading  suppliers of
stand-alone  and  network-based  engineering  software  products for engineering
analysis and design  professionals.  The Company seeks to achieve its objectives
through the following strategies:

   Leveraging  Existing  Customer  Relationships.   The  Company  considers  its
relationships  with  existing  customers  to be an  important  corporate  asset.
Currently,  the Company has over 19,000  customers,  accounting  for over 47,000
software  installations  and 140,000  concurrent  users  worldwide.  The Company
continually  introduces  new  products  and  upgrades  to enhance and extend its
product line. The Company believes that its direct and frequent contact with its
customers  provides  important  market  intelligence,  which  in turn is used to
develop new, demand-driven products.

   Maintaining  Leadership in Research and Development  Activities.  The Company
believes that it is an industry leader in designing and developing  products for
the  technically-sophisticated  segment of the  engineering  analysis and design
industry  and in  providing  products  that  address the entire  spectrum of the
engineering  design process in an integrated manner. The Company is committed to
continually advancing the capability of its products,  through the incorporation
of advanced  technologies.  The Company has established research and development
facilities  in the  United  States,  United  Kingdom  and  India.  All of  these
facilities employ  highly-skilled  technical  personnel.  The Company's offshore
research and development  facility in India is a key competitive  advantage,  in
that it produces  substantially  more development  effort for equivalent dollars
spent in the U.S. See "--Product Development."

   Expanding the Company's Marketing,  Sales and Product Support Activities. The
Company   believes  that  its  direct  sales   approach  and  extensive  use  of
demonstration  materials  is the  most  effective  way to  market  and  sell its
software products to engineering professionals. This market typically requires a
full understanding of product  capabilities in making a purchase  decision.  See
"--Sales  and  Marketing."  The Company  continues  to maintain  and enhance its
telesales  operation,  which is used as a closing mechanism for converting leads
to sales.  The Company has recently  undertaken a "web marketing"  initiative to
generate  additional  awareness  for its products by posting  banners on the web
pages of professional  engineering  societies,  newsgroups and similar forums on
the Internet. The Company's Internet strategy includes providing on-line product
demonstrations  and  on-line  use  (for a fee)  of the  Company's  products  for
discrete projects.

   Expanding   International   Presence.  The  Company  intends  to  expand  its
international  presence  by opening  offices or  acquiring  businesses  in those
foreign countries that provide the greatest potential for sales. In fiscal 1999,
approximately  45% of the  Company's  revenues  were  attributable  to customers
located outside the United States.  While the current economic  situation in the
region has resulted in a temporary  setback,  Asia/Pacific  remains a focal area
for the worldwide  engineering software market. The Company continues to monitor
the economic  situation and maintain a presence in the region with the objective
of taking advantage of the opportunities that emerge as the economy improves.

   The  Company  has  extensively  "localized"  its  software  products  to meet
specific  demands of the  international  market.  All of the Company's  products
support a complete  range of  international  measurement  units.  The  Company's
structural and civil  engineering  products allow customers to choose from eight
major  international  languages and twelve  market-specific  design  codes.  The
Company intends to continually  evaluate  whether to create  additional  foreign
language   versions  of  any  of  its  products   and/or  to  include   specific
international  design codes within a particular  product based upon, among other
things, the Company's  experience in particular foreign markets and the specific
design approval/validation requirements of the particular foreign market.

   Expanding Through Acquisitions. In addition to the Company's internal product
development  activities,  the Company has  expanded,  and expects to continue to
expand,  its product  lines,  technology  and product base through  acquisitions
complementary to the Company's current operations. In 1990, the Company acquired
The Technical  Group,  a software  company that  developed  CIVILSOFT,  which is
regarded by many to be the leading  engineering  and  surveying  software in the
industry  today.  In  1995,  the  Company   acquired   STARDYNE(R),   the  first
commercially-  available finite element analysis software,  now regarded by many
as an industry  standard.  In March 1996, the Company acquired ADLPipe,  Inc., a
software  company that provided piping analysis and design solutions since 1975.
In December  1996,  the Company  acquired QSE (Bristol)  Limited,  a provider of
structural  analysis  and design  software  that expands the  Company's  product
offerings to the residential and light  commercial  markets.  In March 1997, the
Company  acquired from  Intrasoft,  Inc. the rights to STRUCT.etc,  a structural
engineering software product consisting of 88 small stand-alone software modules
that are currently in use by thousands of architects and  engineers.  In October
1997, the Company acquired the animation technology assets of AXA Corporation, a
private company formerly developing  animation  technology for the entertainment
industry.  The AXA products  are  currently  being  distributed  as  stand-alone
products.  The animation  technology is also being integrated into the Company's
next generation  engineering  software.  In February 1999, the Company  acquired
R-Cube.  With this  acquisition the Company has expanded into the $90 billion IT
services industry,  providing expertise in data-mining and embedded technologies
to  Internet/Intranet  design and  communications.  In March  1999,  the Company
acquired PacSoft,  a developer of engineering  software products and integration
tools that expands the  Company's  product  offerings  in the civil  engineering
market. The Company believes that additional  opportunities  exist to expand its
product lines by acquiring businesses, products and technologies that complement
those of the Company.


                                       4
<PAGE>
Products

   The Company's  engineering analysis and design software product lines include
its core  structural  engineering  line and its emerging  civil,  mechanical and
process/piping  lines.  All of the Company's  current products use the Company's
proprietary Windows-based graphics engine that provides the most modern graphics
environment  for  model  development,   visualization/verification  and  drawing
generation.  These  products  are  also  designed  for use in  conjunction  with
third-party CAD drafting systems, including AutoCAD and MicroStation.  Suggested
list prices for most of the Company's  products range from approximately $995 to
$7,000.

                                       5
<PAGE>


   The following table describes the Company's core software products:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Product         Product
Category          Name           Function             Applications
--------------------------------------------------------------------------------
<S>            <C>         <C>                       <C>

Structural     STAAD/Pro   A comprehensive           Engineering/architectural
Engineering                workflow integrated       firms, consulting
                           solution for the          engineers, construction
                           structural engineering    companies, building
                           design office.  Includes  designers, industrial
                           STADD Analysis/Design,    plant designers,
                           STARDYNE(R) Advanced      offshore/marine
                           Finite Element Analysis   engineering,
                           and drawing generation.   petrochemical industry,
                           Extensions for            power industry,
                           structural component      manufacturing/heavy
                           design, concurrent        industries, transportation,
                           piping, engineering,      facilities,
                           and detailing.  Supports  government/municipal
                           US and all major          agencies, etc.
                           international structural
                           design codes.

               STAAD-III   Integrated structural     Engineering/architectural
                           analysis and design for   consulting firms,
                           steel/concrete/timber     construction companies,
                           codes; static/dynamic/    government and municipal
                           non-linear/seismic        agencies, industrial plant
                           analysis; incorporates    design, offshore/marine
                           U.S., British, German,    engineering, equipment
                           Japanese and other        manufacturers,
                           international codes.      transportation engineering,
                                                     facilities engineering.

               STAAD-III   Same as above - Allows    Same as above.
               Online      users to submit jobs for
                           analysis via modem on
                           a pay-per-use basis.

               QSE-Quick   Integrated analysis and   For light industrial
               Structural  design for 2D/3D          and residential
               Engineering frame structures;         applications.
                           steel/concrete design     Engineering/architectural
                           per US and British codes; consulting firms;
                           links to detailing        construction companies.
                           software.

               FabriCAD    Full-scale structural     Construction engineering,
               Suite       fabrication drawing and   fabrication shops, steel
                           detailing; estimating,    detailers, mechanical
                           production control,       equipment fabrication.
                           inventory control and
                           purchase orders.

               STRUCT.etc- A comprehensive array     For light industrial and
               STRUCTural  of structural component   residential applications.
               Engineering design software tools     Engineering/architectural
               Tool Case   ideal for efficient       consulting firms;
                           design and analysis of    construction companies.
                           steel and concrete
                           structures.
--------------------------------------------------------------------------------

Mechanical     STARDYNE(R) Finite element analysis   Aerospace, nuclear, machine
Engineering                of mechanical/structural  tools, machinery,
                           components; machine and   manufacturing, automotive,
                           equipment design;         civil/structural,
                           static/dynamic/           offshore/marine,
                           non-linear/buckling/      electrical, chemical,
                           transient/random          processing, power/energy,
                           vibration/thermal/        mining.
                           fracture/fatigue
                           analysis.

               VISUAL      3D solid modeling in      Same as above.
               SOLID       design automation;
                           integrated with finite
                           element analysis
--------------------------------------------------------------------------------

Process/Piping ADLPIPE     Analysis, design and      Power, process, industrial
Engineering                code checking of piping   plant design.
                           systems; static/dynamic/
                           seismic/non-linear
                           analysis; transient/
                           thermal analysis;
                           supports U.S., British
                           and other international
                           codes.
--------------------------------------------------------------------------------

Civil          CIVILSOFT/  Surveying, contouring,    Civil engineering
Engineering    CIVIL-      roads/highway design,     consulting firms;
               MASTER(R)      site, design, digital,    government/municipal
                           terrain,modeling,         agencies; utilities;
                           earthwork calculations,   transportation; facilities;
                           water network design,     construction companies.
                           sewer/storm drainage
                           systems, hydraulics.
--------------------------------------------------------------------------------
</TABLE>
                                       6
<PAGE>



   Structural Engineering.  The Company's structural engineering products may be
used to  analyze  and  design  almost any type of  structure,  including,  among
others, buildings (residential and commercial),  bridges, industrial structures,
utility structures,  transportation  structures and transmission towers. Because
of the broad analytic nature of this software, users of the Company's structural
engineering  product line include a wide range of organizations from Fortune 500
companies  to  individual   consulting   engineers.   The  Company's  structural
engineering  product line primarily consists of STAAD, a stand-alone  integrated
structural  analysis and design software with drafting  capabilities.  The STAAD
user base currently  consists of over 6,000  companies  worldwide with more than
20,000 installations. Of the top 500 architectural/engineering  companies ranked
in  the  April  14,  1997  issue  of  Engineering   News-Record  (a  McGraw-Hill
publication),  all of the  top  ten,  24 of the  top 25 and 44 of the top 50 are
STAAD users.  In Engineering  News-Record's  most recent  biannual survey of the
structural engineering segment of the architectural engineering and construction
market, STAAD was ranked third in terms of usage and likelihood of purchase. The
first and second  ranked  software  were CAD  products  offered  by AutoCAD  and
Intergraph,  neither of which offer structural  engineering analysis and design.
While most of the users of STAAD are in the  structural  consulting  engineering
business, STAAD is also used by construction companies,  architects,  mechanical
constructors/fabricators,  government agencies, utilities,  petroleum producers,
facility development/maintenance groups and the manufacturing industry.

   In November  1997,  the Company  released  STAAD/Pro,  its  "next-generation"
structural engineering software. STAAD/Pro extends the range of STAAD to include
the entire  structural design process - modeling,  visualization,  verification,
analysis, design, detailing and drawing.

   The Company also offers STAAD Online, which provides all the functionality of
STAAD but is sold to the customer on a pay-per-use basis. A customer is provided
a package  free-of-charge,  which  includes  the  STAAD  input  generator,  post
processor software and all the necessary  utilities for remote  connection.  The
customer  uses the  STAAD  input  generator  to  create  an input  file  that is
transferred  to the  STAAD  Online  server,  via  modem,  for  processing.  Upon
completion of analysis,  the results are transferred  back to the customer's PC.
The  customer  is billed  based on the size of the input  file.  The Company has
positioned this product for the smaller  engineering firm which may only need to
utilize STAAD on a limited basis.

   The Company entered into a workflow integration  arrangement with Intergraph,
Inc., the industry's leading supplier of drawing and drafting software,  whereby
the two companies  developed  program  enhancements  that allow STAAD to operate
from within Intergraph products.  These enhancements  reinforce the two-way link
between the software  packages,  giving structural  engineers seamless access to
structural member data and a smoother workflow for modeling  structural members.
The first version of the integrated software was released in September 1997.

   During fiscal 1997, the Company expanded its structural  engineering  product
line with the addition of two new products:  Quick Structural  Engineering (QSE)
and STRUCTural  Engineering Tool Case  (STRUCT.etc).  QSE consists of a suite of
integrated analysis and design modules for frame structures.  Additionally,  QSE
provides the engineer  with a detailing  mode whereby a structural  model can be
quickly  transferred  into  a  complete   two-dimensional  or  three-dimensional
detailed  drawing.  STRUCT.etc  provides  customers  a  comprehensive  array  of
structural  component  design software tools ideal for the efficient  design and
analysis of steel, and concrete structures. Both QSE and STRUCT.etc are aimed at
the residential and light commercial market segments.

   During fiscal 1998, the Company began  distribution  of FabriCAD  Suite.  The
FabriCAD  Suite  for  Windows  95 or NT is a  complete  suite of  products  that
automate the fabrication process from Detailing to Production  Control.  Modules
are included for detailing,  estimating,  production control, inventory control,
and purchase  orders.  Sharing  resources  from a vast pool of  engineering  and
graphical  software  from the Company has allowed  FabriCAD to become a powerful
alternative to expensive detailing/fabrication software.

   During fiscal 1999 the Company  continued to enhance its  STAAD/Pro  product.
With its  applicability  to a broader range of  professionals in the engineering
and design process,  the Company has started to explore its corporate  licensing
program.


                                       7
<PAGE>


   Mechanical Engineering. The Company's mechanical engineering product line was
added in 1995 with the  acquisition  of  STARDYNE(R),  a general  purpose finite
element analysis  software.  STARDYNE(R) was the world's first commercial finite
element  analysis  software  and has been  serving  the  mechanical  engineering
segment of the industry since 1968. STARDYNE(R) has been enhanced and integrated
with other  products  of the Company  and is  currently  used by more than 2,000
companies  worldwide.  For example,  STARDYNE(R) has been used by: Rockwell,  to
analyze the Apollo  spacecraft  command  module;  Rocketdyne,  to analyze rocket
engines for the space shuttles;  and toy  manufacturers,  to design and test new
products.

   To enhance its mechanical engineering product line, the Company has developed
and  introduced  VISUAL SOLID,  a full-scale  three-dimensional  solid  modeling
software. VISUAL SOLID assists engineering professionals in developing an entire
three-dimensional  model on a PC. Based on the 32-bit  Windows/NT  environments,
VISUAL SOLID includes a  graphics-based,  intuitive,  easy-to-use  interface and
full-scale editing  facilities.  VISUAL SOLID's  comprehensive model development
facilities include,  among other facilities,  Boolean  operations,  shape change
operators,  parametric editing and part assemblies. In addition, VISUAL SOLID is
equipped  with its own  rendering  engine  and  engineering  drawing  generation
modules.  Fully  integrated with  STARDYNE(R),  VISUAL SOLID allows  engineering
professionals to automate the entire process of product design,  including model
development,  verification/visualization,  engineering  calculations  and design
drawings.

   The Company has also acquired  distribution rights to a product called FEMKIT
that  entered  the  Company  into the finite  element  modeling  market.  FEMKIT
provides a Windows native finite element engineering environment with interfaces
available for several popular third-party software products.

   Process/Piping Engineering. The Company's process/piping engineering product,
marketed  under the name  ADLPIPE,  is used in the analysis and design of piping
systems to obtain stresses and displacements  under pressure,  thermal and other
static/dynamic  loading  conditions.  The Company  acquired this technology from
ADLPipe,  Inc. in March 1996, and adapted the product to Windows,  making it the
industry's  first Windows native  process/piping  product.  Approximately  2,000
companies  currently use ADLPIPE,  worldwide.  Since its  introduction  in 1975,
ADLPIPE has been used worldwide by more than 20,000 users.

   Civil  Engineering.   The  Company's  civil  engineering  software  products,
marketed  under the name  CIVILSOFT,  address all aspects of civil  engineering,
including survey,  contour and digital terrain modeling,  hydraulics,  hydrology
and water/sewer  network design and analysis within AutoCAD.  In April,  1999 as
part of the company's  strategy for continued  expansion in its core businesses,
acquired  Seattle-based  PacSoft  Incorporated.   PacSoft  is  a  well-respected
developer  of  Windows(TM)-based,  3D civil  engineering  software  products and
integration tools for the engineering industry. The PacSoft acquisition not only
complements  the overall growth  strategy of our core  businesses  but, with the
integration of PacSoft's  CivilMaster(R) with Visio Corporation's  (Nasdaq:VSIO)
IntelliCAD product,  has greatly broadened our penetration into the new low cost
IntelliCAD  (computer  aided  design)  market.  PacSoft,  with more  than  2,200
installations  worldwide,  has an 18-year  history of  developing  and marketing
software for civil engineering and surveying applications.  The Company believes
that  its  civil  engineering  products  comprise  one  of the  industry's  most
versatile and  comprehensive  suites of civil engineering  software.  Over 7,500
companies  currently  use the  Company's  civil  engineering  software  products
worldwide, with more than 11,000 installations.

   Animation  Technology.  In fiscal 1998 the  Company  acquired  the  animation
technology assets of AXA Corporation, a private company that developed animation
technology for the entertainment  industry. The AXA products are currently being
distributed  as  stand-alone  products.  The animation  technology is also being
integrated into the Company's next generation engineering software.

Customers

   Research  Engineers  currently has over 19,000 customers  accounting for over
47,000 software installations and 140,000 concurrent users worldwide.  In fiscal
1999, 45% of the Company's  revenues were  generated from customers  outside the
United States.


                                       8
<PAGE>


Sales and Marketing

   The Company  markets and sells its  engineering  analysis and design software
products  through a direct sales approach  consisting of three distinct  phases.
First, the Company uses extensive print  advertising,  trade show  participation
and direct  mail  campaigns  to generate  sales  leads.  Second,  in response to
product  inquiries  generated  through these  activities,  the Company  provides
elaborate  evaluation/demonstration  software  packages  complete with full user
manuals and working programs. Finally, the Company's telesales professionals are
used  to  close  the  sales.  The  Company's  telesales  professionals  work  in
conjunction with the Company's  engineers in order to provide complete  coverage
of business and technical  issues in the sales cycle.  The Company believes that
this type of direct sales  approach,  using  extensive  demonstration  materials
prior to closing a sale,  is the best way to market its products to  engineering
professionals,  who typically require a full understanding of product capability
in making a purchase  decision.  The Company  also  utilizes  this type of sales
approach in connection  with its  marketing  and sales of product  enhancements,
upgrades  and new  products  to current  customers.  The  Company  continues  to
maintain  and  enhance  its  telesales  operation,  which  is used as a  closing
mechanism for converting leads to sales.  The Company has recently  undertaken a
"web marketing"  initiative to generate additional awareness for its products by
posting  banners  on  the  web  pages  of  professional  engineering  societies,
newsgroups and similar forums on the Internet.  The Company's  Internet strategy
includes providing on-line product demonstrations and on-line use (for a fee) of
the Company's products for discrete projects.

   The Company conducts sales and training seminars worldwide to provide current
and potential  customers with  additional  information  about its products.  The
highlight of the  Company's  fiscal 1999 seminar  activities  included a 21 city
STAAD/Pro  road show in North America to both existing and potential  customers.
In addition,  in association with its  distributors  and strategic  partners the
Company conducted training seminars in United Kingdom,  Japan, France,  Germany,
Scandinavia,  Singapore,  Malaysia,  Thailand,  Indonesia,  India,  Philippines,
Middle East, China and Mexico. Since 1987, the Company has also organized Annual
User  Conferences  for its  customers.  These  events,  which  are  attended  by
worldwide  users, are intended to serve as a forum for the exchange of ideas and
information.  The Company has also been  successful  in placing its  products in
various colleges and universities,  including Harvard University,  Massachusetts
Institute of Technology  and California  Institute of Technology,  as a means of
introducing its products to future generations of professionals.

   The Company  sells and  supports  its  products  internationally  through its
extensive   international   infrastructure,   consisting   of  branch   offices,
subsidiaries and representatives located worldwide.  Currently,  the Company has
numerous sales  representatives  and technical  support personnel located in the
United Kingdom, Germany, Japan, France,  Scandinavia,  Australia,  China, India,
Singapore,  Indonesia, Korea, Thailand,  Malaysia, South Africa, Mexico, Russia,
the  Middle  East  and  Latin  America.  Most  of the  Company's  foreign  sales
representatives  and  technical  support  personnel  are  local  nationals.  The
Company's  structural and civil  engineering  products allow customers to choose
from among eight major international languages and twelve local design codes.

Support and Training

   The Company  believes  that  providing  its  customers  with  direct  support
services helps ensure that customers  obtain the maximum benefits offered by its
products.  The Company  believes  that its  support  programs  also  enhance the
Company's relationships with customers. Purchasers of the Company's software are
typically  provided 120 days of product  support without charge and a multimedia
training  CD-ROM.  For support after the 120-day period,  customers can elect to
purchase  ongoing  support either on a one-year  contract basis or on an as-used
fee basis. To provide quality technical support  worldwide,  the Company employs
highly  qualified  engineers  and software  specialists  and  maintains  product
support  centers in the United States  (Orange  County,  California  and Boston,
Massachusetts),  United Kingdom, France, Germany, Scandinavia, Singapore, Japan,
China, India, Australia,  Indonesia,  Korea, Thailand,  Malaysia,  South Africa,
Mexico, Russia, the Middle East and Latin America. Many of the Company's support
professionals have advanced degrees. In addition,  the Company maintains a World
Wide Web site on the  Internet  and  provides  e-mail  technical  support to its
users.  Customers  also  receive a  technical  newsletter  which is  distributed
quarterly  by the Company  and is designed  primarily  to apprise  customers  of
technological enhancements and new products offered by the Company.


                                       9
<PAGE>


Product Development

   The Company  offers a broad range of products  that are designed to keep pace
with  technological  and regulatory  developments in the marketplace and address
the increasingly  sophisticated needs of its customers.  The Company continually
focuses on expanding its existing product line offerings with acquired, upgraded
and new products.  The Company  specifically  seeks  opportunities to expand its
product offerings through  acquisitions.  All of the Company's acquired products
are  incorporated  into the  Company's  product lines with the goal of providing
seamless  data  transfer  and  functional   integration.   Product   development
activities include,  among others, adding new engineering analysis capabilities,
implementing  new  design  codes,   enhancing  existing  engineering  databases,
developing new ease-of-use  features,  enhancing user  interfaces,  implementing
emerging  technologies,   exploiting  new  hardware  capabilities  and  platform
developments,   and  providing  improved  interfaces  with  related  third-party
products.

   The  Company's  product  development  group  includes  experts in  structural
engineering,   mechanical   engineering,   civil   engineering,   piping/process
engineering,  advanced  mathematical  techniques,  numerical  methods,  computer
graphics and operating system technology.  The Company has established  research
and development  facilities in the United States,  United Kingdom and India. The
Company's  overseas  offices  contribute  significantly  to the  development and
maintenance of local engineering design codes that are offered in certain of the
Company's products.  The Company's offshore research and development facility in
India is used to develop  certain core  technologies  that  require  significant
man-hours.  Due to the availability of skilled technical personnel at a fraction
of the cost  for  comparable  personnel  in the  United  States,  this  offshore
research and development  facility affords the Company the opportunity to obtain
substantially more development effort for equivalent dollars spent in the United
States.  The  Company  believes  that  the  use of  its  offshore  research  and
development facility provides a significant  competitive advantage. In addition,
the  Company  works  closely  with  leading   universities   in   computer-aided
engineering,  including  the  Massachusetts  Institute  of  Technology  and  the
University of Pennsylvania.  The Company has sponsored  research projects at and
procured  technologies  from  a  number  of  prominent   universities  including
Vanderbilt University and Worcester Polytechnic.

   The  Company  releases  enhanced  versions  of its  software  products  on an
on-going  basis.  The Company  works  closely with its existing and  prospective
customers to determine their  requirements  and to design  enhancements  and new
products to meet their needs. The Company believes that a substantial  number of
its product  enhancements in recent years have been developed as a result of the
ideas and suggestions of its customers.

   To ensure that the Company's  products meet the requirements of its users and
to ensure that the Company's  software  development,  validation and maintenance
processes meet applicable  regulatory  guidelines on software  development,  the
Company has  established  an extensive  quality  assurance  and quality  control
process.  Application  specialists,  who generally have advanced experience with
the Company's products, handle the "alpha" or internal testing of a new product,
while the "beta"  testing of a new product is conducted  both  internally and by
selected  customers and  consultants.  The Company has a separate  documentation
group that is dedicated to creating  and  updating  the  documentation  for each
product,   with  a  particular   emphasis  on  making  such  documentation  more
comprehensive and user-friendly.

   During  fiscal years 1999 and 1998,  the Company  spent $2.4 million and $2.1
million,  respectively,  on product research and development  activities.  These
amounts  represented 22.5% and 16.6%,  respectively,  of net revenues in each of
those years.

Technology

   The Company's  software products automate  engineering  calculations that are
performed by structural, mechanical, civil and process/piping engineers. The key
technology components of the Company's products are: (i) the mathematical models
of the system, (ii) the engineering  databases,  (iii) the numerical algorithms,
(iv) the software architecture,  (v) the graphical user environment and (vi) the
use of preferred operating systems.


                                       10
<PAGE>


   Mathematical  Models.  The  mathematical  model  in an  engineering  analysis
includes the geometry of the system,  physical  properties of the components and
external influences such as loads. The model of an engineering system such as an
industrial  building,  machine  component  or pipeline  may involve  hundreds or
thousands of algebraic equations that may be linear or non-linear depending upon
the nature of the problem.  The Company's  products are  comprehensive  in their
analysis and modeling capabilities. For example, STARDYNE(R) offers a wide range
of analysis  options that include  static,  dynamic,  second  order,  transient,
harmonic,  thermal, buckling, time history,  response/shock spectra, fatigue and
fracture analysis.  Similarly,  STAAD's comprehensive loading facilities include
static, dynamic,  seismic, second order, moving loads, wind loads, thermal loads
and loads due to movement of supports.  The models are based on the  fundamental
laws of physics and  mechanics,  including  static and dynamic  equilibrium.  In
addition,  the user is  allowed  extensive  control on the  analysis  and design
process through user specifiable parameters.

   Engineering  Databases.  The Company's  products are equipped with  databases
containing  engineering  properties of all relevant  commonly used materials and
structural sections.  For example,  STARDYNE(R)'s material library contains data
for 28  different  linear and  non-linear  materials  that can be used in a wide
range of industries including aerospace,  automotive,  power, machinery, energy,
mining,  marine and  manufacturing.  STAAD's  steel  section  databank  contains
properties of structural  sections from ten different  countries  throughout the
world.  The user can specify the required  data from the  engineering  databases
which saves  significant  modeling  time and  ensures  accuracy.  In  applicable
situations, the user is allowed to create and save data for customized use.

   Numerical  Algorithms.  Engineering  analysis  models  require  sophisticated
underlying  technology to solve large systems of linear/nonlinear  algebraic and
differential  equations.  Solving these  equations  accurately and in a time and
cost efficient manner is key to the success of any analysis project. The Company
believes  that its  technology  for solving these  equations  provides it with a
competitive  advantage.  A major focus of the Company's research and development
activities is the  maximization of the computer's  memory and storage  resources
for  numerical  solution  of  equations.  All of  the  Company's  products  have
benefited from proprietary  research and development  conducted in the fields of
numerical solutions, data compression/storage and disk caching technologies. The
solution  technology in  STARDYNE(R)  has been  developed  and perfected  over a
period of almost  thirty years since the product was first  introduced  in 1968.
Similarly,  the solution  techniques  used in STAAD,  ADLPIPE and CIVILSOFT have
been tested and proven in real life engineering projects for more than ten years
in each case.

   Software Architecture.  The Company's engineering software products are based
on the  principle  of  "concurrent  engineering."  Under this  methodology,  the
engineer  can  perform  all  the  functions  of  the  process,  such  as,  model
development,   analysis,   design,   visualization,   verification  and  drawing
generation in a "concurrent"  manner. An underlying  relational database unifies
the process and manages the flow of information  within the electronic loop. The
Company  believes  that this unique  blend of modern  database  technology  with
sophisticated   engineering  algorithms  provides  for  substantial  competitive
advantage.

   Graphical User Environment.  STAAD, QSE, FabriCAD,  STRUCT.etc,  STARDYNE(R),
CIVILSOFT, ADLPIPE and VISUAL SOLID are equipped with powerful and user-friendly
graphical user environments based on the principles of "concurrent engineering."
With  implementation  of modern  graphics,  CAD and database  technologies,  the
graphical  user  environment  provides  visual model  generation,  verification,
animation and extensive plotting/printing  facilities. The Company believes that
the visual  approach  implemented  in its  software  allows the  engineer  to be
significantly more productive and efficient.

   Operating Systems and Hardware  Platforms.  The Company supports its products
on a wide range of hardware platforms and operating systems. STAAD,  STARDYNE(R)
and ADLPIPE are  supported  on PCs and  UNIX-based  workstations  including  Sun
Microsystems,  Hewlett Packard, Digital Equipment Corporation, Silicon Graphics,
IBM, RISC and Intergraph,  while QSE, FabriCAD,  STRUCT.etc and VISUAL SOLID are
supported on PCs only.  All of the  Company's  products are  available in single
user, network-based and client-server modes. The Company believes that engineers
performing computer-aided  engineering analysis prefer operating systems similar
to Microsoft Windows.  The Company has released new versions of its products for
use on  32-bit  Windows/NT,  which are 32 bit  operating  systems  designed  for
network  servers,  high-end  personal  computers and  workstations.  The Company
believes  that  the  enhanced  speed,   memory   management   capabilities   and
multitasking  operation of the 32-bit Windows/NT operating systems make them the
best choice for the Company's technology-driven software products. The Company's
current  research and  development  efforts are focused on  developing  enhanced
versions of its current products to take full advantage of the 32-bit Windows/NT
and other emerging 32-bit operating systems.

                                       11
<PAGE>
Competition

   The  engineering  software  industry  is  intensely  competitive  and rapidly
changing.  A number of companies  offer products that target the same markets as
the Company.  Some of the Company's  competitors and potential  competitors have
larger  technical  staffs,  more  established  and  larger  marketing  and sales
organizations and significantly greater financial resources than the Company.

   The  principal  bases  for  competition  in  this  industry  include  product
functionality, product reliability,  price/performance characteristics,  ease of
product use, availability of products on popular computer platforms,  ability to
accurately model complex projects,  end-user support and documentation,  ability
to keep pace with  technological  advances,  corporate  reputation and financial
stability.  The  Company  believes  that its high  caliber  development  effort,
demonstrated  understanding  of the needs of the  engineering  design  industry,
ability to attract and retain  customers,  capability  to  develop,  acquire and
implement  emerging  technologies,  ability to  provide  technical  support  and
demonstrated  capability  to provide  attractive  price  points for its products
represent significant competitive advantages.

   The Company's  products  compete,  on occasion,  with analysis tools that are
internally developed by a number of engineering firms.  Increasingly,  companies
in the engineering design industry have come to recognize that it is inefficient
and  uneconomical  for them to  continue  to  develop  and  support  engineering
analysis  software  internally.  Many  of them  are  currently  replacing  their
internally  developed  software with commercial  engineering  analysis  software
tools, such as those provided by the Company.

   The Company believes that it competes favorably in the engineering design and
analysis market based upon the combination of technical power and ease-of-use of
its software  products,  its integrated  product line and its ability to provide
local  customer  support  on a direct  basis.  In order to  maintain  its market
leadership and competitive position,  the Company's intent is to continue (i) to
develop  its  solution   technologies,   (ii)  to  further  integrate   emerging
technologies (such as 3D solid modeling),  (iii) to enhance the scope of product
applications,  (iv) to focus on emerging  hardware/software  platforms  (such as
32-bit  Windows/NT  and other  emerging  32-bit  operating  systems)  and (v) to
improve upon the ease-of-use of its software products.

   There can be no assurance that competitors will not develop products that are
superior to the Company's  products or that achieve  greater market  acceptance.
The  Company's  future  success  will depend  significantly  upon its ability to
increase  its  market  share  and  license   additional   products  and  product
enhancements to existing  customers.  There can be no assurance that the Company
will  be able to  compete  successfully  or that  competition  will  not  have a
material adverse effect on the Company's results of operations.

Intellectual Property and Proprietary Rights

   The  Company  relies  primarily  on a  combination  of  contract,  copyright,
trademark  and trade secret laws,  license and  confidentiality  agreements  and
software  security measures to protect its proprietary  technology.  The Company
distributes its products under "shrink-wrap" software license agreements,  which
grant  end-users  licenses to (rather than ownership of) the Company's  products
and which contain various provisions intended to protect the Company's ownership
and  confidentiality of the underlying  technology.  In addition,  the Company's
software is distributed  with a third-party  "hardware lock" to ensure copyright
protection.  The Company also  requires all of its  employees  and other parties
with access to its confidential  information to execute  agreements  prohibiting
the unauthorized use or disclosure of the Company's technology. In addition, the
Company  periodically  reviews its  proprietary  technology  for  patentability,
although the Company does not have any current  patents,  with the  exception of
two  patents  acquired  as  part  of  the  AXA  asset  purchase.  Despite  these
precautions,  the Company believes that existing laws provide limited protection
for the  Company's  technology  and that it may be possible for a third party to
misappropriate  the Company's  technology or to  independently  develop  similar
technology. In addition, effective copyright and trade secret protection may not
be  available  in every  jurisdiction  where the Company  distributes  products,
particularly  in foreign  countries where the laws generally offer no protection
or less  protection  than those of the United  States.  Moreover,  "shrink-wrap"
licenses,  which are not signed by the end-user, may be unenforceable in certain
jurisdictions.

                                       12
<PAGE>

   The Company believes that, due to the rapid pace of technological  innovation
and change  within the  engineering  industry,  legal  protections  afforded the
Company's  technology are less  significant in affecting the Company's  business
and results of  operations  than factors such as the  reputation of the Company,
the  knowledge,  ability and experience of Company  personnel,  the frequency of
product  enhancements  and the timeliness and quality of the Company's  customer
service and support.

   The Company is not engaged in any material  disputes  with other parties with
respect  to  the  ownership  or use of  the  Company's  proprietary  technology.
However, there can be no assurance that other parties will not assert technology
infringement  claims against the Company in the future. The litigation of such a
claim may involve significant  expense and management time. In addition,  if any
such claim were  successful,  the  Company  could be  required  to pay  monetary
damages  and may also be  required  to  either  refrain  from  distributing  the
infringing product or obtain a license from the party asserting the claim (which
license may not be available on commercially reasonable terms). As the number of
software  products in the  industry  increases  and the  functionality  of these
products  further  overlap,  the Company  believes that software  developers may
become increasingly subject to infringement claims.

   STAAD, QSE, FabriCAD,  STRUCT.etc,  CIVILSOFT, ADLPIPE and VISUAL SOLID are
trademarks  of  the  Company.  STARDYNE(R)  and  CIVILMASTER(R)  are  registered
trademarks of the Company.

Employees

   As of March  31,  1999,  the  Company  had 270  employees,  of which 265 were
full-time  employees,  including 46 in product  development  and related support
services, 75 in IT consulting,  18 in digital media production,  44 in sales and
marketing and 82 in finance and  administration.  90 of the Company's  full-time
employees   were   located   in  the  United   States   and  175  were   located
internationally.

ITEM 2.  DESCRIPTION OF PROPERTY.

   The   Company's   corporate   headquarters   are  located   in  Yorba  Linda,
California,  in a  company-owned  facility  consisting of  approximately  41,000
square  feet of office and  warehouse  space.  In  February  1999,  the  Company
borrowed $2,320,000 under a line of credit with Imperial Bank expiring September
2000.  Monthly interest is payable at 3.0% over the bank's prime rate (10.75% at
March 31, 1999) and any remaining  outstanding  principle  borrowings are due at
maturity.  In March 1997,  the Company  borrowed  $1,800,000  from Union Bank of
California.  The loan is payable in equal monthly installments of principal plus
interest  at 2.25%  over the LIBOR  Base Rate  (7.33% at March 31,  1999) with a
balloon payment due at maturity in April 2007. The current  principal balance at
March 31, 1999 was $1,723,000. Both loans are secured by the Company's corporate
headquarters in Yorba Linda, California.

   The Company  owns a recently  constructed  22,000  square foot  research  and
development facility in Calcutta,  India. In addition, the Company leases office
space in various other  locations  domestically  and  internationally  where its
operations are located.  The Company  believes that its existing  facilities are
adequate to meet its current needs and that suitable  additional or  alternative
space will be available in the future on commercially reasonable terms.

ITEM 3.  LEGAL PROCEEDINGS.

   The Company is not presently involved in any legal proceedings.

ITEM  4.  SUBMISSION  OF  MATTERS  TO A  VOTE  OF  SECURITY
HOLDERS

   During the quarter ended March 31, 1999,  no matters were  submitted for vote
to the Company's common stockholders.

                                       13
<PAGE>



                          PART II

ITEM 5. MARKET FOR COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS.

   The  Company's  Common  Stock has been traded on the Nasdaq  National  Market
(ticker symbol RENG) since July 26, 1996 when the Company  completed its initial
public offering of 1,495,000 shares of Common Stock. Prior to the initial public
offering, the Company's Common Stock was not publicly traded.

   As of June 23,  1999,  there were  approximately  67 holders of record of the
Company's  Common Stock.  Within the holders of record of the  Company's  Common
Stock are brokerage  firms which,  in turn,  hold shares of stock for beneficial
owners.

   The Company has  reinvested  earnings in the  business and has never paid any
dividends to holders of the Company's  Common Stock. The declaration and payment
of  dividends  are at the sole  discretion  of the Board of  Directors  and will
depend upon the Company's profitability, financial condition, cash requirements,
future prospects and other factors deemed relevant by the Board of Directors.

   The high and low  closing  sales  prices of a share of the  Company's  Common
Stock,  as reported by The NASDAQ  National  Market,  for each quarter of fiscal
1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                   Fiscal         Fiscal
                                                    1999           1998
                                                -------------  -------------
                                                 Low    High    Low    High
                                                -------------  -------------
     <S>                                        <C>     <C>    <C>     <C>
     1st  Quarter (April 1 - June 30)           $5.00   $7.19  $2.63   $4.13
     2nd Quarter (July 1 - September 30)         4.50    6.13   3.00    4.25
     3rd Quarter (October 1 - December 31)       3.00    4.94   2.63    4.00
     4th Quarter (January 1 - March 31)          3.00    8.75   2.50    6.13
</TABLE>





                                       14
<PAGE>


ITEM   6.   MANAGEMENT'S   DISCUSSION   AND   ANALYSIS   OF
FINANCIAL CONDITION AND RESULTS OF OPERATION.

General

   Research Engineers,  Inc. is a leading provider of  technically-sophisticated
stand-alone  and  network-based   engineering  software  products  that  provide
fully-integrated easy-to-use design automation and analysis solutions for use by
engineering   analysis  and  design  professionals   worldwide.   The  Company's
comprehensive  line of  Windows-based  engineering  software  products  includes
STAAD,  the  Company's  structural  analysis  and  design  software,  as well as
mechanical,   civil  and  process/piping  engineering  products.  The  Company's
software  products assist  engineers in performing a myriad of  mission-critical
engineering tasks, including the analysis and design of industrial,  commercial,
transportation  and utility  structures,  pipelines,  machinery,  automotive and
aerospace  products,  and  survey,  contour  and digital  terrain  modeling.  In
addition, as a result of the acquisition of R-Cube in February 1999, the Company
has  expanded  into  the $90  billion  information  technology  ("IT")  services
industry,  providing  expertise  in  data-mining  and embedded  technologies  to
Internet/Intranet  design and  communications.  Also,  in April 1999 the Company
announced that it has launched the first of several  e-commerce special interest
portals  targeting  the 90 million  expatriates  of the Asia Pacific  region now
living throughout Europe and North America.

   From inception to 1985,  STAAD-III was offered primarily through time-sharing
services.  The Company began marketing its products directly to users in 1985 in
connection  with the  Company's  release of the first  PC-version  of STAAD-III.
During  1986,   the  Company  began  its   international   expansion   with  the
establishment  of a  United  Kingdom  affiliate.  An  additional  affiliate  was
established in India during the same year in conjunction with the  establishment
of the  Company's  offshore  research  and  development  facility.  The  Company
acquired  both of  these  commonly-controlled  affiliates  in  fiscal  1996.  In
November  1995,  the Company  acquired its German  distributor,  EGIS GmbH,  and
established its German subsidiary,  Research Engineers GmbH. In October 1998 the
Company  established  its subsidiary in France,  Research  Engineers,  SARL. The
Company   currently  has  branch   offices,   subsidiaries,   distributors   and
representatives in the United States,  United Kingdom,  Germany,  Japan, France,
Scandinavia,  Australia,  China, Singapore,  India, Indonesia,  Korea, Thailand,
Malaysia, South Africa, Mexico, Russia, and the Middle East and Latin America.

   In June 1995, the Company began a program to expand its products and services
offerings by first  acquiring the rights to the  STARDYNE(R)  software  product,
which  enabled the Company to expand into the  mechanical  engineering  software
market.  In March 1996,  the Company  acquired all of the assets and assumed the
business of ADLPipe,  Inc., a  Massachusetts-based  developer of  process/piping
engineering  software.  In addition, in fiscal 1997 the Company purchased all of
the  outstanding  stock  of QSE  (Bristol)  Limited,  a  structural  engineering
software  manufacturer  and  marketer,  and acquired  rights to STRUCT etc. from
Intrasoft,  Inc. QSE's  structural  engineering  product and STRUCT etc. further
extended the Company's core product line by addressing the lower-end residential
and light  commercial/industrial  construction  market segment. In October 1997,
the Company  acquired the  animation  technology  assets of AXA  Corporation,  a
private  company  that  developed  animation  technology  for the  entertainment
industry.  In October 1998 the Company acquired the assets of Techna Consultancy
located  in  India,  and  also  the  assets  of  Calcutta  On  Line.  These  two
acquisitions  are providing the expertise for the Company's  expansion  into the
digital media and e-commerce  businesses.  In February 1999 the Company acquired
the stock of R-Cube  Technologies,  Inc., a Silicon  Valley based provider of IT
services to the leading  technology  corporations  with a focus on Internet  and
Intranet applications. In March 1999, the Company purchased the stock of PacSoft
Incorporated,  a Seattle based provider of 3D civil  engineering  products under
the trade name CivilMaster(R). The PacSoft acquisition has been accounted for as
a pooling of interests and,  accordingly  the Company's  financial  position and
results of  operations  for fiscal  1998 and 1999 have been  restated to include
PacSoft for these periods.

   The Company  derives its revenues  principally  from sales of its engineering
software  products and, to a lesser extent,  from sales of software  maintenance
contracts  relating to its products.  Software  product  revenues are recognized
upon shipment. Product maintenance revenues are amortized over the length of the
maintenance contract, which is usually twelve months. With the expansion into IT
services in late fiscal 1999, it is expected  that a significant  portion of the
Company's revenues will be derived from that source in the future. Revenues will
be recognized as the services are performed. Inflation has not had a significant
impact on the Company's  operating  results to date, nor does the Company expect
it to have a significant  impact during fiscal 2000. As the Company continues to
expand its international operations, its exposure to gains and losses on foreign
currency  transactions  continues  to  increase.  The Company  plans to consider
limiting  such  exposure by the purchase of forward  exchange  contracts  and/or
hedging all material foreign currency-denominated  receivables by specific hedge
contracts.

                                       15
<PAGE>

Results of Operations

   The following table sets forth, for the periods indicated,  certain statement
of income data expressed as a percentage of net revenues.

<TABLE>
<CAPTION>
                                                       Year Ended March 31,
                                                         1999        1998
    <S>                                                 <C>         <C>
    Net revenues                                        100.0 %     100.0 %
    Cost of revenues                                     10.7 %       6.7 %

    Gross profit                                         89.3 %      93.3 %
                                                       ---------  ---------

    Selling, general and administrative expenses         71.0 %      72.6 %
    Research and development expenses                    22.5 %      16.6 %
    In-process research and development expenses          0.0 %       3.5 %

    Operating income (loss)                              (4.2)%       0.6 %

    Interest, net                                        (1.8)%       0.4 %
    Other income                                          0.5 %       0.4 %
                                                       ---------  ---------

    Income (loss) before income taxes                    (5.5)%       1.4 %

    Provision (benefit) for income taxes                 (0.7)%       0.6 %
                                                       ---------  ---------

    Net income (loss)                                    (4.8)%       0.8 %
                                                       =========  =========
</TABLE>


   Net Revenues. Net revenues for the fiscal year ended March 31, 1999 decreased
by $1,987,000 (15.6%) to $10,745,000,  as compared to $12,731,000 for the fiscal
year ended March 31, 1998.  The  Company's  total  revenues  consist of software
product sales and software maintenance, support and IT services. As a percentage
of total revenues,  software product revenues  represented  77.7% for the fiscal
year ended  March 31,  1999 down from 85.7% for the fiscal  year ended March 31,
1998.  The Company's  maintenance,  support and services  revenues  increased by
$573,000  (31.4%) to  $2,400,000,  as compared to $1,826,000 for the fiscal year
ended March 31, 1998,  primarily due to $435,000 of IT services revenue relating
to the Company's acquisition of R-Cube in February 1999.

   The decrease in net revenue was primarily attributable to: (1) the decline in
economic  conditions  in Southeast  Asia that started  during the latter part of
fiscal 1998, which was partially offset by increased revenues in India resulting
from the acquisition of Techna (revenues to Southeast Asia represented  16.7% of
revenue in fiscal 1999 as compared to 25.7% for fiscal 1998), and (2) a decrease
in the sales from Europe  primarily  the result of the poor  performance  by the
Company's  distributor  in Germany.  The decreases in Southeast  Asia and Europe
were  offset  slightly  by  the  IT  service  revenue  relating  to  the  R-Cube
acquisition.  International  net revenues as a percentage  of total net revenues
were 45.1% for the fiscal year ended March 31, 1999 as compared to 53.6% for the
fiscal year ended March 31, 1998.

   Revenues are derived largely from sales of the Company's engineering software
products and, to a lesser extent, from sales of software  maintenance  contracts
relating  to  its  products.  Software  product  revenues  are  recognized  upon
shipment.  In  accordance  with  the  American  Institute  of  Certified  Public
Accountants  ("AICPA")  Statement of Position  ("SOP")  97-2,  Software  Revenue
Recognition,  issued in 1997,  which  supercedes SOP 91-1,  product  maintenance
revenues are amortized  over the length of the  maintenance  contract,  which is
usually  twelve  months.  The  implementation  of SOP 97-2 did not result in any
material changes from the Company's previous practice. SOP 97-2 has been amended
by SOP  98-9,  Modification  of SOP 97-2,  Software  Revenue  Recognition,  With
Respect to Certain  Transactions,  which is effective for fiscal years beginning
March 15, 1999.  Application of this accounting standard is not expected to have
a material impact on the Company's results of operations.  Additional revenue is
derived from providing IT services.  The revenue  resulting from providing these
services is recognized as the services are performed.

                                       16
<PAGE>

   The Company's domestic revenues and sales to foreign customers  originated in
the U.S. are denominated in U.S. Dollars. However, revenues and expenses for the
Company's  foreign  subsidiaries  and sales offices are usually  recorded in the
applicable  foreign currency and translated with any applicable foreign exchange
adjustments.  There were no foreign exchange gains or losses which were material
to the Company's  financial results during the fiscal years ended March 31, 1999
and 1998.

   Gross profit. Gross profit decreased as a percentage of net revenues by 4.0 %
to 89.3% for the fiscal  year ended  March 31, 1999 as compared to 93.3% for the
fiscal year ended March 31, 1998. This decrease was attributable to the decrease
in sales volume  combined with an increase in cost of revenues  primarily due to
the costs of providing IT services resulting from the R-Cube acquisition.  Costs
of goods sold are not normally  significant  as a percentage of net revenues due
to the nature of the Company's products.

   Selling,   general  and   administrative   expense.   Selling,   general  and
administrative  expense  decreased by  $1,608,000  (17.4%) to  $7,630,000 in the
fiscal year ended March 31, 1999 as compared to  $9,238,000  for the fiscal year
ended March 31, 1998,  and  decreased as a percentage of net revenues from 72.6%
to 71.0%.  Selling  expenses  decreased  as a result  of the  lower  commissions
associated  with the lower net  revenues in the  oversees  markets.  General and
administrative  expenses  decreased  slightly  in 1999 even  though the  Company
incurred  non-recurring  costs related to terminated  acquisitions  of $296,000,
increased  costs in India related to the Techna  operations  and the start-up of
the recently announced Digital Media Group and costs resulting from the acquired
R-Cube  business.  These costs were  offset by a decrease  in bad debt  expense,
$150,000  in fiscal year 1999  compared  to  $315,000  in fiscal year 1998,  and
decreases  in a number  of other  expenses,  none of  which by  themselves  were
significant.

   Research and development expense.  Research and development expense increased
by $299,000  (14.2%) to  $2,415,000  for the fiscal year ended March 31, 1999 as
compared to $2,116,000  for the fiscal year ended March 31, 1998,  and increased
as a percentage  of net revenues to 22.5% from 16.6%.  Research and  development
expenses  consist  primarily  of software  developers'  wages.  The increase was
primarily  attributable  to the addition of research and  development  personnel
beginning in the latter part of fiscal 1998 in the United  States and India as a
result of bringing the Company's STAAD/Pro product to market.

   In-process research and development.  The in-process research and development
expense for the fiscal year ended March 31, 1998 relates to the  acquisition  of
the animation software assets of AXA Corporation  during October 1997.  Included
in the assets  acquired  were  costs of  $450,000  of  in-process  research  and
development.  In the opinion of management, the technological feasibility of the
acquired  development  had not yet been  established  and the  technology had no
future alternative uses at the time of the acquisition,  and accordingly,  these
amounts were expensed in the period of  acquisition.  There were no acquisitions
in the  fiscal  year ended  March 31,  1999 which  resulted  in a  corresponding
expense.

   Other  income.  Net  interest  expense was $191,000 for the fiscal year ended
March 31,  1999,  as compared to net  interest  income of $45,000 for the fiscal
year ended March 31, 1998.  The  decrease in interest  income is the result of a
decline  in the  Company's  short-term  investment  balances,  combined  with an
increase in  interest  expense  due to an  increase  in  capitalized  leases for
equipment  purchased during the fiscal year and the interest associated with the
line of credit used to acquire R-Cube.

   Income taxes.  Income tax expense  decreased by $143,000 due to an income tax
benefit of $71,000 in the fiscal  year ended  March 31,  1999 as  compared to an
income tax  expense of $72,000 for the fiscal  year ended  March 31,  1998.  The
benefit is  primarily  the result of a pretax  loss in the United  States.  As a
result,  the Company  increased its deferred tax asset during the fiscal year by
$285,000  and  believes  that  this  asset  will be  realizable  against  future
earnings.

                                       17
<PAGE>

Liquidity and Capital Resources

   The  Company   currently   finances   its   operations   (including   capital
expenditures)  primarily  through cash flows from operations as well as its cash
and cash equivalents.  The Company's principal sources of liquidity at March 31,
1999 consisted of $2,011,000 of cash.

   The  increase in cash used in  operations  during the fiscal year ended March
31, 1999 was primarily a result of the net loss for the year. Additional factors
contributing to the decrease in cash and investments  were increases in accounts
receivable and other assets,  offset by increases in accounts  payable,  accrued
expenses, bank debt and capital lease obligations.

   The increase in the amount of cash used in investing activities was primarily
attributable  to  the  acquisitions  of  R-Cube,  Techna  and  Calcutta  Online.
Additional cash was expended for capital  expenditures,  largely attributable to
the  construction  of a new  facility  in India and the  start-up of the Digital
Media Group.  These  expenditures were offset partially by net proceeds from the
sale of short term investments.

   The  Company's  primary source  of financing  cash flows has been  borrowings
from banks.  The Company has a $2,320,000 line of credit with Imperial Bank. The
line of credit  bears  interest at the prime rate plus 3.0% (10.75% at March 31,
1999) and is  collateralized  by substantially  all of the assets of the Company
and is guaranteed by a major shareholder. The line expires September 2000. As of
March  31,  1999,  the  entire  line of  $2,320,000  was  used to  complete  the
acquisition of R-Cube.

   In March 1997, the Company borrowed $1,800,000 from Union Bank of California.
These  borrowings are secured by the Company's  corporate  headquarters in Yorba
Linda,  California.  The  loan is  payable  in  equal  monthly  installments  of
principal  plus  interest  at 2.25% over the LIBOR Base Rate (7.33% at March 31,
1999) with a balloon payment due at maturity in April 2007.

   The Company  believes  that its current  cash and cash  equivalents  and cash
generated from  operations  will provide  adequate  working  capital to fund the
Company's operations at currently  anticipated levels through at least March 31,
2000. To the extent that such amounts are  insufficient to finance the Company's
working capital  requirements,  the Company will be required to raise additional
funds  through  public or  private  equity or debt  financings.  There can be no
assurance that such additional  financings will be available,  if needed, or, if
available, will be on terms satisfactory to the Company.

Outlook

   Certain   statements   contained  in  this  "Outlook"  are   "forward-looking
statements" that involve risks and  uncertainties.  The actual future results of
the Company could differ  materially from these  statements.  Factors that could
cause or contribute to such differences  include,  but are not limited to, those
discussed in this  report,  uncertainties  regarding  market  acceptance  of new
products and product  enhancements,  delays in the introduction of new products,
and risks associated with managing the Company's growth.

   The Company's operating results have fluctuated in the past and may fluctuate
significantly in the future. Future results could be impacted by factors such as
customer order delays, a slower growth rate in the market, increased competition
or adverse  changes in general  economic  conditions  in any of the countries in
which the Company does  business.  While no single  customer  accounted for more
than 10% of revenues,  the loss of a major  distributor or a reduction in orders
from a major  distributor  could  have a  significant  impact on the  results of
operations in any particular quarter.

   A significant portion of the Company's revenue is from international markets,
particularly  the  Asia-Pacific  market.  The Company  anticipates that sales to
customers outside the U.S. will continue to account for a significant portion of
its  total  revenues  in the  foreseeable  future.  As a result,  the  Company's
financial  results could be impacted by weakened  general  economic  conditions,
such as the recent  condition in Southeast  Asia as discussed  above,  differing
technological  advances or  preferences,  volatile  foreign  exchange  rates and
government trade restrictions in any country in which the Company does business.
The Company has been able to bill most of its  international  customers  in U.S.
currency,  significantly  limiting the foreign exchange risk. However, there can
be no assurance that the Company will be able to continue this practice as sales
to international customers grow.

                                       18
<PAGE>

   The Company has increasingly  relied on distributors and  representatives  to
market its products,  particularly  in the  Asia-Pacific  market.  The Company's
revenue in any  particular  quarter may be  negatively  impacted by a lower than
anticipated  performance of any significant  distributor or representative.  The
Company does not offer a right of return to distributors or representatives. The
Company  does,  however,  provide  extended  payment  terms  (up to 90 days) and
commissions to these  distributors and  representatives.  Commissions range from
20% to 70% of gross sales.  These  commissions  are recorded at the time of sale
and  are  reflected  in  selling  expenses  in the  consolidated  statements  of
operations. Sales in other regions (North America and Europe) are generally made
without  commissions.  The Company continues to assess the costs and benefits of
continuing to offer these  commissions and to evaluate means whereby the amounts
can be reduced.  Means by which commissions may be reduced include,  but are not
limited to, opening additional  foreign sales offices,  establishing new foreign
subsidiaries  and  renegotiating   current   commission   amounts  with  foreign
distributors and representatives. The Company may, however, find it necessary in
the future to  continue  to provide  commissions  at current  levels or possibly
increase them in order to expand  international  sales,  which could  negatively
impact operating income.

   The  Company's  success is  dependent  on its ability to continue to develop,
enhance and market new products to meet its customers'  sophisticated needs in a
timely manner and which are consistent with current technological  developments.
The Company is  committed to new product  development  and this  commitment  has
already  resulted  in new  sources of revenue.  For  example,  in April 1999 the
Company announced that it has launched the first of several  e-commerce  special
interest portals targeting the 90 million  expatriate  professionals of the Asia
Pacific region now living throughout Europe and North America.

   The  Company's  success  also  depends in part on its  ability to attract and
retain technical and other key employees who are in great demand, to protect the
intellectual  property rights of its products and to continue key  relationships
with  third-party  developers.  The CAD and Computer Aided  Engineering  ("CAE")
software  industry is highly  competitive.  The entire  industry may  experience
pricing  and  margin  pressure  which as a result  could  adversely  affect  the
Company's operating results and financial position. In addition,  certain of the
Company's expenses are based, in part, on its future revenue  expectations.  The
Company  continues to increase its operating  expense levels to meet the growing
customer  demand for the Company's  products and  services.  If revenue is below
expectations,  operating results could be adversely and materially affected. Net
income may be disproportionately  affected by an unexpected reduction in revenue
because certain expenses are generally committed in advance.

   To expand its  markets,  the  Company's  business  strategy  includes  growth
through  acquisitions.  For  instance,  through  the  acquisition  of  R-Cube in
February  1999,  the  Company  has  expanded  into the $90  billion IT  services
industry.  Identifying and pursuing  acquisition  opportunities  and integrating
acquired  products and  businesses  requires a significant  amount of management
time and  skill.  There can be no  assurance  that the  Company  will be able to
identify  suitable  acquisition   candidates,   consummate  any  acquisition  on
acceptable  terms or  successfully  integrate  any  acquired  business  into the
Company's operations. There also can be no assurance that any future acquisition
will  not  have  an  adverse  effect  upon  the  Company's   operating  results,
particularly in the fiscal quarters  immediately  following  consummation of the
acquisition  while the acquired  business is being integrated into the Company's
operations.

   The trading price of the Company's stock,  like other software and technology
stocks,  is subject to  significant  volatility  due to  factors  impacting  the
overall market which are unrelated to the Company's performance.  The historical
results of operations and financial  position of the Company are not necessarily
indicative of future financial performance. If revenues or earnings fail to meet
securities analysts' expectations, there could be an immediate and significantly
adverse impact on the trading price of the Company's common stock.

   The Company has not  experienced a material  adverse  impact of such risks or
uncertainties,  with the exception of those discussed above. No assurance can be
given that these risks and  uncertainties  will not affect the Company's  future
results of operations or its financial position.

                                       19
<PAGE>


Impact of Year 2000

   Many existing  software  programs use only two digits to identify the year in
the date field.  If such programs are not  corrected,  date data  concerning the
Year 2000 could cause many computer  applications  to fail,  lock-up or generate
erroneous results.

   The  Company has identified  its mission-critical systems related to the Year
2000 and has  committed the  resources  necessary to resolve any potential  Year
2000 issues. This identification and assessment also involved  identification of
vendors that may have a significant impact on the Company's operations and their
expected completion of any conversions.  Although the Company is addressing such
issues in what it considers to be sufficient time prior to the century rollover,
there can be no assurance  that there will be no  interruption  of operations or
other  limitations of system  functionality,  or that the Company will not incur
substantial costs to avoid such occurrences.  The Company has determined that it
will not need to modify or replace significant  portions of its software sold to
customers,  as it does not  contain  any  date-specific  material,  and does not
believe its significant vendors will require  significant  modification of their
internal systems.

   The  Company's  systems (both IT and non-IT),   equipment and processes  were
substantially  Year 2000  ready by the end of March  1999.  The  actual  cost of
remediation is approximately  $250,000,  most of which represents lease payments
for software that will be paid ratably  through  2002.  The Company is currently
working on its contingency plan for Year 2000 issues, which is expected to be in
place by the end of July 1999.

   In addition, the Company has initiated  communications  with  its significant
suppliers  and large  customers to determine  the extent to which the  Company's
internal  applications and other interface systems are vulnerable to those third
parties' failure to remedy their own Year 2000 issues. There can be no assurance
that other companies' systems on which the Company's systems rely will be timely
converted  and would not have an adverse  effect on the Company's  systems.  The
most  reasonably  likely  worst  case  scenario  would  be  that  the  Company's
significant  customers'  inability  to remedy  their own Year 2000 issues  would
prevent them from purchasing the Company's products.

Impact of Recently Issued Accounting Standards

   In 1998  the American  Institute  of Certified Public  Accountants  ("AICPA")
issued  Statement of Position ("SOP") 98-9,  Modification of SOP 97-2,  Software
Revenue Recognition,  With Respect to Certain  Transactions,  which modifies SOP
97-2, Software Revenue  Recognition,  to allow for use of the residual method of
revenue  recognition  provided that certain  criteria have been met. SOP 98-9 is
effective  for fiscal  years  beginning  March 15,  1999.  The Company  does not
believe  that the  adoption  of this  accounting  standard  will have a material
impact on the Company's results of operations.

   In June 1998,  the Financial Accounting Standards Board issued SFAS  No. 133,
Accounting for Derivative Instruments and Hedging Activities.  The provisions of
the statement  require the  recognition  of all  derivatives as either assets or
liabilities  in the  consolidated  balance  sheet and the  measurement  of those
instruments  at fair value.  The  accounting  for the changes in fair value of a
derivative  depends on the  intended  use of the  derivative  and the  resulting
designation. The Company is required to adopt the statement in the first quarter
of fiscal  year 2001.  The  Company  is  currently  studying  the impact of this
pronouncement on its financial  statements but has not yet determined the impact
on its results of operations.

   In 1998,  the  AICPA issued SOP 98-1,  Accounting  for the Costs  of Computer
Software  Developed  or Obtained  for  Internal  Use,  which  provides  guidance
concerning  recognition and  measurement of costs  associated with developing or
acquiring  software for internal  use. In 1998,  the AICPA also issued SOP 98-5,
Reporting  on  the  Costs  of  Start-up  Activities,   which  provides  guidance
concerning the costs of start-up  activities.  For accounting  purposes start-up
activities are defined as one-time activities related to opening a new facility,
introducing a new product or service,  conducting business in a new territory or
with a new class of customer,  initiating a new process in an existing facility,
or  commencing  some  new  operation.  Both  pronouncements  are  effective  for
financial  statements of years  beginning  after December 31, 1998, with earlier
application  encouraged.  The Company  does not believe  that  adoption of these
pronouncements will have a material impact on its financial statements.

                                       20
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS.



        Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<C>   <S>                                                              <C>
1.    Independent Auditors' Report                                     22

2.    Consolidated Financial Statements

          Consolidated Balance Sheet as of March 31, 1999              23

          Consolidated Statements of Operations for the years
          ended March 31, 1999 and 1998                                24

          Consolidated Statements of Stockholders' Equity and
          Comprehensive Income (Loss) for the years ended
          March 31, 1999 and 1998                                      25

          Consolidated Statements of Cash Flows for the years
          ended March 31, 1999 and 1998                                26

          Notes to Consolidated Financial Statements                   28
</TABLE>


                                       21
<PAGE>













               INDEPENDENT AUDITORS' REPORT



The Board of Directors
Research Engineers, Inc.:


We have audited the  consolidated  financial  statements of Research  Engineers,
Inc. and subsidiaries as listed in the accompanying  index.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Research Engineers,
Inc. and  subsidiaries as of March 31, 1999, and the results of their operations
and their cash flows for the years ended March 31, 1999 and 1998,  in conformity
with generally accepted accounting principles.



                        /s/ KPMG LLP




Orange County, California
May 17, 1999





                                       22
<PAGE>


         RESEARCH ENGINEERS, INC. AND SUBSIDIARIES

                Consolidated Balance Sheet

                      March 31, 1999

    (In thousands, except share and per share amounts)



<TABLE>
<CAPTION>
                          Assets
<S>                                                          <C>
Current assets:
  Cash and cash equivalents                                  $   2,011
  Accounts receivable (net of allowance for
   doubtful accounts of $356)                                    2,924
  Deferred income taxes                                          1,041
  Notes and related party loans receivable                          50
  Prepaid expenses and other current assets                        588
                                                              ---------

      Total current assets                                       6,614

Property, plant and equipment, net                               4,078
Goodwill and intangible assets (net of
  accumulated amortization of $854)                              3,279
Other assets                                                       791
                                                              ---------

                                                             $  14,762
                                                              =========

           Liabilities and Stockholders' Equity

Current liabilities:
  Current portion of long-term bank debt                     $      66
  Current portion of capital lease obligations                     102
  Accounts payable                                                 432
  Accrued expenses                                                 830
  Income taxes payable                                             412
  Deferred maintenance revenue                                   1,090
  Other                                                             12
                                                              ---------

      Total current liabilities                                  2,944

Long-term bank debt, net of current portion                      4,474
Capital lease obligations, net of current portion                  464
Deferred income taxes                                              290
                                                              ---------

      Total liabilities                                          8,172
                                                              ---------

Commitments (Note 8)

Stockholders' equity:
  Preferred stock, par value $.01.  Authorized
   5,000,000 shares; issued and outstanding none                     -
  Common stock, par value $.01.  Authorized 20,000,000
   shares; issued and outstanding 5,738,210 shares                  57
  Additional paid-in capital                                     6,623
  Retained earnings                                                176
  Accumulated other comprehensive loss:
   Cumulative foreign currency translation adjustments            (266)
                                                              ---------

      Total stockholders' equity                                 6,590
                                                              ---------

                                                             $  14,762
                                                              =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       23
<PAGE>


           Consolidated Statements of Operations

            Years ended March 31, 1999 and 1998

    (In thousands, except share and per share amounts)



<TABLE>
<CAPTION>
                                                1999            1998
                                             ----------      ----------
<S>                                           <C>             <C>
Net revenues:
  Product sales                               $  8,345        $  10,905
  Maintenance, support and services              2,400            1,826
                                              ---------        ---------

      Total net revenues                        10,745           12,731

Cost of revenues                                 1,150              854
                                              ---------        ---------

      Gross profit                               9,595           11,877
                                              ---------        ---------

Operating expenses:
  Selling, general and administrative            7,630            9,238
  Research and development                       2,415            2,116
  In-process research and development                -              450
                                              ---------        ---------

      Total operating expenses                  10,045           11,804
                                              ---------        ---------

      Operating (loss) income                     (450)              73
                                              ---------        ---------

Other expense (income):
  Interest, net                                    191              (45)
  Other                                            (50)             (55)
                                              ---------        ---------

      Total other expense (income)                 141             (100)
                                              ---------        ---------

(Loss) income before income taxes                 (591)             173

Income tax (benefit) expense                       (71)              72
                                              ---------        ---------

      Net (loss) income                       $   (520)        $    101
                                              =========        =========

Net (loss) income per common share:

   Basic                                      $  (0.09)        $   0.02
                                              =========        =========
   Diluted                                    $  (0.09)        $   0.02
                                              =========        =========

Common shares used in computing net (loss) income per common share:

   Basic                                     5,733,210         5,745,457
                                             =========         =========
   Diluted                                   5,733,210         5,834,740
                                             =========         =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       24
<PAGE>


    Consolidated Statements of Stockholders' Equity and
                Comprehensive Income (Loss)

            Years ended March 31, 1999 and 1998

           (In thousands, except share amounts)



<TABLE>
<CAPTION>
                                                    Accumulated
                  Common Stock                         other              Total
                ----------------                      compre-    Total   compre-
                  Number         Additional           hensive    stock-  hensive
                    of      Par   paid-in   Retained  income    holders' income
                  shares   value  capital   earnings  (loss)     equity  (loss)
                ---------- ----- ---------- -------- ---------- -------- -------
<S>             <C>        <C>    <C>        <C>       <C>     <C>       <C>
Balance,
 March 31,
 1997           5,751,000  $  57  $  6,786   $  595    $  83   $  7,521

Net income            --      --       --       101       --        101  $  101

Foreign currency
 translation          --      --       --        --     (226)      (226)   (226)

Unrealized loss
 on investments       --      --       --        --       (8)        (8)     (8)
                 --------    ----   ------    ------  -------    ------- -------

Comprehensive
 loss for the
 year ended
 March 31,
 1998                 --      --       --       101     (234)        --  $ (133)
                                                                         =======

Repurchase of    (26,290)     --     (200)       --       --       (200)
 common stock

Exercise of
 stock options     3,000      --        8        --       --          8
                 --------  ------   ------   -------  -------    -------

Balance,
 March 31,
 1998          5,727,710   $  57  $ 6,594    $  696   $ (151)     7,196

Net loss              --      --       --      (520)      --       (520) $ (520)

Foreign currency
 translation          --      --       --        --     (117)      (117)   (117)

Unrealized gain
 on investments       --      --       --        --        2          2       2
                 --------  ------   ------   -------  -------    ------- -------

Comprehensive
 loss for the
 year ended
 March 31,
 1999                 --      --       --      (520)    (115)        --  $ (635)
                                                                         =======
Exercise of
 stock options    10,500      --       29        --       --         29
                 --------  ------   ------   -------  -------    -------

Balance,
 March 31,
 1999          5,738,210   $  57  $ 6,623    $  176  $  (266)   $ 6,590
              ===========  ====== ========   ======= ========   ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       25
<PAGE>


           Consolidated Statements of Cash Flows

            Years ended March 31, 1999 and 1998

                      (In thousands)


<TABLE>
<CAPTION>
                                                 1999             1998
                                              ----------        ---------

<S>                                           <C>               <C>
Cash flows from operating activities:
  Net (loss) income                           $    (520)        $    101
  Adjustments to reconcile net
   income to net cash provided by
   (used in) operating activities:
    In-process research and development               -              450
    Depreciation and amortization                 1,126            1,088
    Deferred income taxes                          (285)            (278)
    Gain on investments                             (20)             (44)
    Changes in operating assets and
     liabilities, (net of acquisitions):
     Accounts receivable                           (166)             (93)
     Notes and related party loans
       receivable                                   103              (44)
     Prepaid expenses and other
       current assets                              (168)              70
     Other assets                                  (242)            (783)
     Accounts payable                                (7)              27
     Deferred maintenance revenue                    75              239
     Income taxes payable                           (51)             172
     Accrued expenses                                94              (99)
     Other current liabilities                      (40)             (24)
                                               ---------        ---------

         Net cash provided by (used
           in) operating activities                (101)             782
                                               ---------        ---------

Cash flows from investing activities:
  Purchase of property, plant and equipment        (805)            (924)
  Purchase of short-term investments               (491)          (4,652)
  Sale/maturity of short-term investments         2,139            4,763
  Payments to acquire companies, net
   of cash acquired                              (2,644)            (550)
                                               ---------        ---------

         Net cash used in investing
           activities                            (1,801)          (1,363)
                                               ---------        ---------

Cash flows from financing activities:
  Proceeds from issuance of bank debt             2,875              27
  Repayment of bank debt                           (270)           (259)
  Payment of capital lease obligations              (69)             --
  Common stock issuance                              29               8
  Common stock repurchase                            --            (200)
                                               ---------       ---------

         Net cash (used in) provided
           by financing activities                2,565            (424)
                                               ---------       ---------

  Effect of exchange rate changes on
   cash and cash equivalents                        (42)           (226)
                                               ---------       ---------
         (Decrease)/increase in cash
           and cash equivalents                     621          (1,231)

Cash and cash equivalents, beginning of year      1,390           2,621
                                               ---------       ---------

Cash and cash equivalents, end of year         $  2,011        $  1,390
                                               =========       =========
</TABLE>
                        (Continued)

                                       26
<PAGE>


     Consolidated Statements of Cash Flows, Continued




<TABLE>
<CAPTION>
                                                 1999            1998
                                               ---------      ---------

<S>                                            <C>            <C>
Supplemental cash flow information:

  Amounts paid for:
   Interest                                    $    273       $    153
   Income taxes                                     276            141

Non-cash transactions:

  Acquisition of equipment under
   capital lease obligations                   $    635       $     --
  Unrealized (loss)/gain on investments               2             (8)

Payments to acquire companies, net of cash acquired:

  Assets acquired                              $  3,108       $    100
  Liabilities assumed                              (464)            --
  Purchased research and development                 --            450
                                               ---------      ---------

                                               $  2,644       $    550
                                               =========      =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       27
<PAGE>

         RESEARCH ENGINEERS, INC. AND SUBSIDIARIES

        Notes to Consolidated Financial Statements





 (1) Summary of Significant Accounting Policies

    Organization

    Research Engineers,  Inc. ("REI") was incorporated in New Jersey in 1981 and
    is currently headquartered in Yorba Linda,  California.  Effective April 26,
    1996 REI entered into a merger  agreement with Research  Engineers,  Inc., a
    Delaware  corporation,  and a  wholly-owned  subsidiary  of REI  ("Surviving
    Company"). On the effective date REI common stock issued and outstanding was
    converted into shares of common stock of the Surviving Company. REI develops
    and markets  structural,  mechanical,  civil and process/piping  engineering
    software  products   worldwide.   REI  and  its  subsidiaries  also  provide
    information  technology  ("IT")  services,  with a  focus  on  internet  and
    intranet applications.

    Principles of Consolidation

    The  consolidated  financial  statements  include  the  accounts of Research
    Engineers,   Inc.  and  its  wholly-owned   subsidiaries.   All  significant
    transactions  among the  consolidated  entities  have been  eliminated  upon
    consolidation.  The  consolidated  entity is  sometimes  referred to as "the
    Company"  in  the  accompanying   consolidated  financial  statements.   The
    Company's  reported  results for both of the fiscal years presented in these
    financial  statements have been restated to include the balances and results
    of  operations  of  PacSoft  Incorporated  ("PacSoft")  as a  result  of the
    Company's acquisition of PacSoft in March 1999 (see Note 2).

    Use of Estimates

    The  preparation  of  financial  statements  in  conformity  with  generally
    accepted  accounting  principles  requires  management to make estimates and
    assumptions  that affect the reported  amounts of assets and  liabilities at
    the date of financial  statements  and the reported  amounts of revenues and
    expenses  during the  reporting  periods.  Actual  results could differ from
    those estimates.

    Fair Value of Financial Instruments

    Statement of Financial  Accounting  Standards ("SFAS") No. 107,  Disclosures
    About Fair Value of Financial  Instruments,  requires management to disclose
    the estimated fair value of certain assets and  liabilities  defined by SFAS
    No.  107 as  financial  instruments.  Financial  instruments  are  generally
    defined  by SFAS  No.  107 as cash or a  contractual  obligation  that  both
    conveys to one entity a right to receive cash or other financial instruments
    from  another  entity,  and imposes on the other  entity the  obligation  to
    deliver cash or other  financial  instruments to the first entity.  At March
    31, 1999,  management  believes  that the carrying  amounts of cash and cash
    equivalents,  short-term  investments,  receivable and payable amounts,  and
    accrued  expenses  approximate  fair value because of the short  maturity of
    these financial instruments. The Company believes that the carrying value of
    its bank debt and capital lease obligations  approximate their fair value as
    the interest  rates  approximate  a rate that the Company could obtain under
    similar terms at the balance sheet date.

    Foreign Currency Translation

    The financial  position and results of  operations of the Company's  foreign
    subsidiaries  are accounted for using the local  currency as the  functional
    currency.  Assets and  liabilities of the  subsidiaries  are translated into
    U.S. Dollars (the reporting currency) at the exchange rate in effect at each
    year-end.  Statement of  operations  accounts are  translated at the average
    rate of exchange prevailing during the year. Translation adjustments arising
    from the use of differing  exchange rates from period to period are included
    in accumulated other  comprehensive  income (loss) in stockholders'  equity.
    Gains and losses resulting from foreign  currency  transactions are included
    in operations and are not material for fiscal 1999 and 1998.

                                       28
<PAGE>

    Cash and Cash Equivalents

    The Company considers all highly liquid investments with maturities of three
    months or less at the date of purchase to be cash equivalents.

    Short-Term Investments

    The Company's short-term  investments have historically  consisted of United
    States government agency  securities,  classified as  held-to-maturity,  and
    common  stock  marketable  equity  securities,  certificates  of deposit and
    mutual funds, classified as available-for-sale.  In accordance with SFAS No.
    115,  Accounting  for  Certain  Investments  in Debt and Equity  Securities,
    investments  classified  as  available-for-sale  have been  recorded at fair
    value  and  investments  classified  as  held-to-maturity  are  reported  at
    amortized  cost.  There are no short term  investment  balances at March 31,
    1999.  As such,  there are no  unrealized  gains or  losses  on  investments
    classified as available-for-sale recorded in accumulated other comprehensive
    income  (loss) as of March 31,  1999.  All  realized  gains and  losses  are
    computed on the specific identification basis.

    Property, Plant and Equipment

    Property, plant and equipment are stated at cost. Depreciation is calculated
    using the straight-line method over the following useful lives:

              Building                               39 years
              Computer equipment                      5 years
              Computer software                       3 years
              Office equipment and furniture        5-7 years

    Leasehold  improvements  are  amortized  over the  lesser of the life of the
    asset or the term of the lease but not in excess of 5 years.

    Goodwill

    The  Company  amortizes  costs in excess of the fair  value of net assets of
    businesses  acquired  ("goodwill")  using the straight-line  method over the
    estimated useful lives of the businesses acquired,  usually a period of 5-15
    years.  Goodwill  amortization was $362,000 and $307,000 for the years ended
    March 31, 1999 and 1998, respectively.

    Long-Lived Assets

    Long-lived  assets to be held and used and  goodwill are reviewed for events
    or changes in circumstances  that indicate that their carrying value may not
    be  recoverable  through  cash  flows.  If the Company  determines  that the
    carrying value of a given asset is deemed not to be  recoverable,  the asset
    will be adjusted to its fair market value.

    Software Development Costs and Purchased Technology

    The Company capitalizes costs related to the development of certain software
    products.  Capitalization of costs begins when technological feasibility has
    been  established and ends when the product is available for general release
    to  customers.  As of March  31,  1999  capitalized  costs of  approximately
    $704,000,  net of accumulated  amortization,  were included in other assets.
    Approximately  $311,000  of this  amount  represents  the  cost of  software
    developed by third parties on behalf of the Company.  The remaining $393,000
    represents  purchased  technology.  Additions to  capitalized  software were
    $116,000 and $625,000 during fiscal 1999 and 1998, respectively.

                                       29
<PAGE>

    Capitalized   software   development  costs  and  purchased  technology  are
    amortized  using the  straight-line  method over three to five years, or the
    ratio  of  actual  sales  to  anticipated   sales,   whichever  is  greater.
    Amortization of software  development costs and purchased technology charged
    to operations  was  approximately  $329,000 and $213,000 for the years ended
    March  31,  1999  and  1998,   respectively.   Accumulated  amortization  on
    capitalized  software  was  $601,000  and  $275,000 as of March 31, 1999 and
    1998, respectively.

    Revenue Recognition

    Revenue from  software  sales is recognized  upon shipment  provided that no
    significant   post-contract  support   obligations  remain  outstanding  and
    collection of the resulting  receivable  is deemed  probable.  The Company's
    sales do not provide a specific  right of  return.  At the time of sale, the
    Company typically  provides 120-day initial   maintenance and support to the
    customer.  Costs relating to this initial   120-day  support  period,  which
    include primarily telephone support, are not  considered material. After the
    initial   support  period,   customers  can   choose  to  purchase   ongoing
    maintenance contracts that include telephone,  e-mail and other support, and
    the right to purchase  upgrades at a discounted   price.  Revenue from these
    maintenance  contracts is deferred and  amortized   using the  straight-line
    method over the life of the contract,  usually twelve  months.  Revenue from
    providing IT services is recognized as services are performed.

    In October 1997, the Accounting  Standards  Executive Committee ("AcSEC") of
    the AICPA  issued  Statement  of Position  ("SOP")  97-2,  Software  Revenue
    Recognition,  which  superceded  SOP 91-1.  SOP 97-2  distinguishes  between
    significant and  insignificant  vendor  obligations as a basis for recording
    revenue  with a  requirement  that  each  element  of a  software  licensing
    arrangement  be  separately  identified  and accounted for based on relative
    fair  values of each  element.  The  Company  adopted  SOP 97-2 in the first
    quarter of fiscal 1999, the  implementation of which resulted in no material
    changes to the  Company's  previous  practice.  In 1998 the AICPA issued SOP
    98-9,  Modification of SOP 97-2, Software Revenue Recognition,  With Respect
    to Certain  Transactions,  which  modifies  SOP 97-2 to allow for use of the
    residual method of revenue  recognition  provided that certain criteria have
    been met. SOP 98-9 is effective for fiscal years  beginning  March 15, 1999.
    Application of this  accounting  standard is not expected to have a material
    impact on the Company's results of operations.

    Research and Development

    Research  and  development  costs are  charged to  operations  as  incurred.
    In-process  research and  development is charged to operations in the period
    acquired.

    Income Taxes

    The Company accounts for income taxes using the asset and liability  method.
    Deferred  tax  assets  and  liabilities  are  recognized  for the future tax
    consequences  attributable  to differences  between the financial  statement
    carrying amounts of existing assets and liabilities and their respective tax
    bases.  Deferred tax assets and  liabilities  are measured using enacted tax
    rates  expected  to apply to  taxable  income  in the  years in which  those
    temporary differences are expected to be recovered or settled.


                                       30
<PAGE>


    Net Income per Share

    In December 1997, the Financial  Accounting  Standards Board ("FASB") issued
    Statement of Financial  Accounting  Standards ("SFAS") No. 128, Earnings per
    Share ("EPS").  SFAS No. 128 simplifies the  computation of EPS by replacing
    primary  and fully  diluted  EPS with basic and  diluted  EPS.  Basic EPS is
    calculated  by dividing  net income  (loss) by the  weighted-average  common
    shares  outstanding  during the period.  Diluted EPS reflects the  potential
    dilution  to basic EPS that  could  occur upon  conversion  or  exercise  of
    securities,  options,  or other  such  items,  to  common  shares  using the
    treasury  stock  method  based upon the  weighted-average  fair value of the
    Company's common shares during the period.  See Note 11 "Earnings (Loss) Per
    Share" for computation of EPS.

    Comprehensive Income (Loss)

    The Company has adopted SFAS No. 130, Reporting  Comprehensive  Income. SFAS
    130  established  standards for the  reporting and display of  comprehensive
    income.  Components  of  comprehensive  income  include  net income  (loss),
    foreign  currency  translation  adjustments  and  unrealized  gain (loss) on
    investments.

    Stock-Based Compensation

    The  Company  has  implemented  SFAS No.  123,  Accounting  for  Stock-Based
    Compensation.  As permitted by SFAS No. 123, the Company continues to follow
    the  guidance  of  Accounting  Principles  Board  ("APB")  Opinion  No.  25,
    Accounting for Stock Issued to Employees. Consequently, compensation related
    to stock  options is the  difference  between  the grant  price and the fair
    market value of the underlying  common shares at the grant date.  Generally,
    the Company  issues stock  options to employees  with a grant price equal to
    the market value of common stock on the grant date. Accordingly, the Company
    has  recognized  no  compensation  expense  on its stock  option  plans.  As
    required by SFAS No. 123,  the Company  discloses  in Note 5  "Stockholders'
    Equity" the pro forma effect on operations,  as if  compensation  costs were
    recorded at the estimated fair value of the stock options granted.

    Segment Reporting

    The Company  has adopted  SFAS No.  131,  Disclosures  about  Segments of an
    Enterprise  and  Related  Information".  SFAS 131  requires  segments  to be
    determined  and reported based on how management  measures  performance  and
    makes  decisions  about  allocating  resources.  See  Note 10  "Segment  and
    Geographic Data" for description of and disclosures  regarding the Company's
    significant reportable segments.

    Recent Accounting Developments

    In June 1998, the Financial  Accounting Standards Board issued SFAS No. 133,
    Accounting for Derivative Instruments and Hedging Activities. The provisions
    of the statement require the recognition of all derivatives as either assets
    or  liabilities  in the  consolidated  balance sheet and the  measurement of
    those  instruments  at fair value.  The  accounting  for the changes in fair
    value of a derivative  depends on the intended use of the derivative and the
    resulting designation. The Company is required to adopt the statement in the
    first  quarter of fiscal year 2001.  The Company is  currently  studying the
    impact of this  pronouncement  on its financial  statements  but has not yet
    determined the impact on its results of operations.


                                       31
<PAGE>


    In 1998,  the AICPA  issued SOP 98-1,  Accounting  for the Costs of Computer
    Software  Developed or Obtained for Internal Use,  which  provides  guidance
    concerning  recognition and measurement of costs  associated with developing
    or acquiring  software for internal use. In 1998,  the AICPA also issued SOP
    98-5, Reporting on the Costs of Start-up Activities, which provides guidance
    concerning  the  costs  of  start-up  activities.  For  accounting  purposes
    start-up  activities are defined as one-time activities related to opening a
    new facility, introducing a new product or service, conducting business in a
    new  territory or with a new class of customer,  initiating a new process in
    an existing facility, or commencing some new operation.  Both pronouncements
    are effective for financial statements of years beginning after December 31,
    1998, with earlier application encouraged. The Company does not believe that
    adoption  of  these  pronouncements  will  have  a  material  impact  on its
    financial statements.

    Reclassifications

    Certain reclassifications have been made to the 1998 financial statements to
    conform to the 1999 presentation.


(2) Acquisitions

    The Company has consummated a number of acquisitions during the fiscal years
    ended March 31, 1999 and 1998. Except for the PacSoft acquisition  discussed
    below,  all  acquisitions  were  accounted for using the purchase  method of
    accounting  and,  accordingly,  the results of  operations  of the  acquired
    assets and assumed  liabilities have been included with those of the Company
    subsequent to effective  dates of the  respective  acquisitions.  All assets
    acquired and liabilities assumed (except for those of PacSoft) were recorded
    at their  estimated  fair market  values at the date of  acquisition  in the
    consolidated balance sheet.

    PacSoft Incorporated

    On March 31,  1999,  the Company  acquired all of the  outstanding  stock of
    PacSoft  Incorporated,  a developer  of  engineering  software  products and
    integration  tools for the  engineering  industry,  in  exchange  for 50,000
    shares of the Company's  common stock.  This  acquisition has been accounted
    for  using the  pooling  of  interests  method of  accounting  for  business
    combinations.  Accordingly, the Company's financial statements for the years
    ended  March 31,  1999 and 1998 have been  restated  herein to  include  the
    historical  results of operations of PacSoft for those  respective  periods.
    The total assets and  liabilities  of PacSoft  included in the  consolidated
    balance  sheet of the Company as of March 31, 1999 were  $51,000 and $5,000,
    respectively. Prior to the merger, PacSoft had a fiscal year-end of December
    31.  PacSoft  results have been restated to conform to the Company's  fiscal
    year.    Net  revenues  and   net  loss  for  the  nine-month  period  ended
    December 31, 1998 (unaudited) were $296,000 and $4,000,  respectively.   The
    results of operations for the separate  companies and  the  combined amounts
    presented  in  the  consolidated  financial  statements  are  as follows (in
    thousands):

<TABLE>
<CAPTION>
                                               For the year ended
                                                    March 31,
                                             ---------------------
                                                1999        1998
                                             ---------   ---------
        <S>                                  <C>         <C>
        Net revenues:
           Company, excluding PacSoft        $  10,380   $  12,346
           PacSoft                                 365         385
                                             ----------  ----------
              Consolidated                   $  10,745   $  12,731
                                             ==========  ==========

        Net (loss) income:
           Company, excluding PacSoft        $    (508)  $      88
           PacSoft                                 (12)         13
                                             ----------  ----------
              Consolidated                   $    (520)  $     101
                                             ==========  ==========
</TABLE>

                                       32
<PAGE>

    R-Cube Technologies, Inc.

    On February 26, 1999,  the Company  acquired all of the  outstanding  common
    stock of R-Cube  Technologies,  Inc.  (R-Cube),  an established  provider of
    Information Technology (IT) services, for $2,320,000 in cash. The funds used
    for the acquisition  were provided by a new bank credit  agreement (see Note
    4). The  Company  incurred  approximately  $283,000  in related  acquisition
    costs.

    The purchase price allocation for the acquisition of R-Cube is summarized as
    follows (in thousands):


<TABLE>
         <S>                                           <C>
         Current assets, including cash of $263        $    809
         Property and equipment                              21
         Other non-current assets                             2
         Goodwill                                         2,235
         Current liabilities                               (464)
                                                       =========
                                                       $  2,603
                                                       =========
</TABLE>

    As the Company's fiscal 1999 financial  statements only include one month of
    operations of R-Cube, the following selected unaudited pro forma information
    is being  provided  to  present a summary  of the  combined  results  of the
    Company and R-Cube as if the  acquisition  had occurred as of April 1, 1997,
    giving effect to purchase accounting adjustments.

<TABLE>
<CAPTION>
                                      For the pro forma year
                                          ended March 31,
                                     -------------------------
                                        1999           1998
                                     ----------     ----------
                                            (unaudited)

        <S>                          <C>            <C>
        Net revenues                 $  14,742      $  14,286
        Net loss                     $    (878)     $     (99)
        Basic loss per share         $   (0.15)     $   (0.02)
        Diluted loss per share       $   (0.15)     $   (0.02)
</TABLE>

    The pro forma  amounts  reflect  the results of  operations  for the Company
    including R-Cube and the following purchase  accounting  adjustments for the
    periods presented:

        1.  Amortization  of goodwill,  straight-line,  over a useful life of 15
            years;

        2.  The  addition  of  interest  expense  on  debt incurred  to  finance
            the acquisition; and

        3.  Estimated income tax effect on the pro forma adjustments.

    The pro forma loss per share data is based on the Company's weighted average
    number of common shares during fiscal 1999 and 1998. The unaudited pro forma
    data is for informational  purposes only and may not necessarily reflect the
    results of  operations  of the  Company  had R-Cube  operated as part of the
    Company for the fiscal years ended March 31, 1999 and 1998.


                                       33
<PAGE>


    Techna Consultancy Private Limited

    On  October 1, 1998, the Company,  through its subsidiary in India, acquired
    Techna   Consultancy  Private Limited  ("Techna"),  a software developer and
    consultant.   The purchase price of $254,000 in cash primarily related to an
    agreement not to compete and the  assumption of employee base.  The purchase
    price   was   allocated   to  intangible  assets  which  will  be  amortized
    straight-line over 5 years.

    Calcutta On-line

    In October,  1998 the Company acquired Calcutta Online, a website developer.
    The purchase price of $50,000 in cash primarily  related to an agreement not
    to compete and the  assumption  of employee  base.  The  purchase  price was
    allocated  to  intangible  assets which will be amortized straight-line over
    5 years.

    AXA Corporation

    On October 3, 1997, the Company  purchased certain assets of AXA Corporation
    ("AXA"),  a software  developer  and  marketer.  The  purchase  price of the
    acquired assets was a cash payment of $550,000.  On the date of acquisition,
    the  Company  determined  that no  alternative  future use  existed  for the
    research  and  development  in progress  acquired  and  charged  $450,000 to
    operations.  The portion of the purchase price allocated to goodwill will be
    amortized straight-line over 5 years.

    The purchase price  allocation for the  acquisition of certain assets of AXA
    is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                     AXA
                                                  ---------

         <S>                                      <C>
         Property and equipment                   $      3
         Goodwill                                       97
         In-process research and development           450
                                                  =========
                                                  $    550
                                                  =========
</TABLE>

    Pro forma disclosures have not been provided for the Techna, Calcutta Online
    and AXA  acquisitions  as they  would not be  significantly  different  from
    reported results for fiscal years ended March 31, 1999 and 1998.


(3) Property, Plant and Equipment

    Property, plant and equipment, at cost, as of March 31, 1999 consists of the
    following (in thousands):

<TABLE>
            <S>                                     <C>
            Land                                    $    550
            Building                                   1,983
            Office and computer equipment,
              software and furniture                   2,286
            Assets under capital lease                   635
                                                    ---------
                                                       5,454

            Accumulated depreciation                  (1,376)
                                                    ---------
            Net property, plant and equipment       $  4,078
                                                    =========
</TABLE>
                                       34
<PAGE>



 (4) Line of Credit and Bank Debt

    Long-term  bank  debt  consists  of the  following  at  March  31,  1999 (in
    thousands):

<TABLE>
    <S>                                                          <C>
    Revolving line of credit payable to bank, bearing
      interest at 3.0% over the bank's prime rate
      (10.75% at March 31, 1999) through maturity
      of September 2000, secured by substantially all
      of the assets of the Company and guaranteed by a
      major shareholder                                          $   2,320

    Mortgage  payable to bank,  monthly  payments
      of principal  plus interest at 2.25% over the
      LIBOR Base Rate  (7.33% at March 31, 1999)
      through maturity  of April  2007,  secured by
      certain  real  estate  owned by the Company                    1,723

    Capital lease  obligations  maturing at dates
      ranging from October,  2001 to November, 2003,
      secured by the leased assets                                     566

    Other                                                              497
                                                                 ----------
         Total                                                       5,106

         Less current portion                                          168
                                                                 ----------
                                                                 $   4,938
                                                                 ==========
</TABLE>

    The revolving  line of credit contains certain restrictive covenants, all of
    which  have  either  been  complied  with  or for  which a  waiver  has been
    received at March 31, 1999.   There are no available  borrowings  under this
    credit facility at March 31, 1999.

    The long-term bank debt matures in each of the following  years ending March
    31 (in thousands):

<TABLE>
                    <S>             <C>
                    2000            $     168
                    2001                2,589
                    2002                  275
                    2003                  275
                    2004                  252
                    Thereafter          1,547
                                    ----------
                                    $   5,106
                                    ==========
</TABLE>

 (5) Stockholders' Equity

    Stock Repurchase

    On December 16, 1997,  in accordance  with  Amendment No. 1 to the Agreement
    and Plan of  Reorganization  dated  March 8, 1996  between  the  Company and
    ADLPipe,  Inc.,  the Company  repurchased  26,290 shares of common stock for
    $200,000.
                                       35
<PAGE>


    Warrants

    Warrants issued to the underwriters as part of the Company's  initial public
    offering to purchase  130,000 shares of common stock at $6.00 per share were
    outstanding  and  exercisable  during fiscal 1999 and 1998.  These  warrants
    expire July 26, 2001.

    Stock Option Plans

    The Company has three adopted employee stock option plans:

<TABLE>
<CAPTION>
                                                                        Shares
                                          Adopted       Terminates    Authorized
                                         ---------      ----------    ----------
        <S>                             <C>             <C>             <C>
        Research Engineers, Inc.
          1998 Stock Option Plan
          (the "1998 Plan")             December 1998   November 2008   500,000

        Research Engineers, Inc.
          1997 Stock Option Plan
          (the "1997 Plan")             February 1997   February 2007   300,000

        Research Engineers, Inc.
          1996 Stock Option Plan
          (the "1996 Plan")               April 1996      April 2006    294,000
</TABLE>

    Each of the plans  provides for the  granting of shares as either  Incentive
    Stock Options (ISOs) or  Non-Qualified  Stock Options (NQOs).  Options under
    all plans  generally vest over 3 years,  though the vesting periods may vary
    from person to person, and are exercisable  subject to continued  employment
    and other  conditions.  As of March 31,  1999,  there were  257,400  options
    available  for grant and no  options  exercisable  under the 1998  Plan,  no
    options  available for grant and 85,833 options  exercisable  under the 1997
    Plan, and 1,550 options available for grant and 148,867 options  exercisable
    under the 1996 Plan.

    During fiscal 1998, the Company  granted 20,000 stock options outside of the
    above described  plans.  These options vest at the rate of 2,500 options per
    quarter with an exercise price of $2.81.

    The  following  is a summary of activity  related to all  outstanding  stock
    options (number of shares in thousands):

<TABLE>
<CAPTION>
                                                       Weighted
                                               Number  average
                                                of     exercise
                                              shares    price
                                              ------   --------
         <S>                                    <C>     <C>
         Outstanding at April 1, 1997           326     $ 2.75

         Granted                                221       2.95
         Exercised                               (3)      2.75
         Forfeited                              (56)      2.83
                                              ------
         Outstanding at March 31, 1998          488       2.81

         Granted                                379       3.07
         Exercised                              (10)      2.80
         Forfeited                              (15)      2.84
                                              ------
         Outstanding at March 31, 1999          842     $ 2.86
                                              ======
</TABLE>

                                       36
<PAGE>


    As discussed in Note 1, the Company  accounts for its stock options based on
    the  intrinsic  value of a grant as of the date of the  grant in  accordance
    with APB No. 25. Accordingly, no compensation expense has been recognized in
    1999 or 1998 for options granted.  Had compensation  cost been recognized in
    accordance  with the fair value  provisions  of SFAS No. 123,  pro-forma and
    assumption information would have been as follows for the fiscal years ended
    March 31 (dollars in thousands, except amounts per share):

<TABLE>
<CAPTION>
                                                 1999          1998
                                              ----------     ---------

        <S>                                   <C>            <C>
        Net (loss) income - as reported       $    (520)     $     101
        Net loss - pro forma                       (852)          (130)
                                              ==========     ==========
        Basic net (loss) income per share -
          as reported                         $   (0.09)     $    0.02
          pro forma                               (0.15)         (0.02)
        Diluted net (loss) income per share -
          as reported                             (0.09)          0.02
          pro forma                               (0.15)         (0.02)
                                              ==========     ==========
        Weighted average fair value of
          options granted                     $    3.01      $    2.91
                                              ==========     ==========

        Black-Scholes option pricing model assumptions:
          Dividend yield                             --             --
          Expected volatility                       63%             48%
          Risk-free interest rate                 4.53%           5.57%
          Expected option lives (in years)           5               5
</TABLE>

    At March 31, 1999,  the range of exercise  prices and the  weighted  average
    remaining  contractual  life of  outstanding  options were $2.63 - $3.30 and
    8.59 years, respectively.


(6) Related Party Transactions

    In October 1996, the Company loaned $37,500 to a stockholder, with principal
    and accrued  interest  originally due in October 1997.  The note's  maturity
    date was  extended  to March  2000.  Interest  accrues at the rate of 8% per
    annum.  The  stockholder  has  pledged  his common  stock in the  Company as
    collateral  for this note.  The note is included in notes and related  party
    loans receivable on the consolidated balance sheet.


 (7) Retirement Plan

    The  Company has adopted a  qualified  cash or  deferred  401(k)  retirement
    savings  plan.  The plan covers all  employees who have attained age 21. The
    Company  makes  matching  contributions  to this  plan  based on 100% of the
    employees' elective contributions up to a maximum of 6% of compensation. For
    the years ended March 31, 1999 and 1998, Company contributions in the amount
    of $105,000 and $81,000, respectively, were paid to the plan. Certain of the
    Company's  subsidiaries  have similar plans,  however,  the Company does not
    match contributions to these plans.



                                       37
<PAGE>



(8) Commitments

    The Company leases  certain  facilities  and equipment  under  noncancelable
    operating  leases.  The facility  leases include options to extend the lease
    terms  and  provisions  for  payment  of  property   taxes,   insurance  and
    maintenance expenses.

    At March 31, 1999,  future  minimum  annual rental  commitments  under these
    lease obligations were as follows (in thousands):

<TABLE>
<CAPTION>
            Year ending
              March 31:
              <S>              <C>
              2000             $     237
              2001                   156
              2002                    90
              2003                    79
              2004                     8
              Thereafter              --
                               ----------
                               $     570
                               ==========
</TABLE>

    Rent  expense was  $325,000  and $375,000 for the years ended March 31, 1999
    and 1998, respectively.

    The Company leases space to third parties in a Company-owned  building under
    operating  leases.  Certain leases contain  renewal  options and provide for
    reimbursement of certain operating expenses. The tenant that represented the
    significant  portion of rental  income did not renew its lease which expired
    in October 1997.  Rental income for the years ended March 31, 1999 and 1998,
    included in other  income in the  accompanying  consolidated  statements  of
    operations, was $8,000 and $71,000, respectively.


(9) Income Taxes

    The  components  of income (loss) before income taxes are as follows for the
    year ended March 31, (in thousands):

<TABLE>
<CAPTION>
                                            1999            1998
                                        -----------     -----------

                <S>                     <C>             <C>
                United States           $     (863)     $   (1,390)
                Foreign                        272           1,563
                                        -----------     -----------
                   Total                      (591)            173
                                        ===========     ===========
</TABLE>


                                       38
<PAGE>


    The  (benefit)  provision for income taxes is comprised of the following for
    the year ended March 31, (in thousands):

<TABLE>
<CAPTION>
                                     1999       1998
                                   -------     -------
              <S>                   <C>         <C>
              Current:
                Federal             $  --       $  --
                State                   2          73
                Foreign               212         288
                                    ------      ------
                                      214         361
              Deferred:
                Federal              (295)       (216)
                State                  14         (71)
                Foreign                (4)         (2)
                                    ------      ------
                                     (285)       (289)
                                    ------      ------
                    Total           $ (71)      $  72
                                    ======      ======
</TABLE>

    The reported  (benefit)  provision  for income taxes differs from the amount
    computed by applying the statutory  federal income tax rate of 34% to income
    (loss)  before  income  taxes as follows  for the year  ended  March 31, (in
    thousands):

<TABLE>
<CAPTION>
                                                          1999          1998
                                                       ---------     ---------

          <S>                                          <C>           <C>
          Income tax (benefit) at statutory rate       $   (201)     $     59
          State taxes, net of federal benefits                7            --
          Foreign income tax rate differential               90            36
          Return to provision adjustment                    (15)          (16)
          Change in valuation allowance                      60            --
          Research and development credits                  (17)           --
          Other                                               5            (7)
                                                       ---------     ---------
             Total                                     $    (71)     $     72
                                                       =========     =========
</TABLE>

    The Company provides deferred income taxes for temporary differences between
    assets and  liabilities  recognized  for financial  reporting and income tax
    purposes.  The tax effects of temporary differences at March 31, 1999 are as
    follows (in thousands):


<TABLE>
<CAPTION>
          <S>                                        <C>
          Deferred tax assets:
            Cash to accrual adjustment               $     130
            Accrued vacation                                66
            Allowance for doubtful accounts                104
            Amortization ofintangibles                     256
            Net operating loss carryforward                437
            Foreign tax credit carryforward                 90
            Research and development credit                 17
              carryforward
            Other                                            1
                                                      ---------

                Total deferred tax assets                1,101

                Less: valuation allowance                  (60)
                                                      ---------
                Net deferred tax assets                  1,041
                                                      ---------

          Deferred tax liabilities:
            Depreciation                                   (83)
            Cash to accrual adjustment                    (201)
            Other                                           (6)
                                                      ---------
                Total deferred tax liabilities            (290)
                                                      ---------
                Net deferred tax asset                $    751
                                                      =========
</TABLE>

                                       39
<PAGE>

    During fiscal 1999 the Company added  approximately  $73,000 of deferred tax
    liabilities as part of the acquisition of R-Cube (see Note 2).

    At March 31,  1999 the  Company  had tax net  operating  loss  carryforwards
    of $1,137,000  for federal and $565,000 for state income tax purposes  which
    expire at varying  dates  beginning in 2019 and 2004,  respectively.  In
    addition,  the Company has for federal income tax purposes  $17,000 of
    research and development credit  carryforwards  and  $90,000 of foreign  tax
    credit  carryforwards  which expire at varying dates beginning in 2013 and
    2003, respectively.

    In assessing the  realizability  of the net deferred tax assets,  management
    considers  whether  it is  more  likely  than  not  that  some or all of the
    deferred  tax assets  will not be  realized.  The  ultimate  realization  of
    deferred  tax  assets is  dependent  upon  either the  generation  of future
    taxable  income  during the  periods in which  those  temporary  differences
    become  deductible  or the  carryback  of losses  to  recover  income  taxes
    previously  paid during the  carryback  period.  As of March 31,  1999,  the
    Company  had  provided a  valuation  allowance  of $60,000 to reduce the net
    deferred tax assets due to the potential  expiration of certain  foreign tax
    credit carryforwards prior to their utilization.


    Undistributed  earnings of certain of the Company's foreign subsidiaries are
    considered to be indefinitely reinvested and, accordingly,  no provision for
    United States federal and state income taxes has been provided thereon. Upon
    distribution  of those  earnings in the form of dividends or otherwise,  the
    Company  would be  subject  to both  federal  income  taxes  (subject  to an
    adjustment  for foreign tax credits) and  withholding  taxes  payable to the
    various foreign countries.



                                       40
<PAGE>



(10) Segment and Geographic Data

    The  Company is a provider  of  stand-alone  and  network-based  engineering
    software  products   that  provide   fully-integrated   easy-to-use   design
    automation  and  analysis  solutions  for  use by  engineering  analysis and
    design professionals worldwide.   Software sales and related maintenance and
    technical support is considered to be the Company's  only reportable segment
    for fiscal  1999.  With the  acquisition  of R-Cube in  February  1999,  the
    Company has expanded  into the $90 billion  information  technology   ("IT")
    services  industry,   providing   expertise  in  data-mining  and   embedded
    technologies to  Internet/Intranet  design and communications.   Fiscal 1999
    includes only one month of operations for R-Cube and as such  IT services is
    considered  individually  insignificant for separate detailed  disclosure at
    March 31, 1999.  IT services will be a  significant  reportable  segment for
    fiscal 2000.

    The Company's  operations are based worldwide  through foreign  subsidiaries
    and branch offices in Germany,  India, the United Kingdom, and Asia-Pacific.
    The  following  are  significant   components  of  worldwide  operations  by
    geographic location:

<TABLE>
<CAPTION>
                                                  For the year ended
                                                        March 31
                                              ----------------------------
                                                  1999            1998
                                              -----------      -----------
                                                    (in thousands)
         <S>                                  <C>              <C>
             Net revenue
         United States                        $    4,805       $    4,543
         The Americas (other than U.S.)              994            1,218
         Europe                                    3,161            3,704
         Asia-Pacific                              1,785            3,266
                                              -----------      -----------
              Consolidated                    $   10,745       $   12,731
                                              ===========      ===========
            Export sales
         United States                        $    2,085       $    3,489
                                              ===========      ===========

          Long-lived Assets
         United States                        $    6,106       $    3,312
         Europe                                      662              884
         Asia-Pacific                              1,380              942
                                              -----------      -----------

              Consolidated                    $    8,148       $    5,138
                                              ===========      ===========
</TABLE>
                                       41
<PAGE>



(11) Earnings Per Share

    The following  table  illustrates  the  computation of basic and diluted net
    income (loss) per share for the years ended March 31, (in thousands):


<TABLE>
<CAPTION>
                                                         1999       1998
                                                       --------   --------
        <S>                                            <C>        <C>
        Numerator:
        Numerator for basic and diluted net income
          (loss) per share - net income (loss)         $  (520)   $   101
                                                       ========   ========
        Denominator:
        Denominator for basic net income (loss)
          per share - average number of common
          shares outstanding during the year             5,733      5,745
        Incremental common shares attributable
          to exercise of outstanding options                 -         90
                                                       --------   --------
        Denominator for diluted net income (loss)
          per share                                      5,733      5,835
                                                       ========   ========
        Basic net income (loss) per share              $ (0.09)   $  0.02
                                                       ========   ========
        Diluted net income (loss) per share            $ (0.09)   $  0.02
                                                       ========   ========
</TABLE>

    All  options,  warrants  and other  common  stock  equivalents  amounting to
    259,705  potential  common  shares were  excluded  from the  computation  of
    diluted  EPS for fiscal 1999  because  the Company  reported a net loss and,
    therefore,  the effect would be  antidilutive.  Warrants to purchase 130,000
    shares of common stock were not included in the  computation  of diluted EPS
    for 1998 because their  exercise  price was greater than the average  market
    price of the common shares and therefore would be antidilutive.



                                       42
<PAGE>




ITEM 8. CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None


                         PART III

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

Directors, Executive Officers and Key Employees

   The  directors,  executive  officers and key  employees of the Company are as
follows:

<TABLE>
<CAPTION>
        Name          Age              Position

<S>                   <C>  <C>
Amrit K. Das......    54   Chairman  of  the  Board, Chief Executive
                              Officer and Director
Jyoti Chatterjee..    43   President, Chief Operating Officer and Director
Wayne L. Blair....    59   Chief Financial Officer, Treasurer and Secretary
Clara Young.......    44   Vice President Administration
Dan W. Heil.......    66   Director
Bruce E. Cummings.    50   Director
Santanu Das.......    26   Manager of New Technology and Director
Steve Owen........    40   Director of European Operations
John Putnam.......    41   Manager of Sales and Marketing
</TABLE>

     Amrit K. Das is the  founder  of the  Company  and has  served as its Chief
Executive  Officer and as a Director  since its inception in 1981.  Mr. Das also
served as President of the Company since its inception until March 15, 1999. Mr.
Das holds a B.S. in Civil/Structural Engineering from Calcutta University, India
and an M.S. in Structural Engineering from the University of South Carolina.

     Jyoti  Chatterjee has served as the Company's  President,  Chief  Operating
Officer since March 15, 1999 and prior to that he served as its  Executive  Vice
President,  Chief Operating Officer and as a Director since April 1990. Prior to
that Mr.  Chatterjee  served as Chief  Consulting  Engineer for the Company from
1985 to 1990. Mr.  Chatterjee  holds a B.S. in Structural  Engineering  from the
Indian  Institute of Technology and an M.S. in Structural  Engineering  from the
University of Pennsylvania.

     Wayne L.  Blair  has  served  as the  Company's  Chief  Financial  Officer,
Treasurer and Secretary since  September  1997.  Prior to that Mr. Blair was the
Chief Financial Officer for National Electronics  Corporation from 1994 to 1997.
From 1992 to 1994,  Mr.  Blair was the Chief  Financial  Officer  for  Satellite
Technology (currently STM Wireless,  Inc.). Mr. Blair holds a B.S. in Accounting
from California State University, Long Beach.

     Clara  Young has served as Vice  President  Administration  of the  Company
since December 1987.  Prior to that Ms. Young served as program analyst with The
Technical  Group,  Inc. from December 1982 to December  1987.  Ms. Young holds a
B.S. in Computer Science from California State University, Fullerton.

     Dan W. Heil has served as a Director  of the Company  since 1990.  Mr. Heil
has been the President and Chief  Executive  Officer of Willdan  Associates,  an
engineering and planning  company,  since its founding in 1965. Mr. Heil holds a
B.S. in Civil Engineering from Stanford University.

     Bruce E. Cummings has served as a Director of the Company  since 1996.  Mr.
Cummings is the Principal of Bruce Cummings Associates, management and marketing
consultants.  Prior to that, Mr.  Cummings was the President and Chief Executive
Officer of Portrait  Display  Labs,  Inc.,  a  manufacturer  of special  purpose
computer  monitors,  which he co-founded,  from 1992 to June 1997.  From January
1991 to July 1992, Mr.  Cummings was Vice  President of Corporate  Marketing for
Macromedia.  Mr. Cummings is currently a member of the Advisory Board for Europe
Direct, the European Direct Marketing  Conference.  Mr. Cummings holds a B.S. in
Marketing from California State University at Long Beach.

     Santanu Das has served as Manager of New  Technology  of the Company  since
May 1997 and as a Director since September  1996.  Prior to that, Mr. Das served
as a Senior Engineering Analyst for the Company from 1991 to April 1997. Mr. Das
holds  a  B.S.  in  Structural  Engineering  from  the  University  of  Southern
California  and  an  M.S.  in  Structural  Engineering  from  the  Massachusetts
Institute  of  Technology.  Santanu Das is the son of Amrit Das,  the  Company's
Chief Executive Officer.

     Stephen Owen has served as the  Company's  Director of European  Operations
since  1987.  Mr.  Owen holds a B.S. in Civil  Engineering  from the  University
College Swansea, United Kingdom.

     John  Putnam has  served as the  Company's  Manager of Sales and  Marketing
since  1991.  For the six year period  prior to that,  Mr.  Putnam held  various
marketing and advertising  positions with The Technical Group,  Inc.,  including
marketing  and  advertising  manager for  CIVILSOFT (a division of The Technical
Group, Inc.). Mr. Putnam holds a B.A. in political science/public administration
from California State  Polytechnic  University,  Pomona,  and an M.B.A. from the
University of Redlands.

   All  directors  hold office  until the next annual  stockholders'  meeting or
until their  respective  successors  are elected or until their  earlier  death,
resignation  or removal.  Officers are appointed by, and serve at the discretion
of, the Board of Directors.

Compliance with Beneficial Ownership Reporting Rules

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

   Based solely upon a review of copies of such reports furnished to the Company
during its fiscal  year ended  March 31,  1999 and  thereafter,  or any  written
representations received by the Company from directors,  officers and beneficial
owners of more than 10% of the Company's Common Stock ("reporting persons") that
no other reports were required,  the Company believes that, during the Company's
1999 fiscal  year,  all Section  16(a)  filing  requirements  applicable  to the
Company's reporting persons were complied with.


ITEM 10.  EXECUTIVE COMPENSATION.

Executive Compensation

   There  is  shown  below  information  concerning  the  annual  and  long-term
compensation  for  services in all  capacities  to the Company of the  Company's
Chief Executive  Officer and the other  executive  officers of the Company whose
aggregate  cash  compensation  exceeded  $100,000   (collectively,   the  "Named
Executives") during the fiscal years ended March 31, 1999, 1998 and 1997.


<PAGE>


                SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                         Long-Term
                                    Annual             Compensation
                                 Compensation             Awards
                         ------------------------------ ----------
                                                        Securities
    Name and                             Other Annual   Underlying  All Other
    Principal            Salary  Bonus  Compensation(1)  Options   Compensation
    Position       Year   ($)     ($)         ($)           (#)        ($)
----------------- ------ ------  -----  --------------- ---------- ------------
<S>                <C>   <C>       <C>       <C>           <C>        <C>
Amrit K. Das       1999  260,000   --            --        60,000     16,506(2)
 Chief Executive   1998  260,000   --        66,071            --     15,824(2)
 Officer           1997  249,200   --        78,379        25,000     15,824(2)

Jyoti Chatterjee   1999  156,000   --            --        50,000      9,360(3)
 President and     1998  156,000   --            --        15,000      9,360(3)
 Chief Operating   1997  136,560   --            --        48,000      8,194(3)
 Officer

Wayne L. Blair     1999  125,000   --            --        30,000      2,019(3)
 Chief Financial   1998   60,096   --            --        40,000         --
 Officer

Clara Young        1999  104,000   --            --        12,500      6,040(3)
 Vice President of 1998  104,000   --            --         7,500      6,240(3)
 Administration    1997   93,920   --            --        18,500      5,808(3)
</TABLE>

(1)The costs of certain  benefits are not included  because they did not exceed,
   in the case of each  Named  Executive,  the  lesser of  $50,000 or 10% of the
   total annual salary and bonus as reported above.
(2)Represents 401(k)  contributions made by the Company as well as premiums paid
   by the Company pursuant to a split-dollar  life insurance policy  established
   by the Company for the benefit of Mr. Das in the amount of $7,006 in 1999 and
   $6,324 for each of 1998 and 1997.
(3)Represents  401(k)  contributions  made by the Company on behalf of the Named
   Executive.


Stock Option Grants in 1999

   The following table sets forth  information  concerning  individual grants of
stock  options made  pursuant to the  Company's  1997 Stock Option Plan and 1998
Stock  Option  Plan  during  fiscal  1999 to each of the Named  Executives.  The
Company has never granted any stock appreciation
rights.


             OPTION GRANTS IN LAST FISCAL YEAR


<TABLE>
<CAPTION>
                                          Individual Grants
                        --------------------------------------------------------

                        Number of      Percent of
                        Securities       Total
                        Underlying      Options        Exercise
                         Options       Granted to      or Base
                         Granted      Employees in      Price        Expiration
      Name                 (#)        Fiscal Year       ($/Sh)          Date
---------------------   ----------   --------------   ----------    ------------
<S>                       <C>             <C>           <C>           <C>
Amrit K. Das . . . . .    60,000          15.8%         $3.30         12/06/08

Jyoti Chatterjee  . .     50,000          13.2%         $3.00         12/06/08

Wayne L. Blair  . . .     30,000           7.9%         $3.00         12/06/08

Clara Young  . . . . .    12,500           3.3%         $3.00         12/06/08
</TABLE>


<PAGE>


Option Exercises and Fiscal Year-End Values

   Shown  below is  information  with  respect  to the  number  of shares of the
Company's  Common Stock  acquired upon exercise of options,  the value  realized
therefor,  the number of unexercised  options at March 31, 1999 and the value of
unexercised  in-the-money  options at March 31, 1999 for the Named Executives in
the Summary  Compensation  Table above.  The Named  Executives  did not hold any
stock appreciation rights during fiscal 1999.


      AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
             AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                             Number of
                                             Securities            Value of
                                             Underlying           Unexercised
                                             Unexercised          In-the-Money
                                          Options at Fiscal    Options at Fiscal
                  Shares                     Year-End(#)          Year-End ($)
                Acquired on    Value         Exercisable/         Exercisable/
     Name       Exercise(#)  Realized($)    Unexercisable        Unexercisable
-------------- ------------- ----------- -------------------  ------------------
<S>                 <C>          <C>       <C>      <C>        <C>      <C>
Amrit K. Das        --           --        16,667 / 68,333     93,750 / 351,375

Jyoti Chatterjee    --           --        37,000 / 76,000    206,875 / 412,500

Wayne L. Blair      --           --        13,333 / 56,667     76,667 / 314,583

Clara Young         --           --        14,833 / 23,667     82,813 / 128,750
</TABLE>

Directors' Compensation

   The Company's  directors do not currently  receive any cash  compensation for
service on the Board of Directors or any committee thereof, but directors may be
reimbursed  for  certain  expenses in  connection  with  attendance  at Board of
Directors and committee meetings.

Employment Agreements

   As of May 1, 1996, the Company entered into five-year  employment  agreements
with each of Amrit Das,  Jyoti  Chatterjee  and Clara Young.  Those  agreements,
which became effective upon the closing of the Company's initial public offering
of its Common  Stock,  provide that Mr. Das, Mr.  Chatterjee  and Ms. Young will
receive  minimum  base  annual  salaries of  $260,000,  $156,000  and  $104,000,
respectively. Each employment agreement also provides for the grant of an annual
bonus with such bonuses, if any, to be determined by the Compensation  Committee
of the Board of Directors.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.

   The following table sets forth as of June 23, 1999, certain  information with
respect to (i) each director of the Company, (ii) the Named Executives and (iii)
all directors and  executive  officers of the Company as a group,  and (iv) each
person  known to the Company to be the  beneficial  owner of more than 5% of the
Company's Common Stock. The information with respect to each person specified is
as supplied or confirmed by such person or based upon statements  filed with the
Commission.



<PAGE>


<TABLE>
<CAPTION>
  Name and Address        Amount and Nature of Beneficial     Percent of Class
 of Beneficial Owner       Ownership of Common Stock (1)       of Common Stock
----------------------  ----------------------------------  --------------------
<S>                                  <C>                              <C>
Amrit K. Das (2)(3)(4)               1,298,092                        22.5%

Jyoti Chatterjee (2)(3)(5)             186,312                         3.2%

Wayne L. Blair (2)(6)                   13,333                          *

Clara Young (2)(7)                      39,519                          *

Dan W. Heil (3)(8)                     102,621                         1.8%

Bruce E. Cummings (3)(9)                 8,333                          *

Santanu Das (3)(10)                  1,324,117                        22.9%

Sormistha Das                          931,462                        16.2%
1043 Taylor Court
Anaheim Hills, CA 92808

All Directors and Executive          2,972,327                        50.3%
Officers of the Company as
a Group (7 persons) (11)
</TABLE>

---------------
* Less than 1%
 (1)Beneficial  ownership  is  determined  in  accordance  with the rules of the
    Securities  and  Exchange   Commission  and  generally  includes  voting  or
    investment  power  with  respect  to  securities.  Except  as  indicated  by
    footnote,  and subject to  community  property  laws where  applicable,  the
    persons named in the table above have sole voting and investment  power with
    respect to all shares of Common Stock shown as  beneficially  owned by them.
    Shares  of  Common  Stock  subject  to  options  currently  exercisable,  or
    exercisable within 60 days after June 23, 1999, are deemed to be outstanding
    in  calculating  the  percentage  ownership of a person or group but are not
    deemed to be outstanding as to any other person or group.
(2) Named  executive  officer of the  Company.  The  address  of each  executive
    officer is c/o Research  Engineers,  Inc.,  22700 Savi Ranch Parkway,  Yorba
    Linda, CA.
(3) Director  of the  Company.  The  address of each  director  is c/o  Research
    Engineers, 22700 Savi Ranch Parkway, Yorba Linda, CA.
(4) Includes  1,279,759  shares of Common Stock held by the A. and P. Das Living
    Trust and  18,333  shares  of  Common  Stock  underlying  options  which are
    exercisable as of June 23, 1999 or within 60 days after such date.  Does not
    include 931,462 shares of Common Stock held by Mr. Das' daughter,  Sormistha
    Das, or 1,324,117 shares of Common Stock  beneficially held by Mr. Das' son,
    Santanu Das. Mr. Das disclaims  beneficial ownership of the shares of Common
    Stock held by Sormistha Das and Santanu Das.
(5) Includes  53,667  shares  of  Common  Stock  underlying  options  which  are
    exercisable as of June 23, 1999 or within 60 days after such date.
(6) Represents  13,333  shares  of Common  Stock  underlying  options  which are
    exercisable as of June 23, 1999 or within 60 days after such date.
(7) Includes  21,833  shares  of  Common  Stock  underlying  options  which  are
    exercisable as of June 23, 1999 or within 60 days after such date.
(8) Includes  8,333  shares  of  Common  Stock  underlying   options  which  are
    exercisable as of June 23, 1999 or within 60 days after such date.
(9) Represents  8,333  shares  of  Common  Stock  underlying  options  which are
    exercisable as of June 23, 1999 or within 60 days after such date.
(10)Includes  46,667  shares  of  Common  Stock  underlying  options  which  are
    exercisable  as of June 23, 1999 or within 60 days after such date.  Mr. Das
    is the son of Amrit Das, the Company's Chief Executive Officer.
(11)Includes  170,499  shares  of  Common  Stock  underlying  options  which are
    exercisable as of June 23, 1999 or within 60 days after such date.



<PAGE>



ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

   None


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

       (a)     Exhibits

               10.1      Research Engineers,  Inc. 1996 Stock Option Plan*

               10.2      Employment  Agreement  dated May 1, 1996, by and
                         between the Company and Amrit K. Das*

               10.3      Employment  Agreement  dated May 1, 1996, by and
                         between the Company and Jyoti Chatterjee*

               10.4      Employment  Agreement  dated May 1, 1996, by and
                         between the Company and Clara Y. M. Young*

               10.5      Research  Engineers,   Inc.  1997  Stock  Option Plan**

               10.6      Business  Loan  agreement  dated  October  15,  1996
                         between the Company and Union Bank of California N.A.**

               10.7      Promissory  Note dated March 20, 1997 in the principal
                         amount of $1,800,000 made payable to Union Bank of
                         California N.A.**

               10.8      Agreement  Not To Compete  dated October 1, 1998
                         between the Company and Techna Consultancy Private
                         Limited***

               10.9      Research Engineers, Inc. 1998 Stock Option Plan +

               10.10     Credit Agreement dated February 26, 1999 by and
                         between the Company and Imperial Bank****

               10.11     General Security Agreement dated February 26, 1999 by
                         and between the Company and Imperial Bank ****

               10.12     General Security Agreement dated February 26, 1999 by
                         and between the Company and Imperial Bank ****

               10.13     Note Secured by Deed of Trust in the principal
                         amount of $2,320,000  dated  February 26, 1999 made
                         by the Company in favor of Imperial Bank****

               10.14     Agreement and Plan of Reorganization among the Company,
                         PacSoft, Incorporated and Karen Hunter, William Schmidt
                         and Mae Webb dated March 31, 1999++

               23        Consent of Independent Auditors

               27.1      Financial Data Schedule

               27.2      Restated Financial Data Schedule

       (b)     Reports on Form 8-K

           On March 5, 1999,  the  Company  filed a Current  Report on Form 8-K,
           reporting the acquisition of R-Cube Technologies, Inc.


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

*    Filed as an exhibit to the  Company's  Registration  Statement on Form SB-2
     dated May 21, 1996 or amendment  thereto dated June 14, 1996  (Registration
     No. 333-4844-LA) and incorporated herein by reference.
**   Filed as an exhibit to the Company's  Form 10-KSB for the fiscal year ended
     March 31, 1997 and filed with  Securities  and Exchange  Commission on June
     30, 1997, or amendment  thereto  filed on August 19, 1997 and  incorporated
     herein by reference.
***  Filed as an exhibit to the Company's  Form 10-QSB for the quarterly  period
     ended  December  31,  1998 and  filed  with  the  Securities  and  Exchange
     Commission on February 11, 1999 and incorporated herein by reference.
**** Filed as an exhibit to the Company's  Form 8-K dated  February 26, 1999 and
     filed with the  Securities  and  Exchange  Commission  on March 5, 1999 and
     incorporated
     herein by reference.
+    Filed as an exhibit to the  Company's  Proxy  Statement  filed  pursuant to
     Section 14(a) of the Securities  Act on November 12, 1998 and  incorporated
     herein by reference.
++   Filed herewith.


<PAGE>


                        SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                RESEARCH ENGINEERS, INC


Dated: June 30, 1999            By:   /s/ AMRIT K. DAS
                                --------------------------
                                Amrit K. Das, Chief
                                Executive Officer


     In  accordance  with the Exchange  Act,  this report has been signed by the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
         Name                    Title                          Date
-----------------------   --------------------              -------------
<S>                       <C>                               <C>


/s/ AMRIT K. DAS          Chairman of the Board,            June 30, 1999
--------------------      Chief Executive Officer
Amrit K. Das              and Director (principal
                          executive officer)



/s/ JYOTI CHATTERJEE      President, Chief Operating        June 30, 1999
--------------------      and Director
Jyoti Chatterjee


/s/ WAYNE BLAIR           Secretary and Chief               June 30, 1999
-------------------       Financial Officer (principal
Wayne Blair               financial and accounting
                          officer)



/s/ SANTANU DAS           Director                          June 30, 1999
-------------------
Santanu Das


/s/ DAN W. HEIL           Director                          June 30, 1999
-------------------
Dan W. Heil



/s/ BRUCE CUMMINGS        Director                          June 30, 1999
-------------------
Bruce Cummings
</TABLE>


<PAGE>


                       EXHIBIT INDEX

Exhibit No.              Description
-----------    -----------------------------------------------------------------

   10.1        Research Engineers, Inc. 1996 Stock Option Plan*

   10.2        Employment  Agreement  dated May 1, 1996,  by and between
               the Company and Amrit K. Das*

   10.3        Employment  Agreement  dated May 1, 1996,  by and between
               the Company and Jyoti Chatterjee*

   10.4        Employment  Agreement  dated May 1, 1996,  by and between
               the Company and Clara Y. M. Young*

   10.5        Research Engineers, Inc. 1997 Stock Option Plan**

   10.6        Business Loan  agreement  dated October 15, 1996 between the
               Company and Union Bank of California N.A.**

   10.7        Promissory Note dated March 20,  1997 in the  principal  amount
               of  $1,800,000 made payable to Union Bank of California N.A.**

   10.8        Agreement  Not To Compete  dated  October 1, 1998 between the
               Company and Techna Consultancy Private Limited***

   10.9        Research Engineers, Inc. 1998 Stock Option Plan +

   10.10       Credit Agreement  dated  February  26,  1999 by and  between
               the  Company and Imperial Bank****

   10.11       GeneralSecurity  Agreement  dated February 26, 1999 by and
               between the Company and Imperial Bank ****

   10.12       GeneralSecurity  Agreement  dated February 26, 1999 by and
               between the Company and Imperial Bank ****

   10.13       Note Secured by Deed of Trust in the principal  amount of
               $2,320,000 dated February 26, 1999 made by the Company in favor
               of Imperial Bank****

   10.14       Agreement  and  Plan  of  Reorganization  among the Company,
               PacSoft,  Incorporated and Karen Hunter, William  Schmidt and
               Mae Webb dated March 31, 1999++

   23          Consent of Independent Auditors

   27.1        Financial Data Schedule

   27.2        Restated Financial Data Schedule

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

*    Filed as an exhibit to the  Company's  Registration  Statement on Form SB-2
     dated May 21, 1996 or amendment  thereto dated June 14, 1996  (Registration
     No. 333-4844-LA) and incorporated herein by reference.
**   Filed as an exhibit to the Company's  Form 10-KSB for the fiscal year ended
     March 31, 1997 and filed with  Securities  and Exchange  Commission on June
     30, 1997, or amendment  thereto  filed on August 19, 1997 and  incorporated
     herein by reference.
***  Filed as an exhibit to the Company's  Form 10-QSB for the quarterly  period
     ended  December  31,  1998 and  filed  with  the  Securities  and  Exchange
     Commission on February 11, 1999 and incorporated herein by reference.
**** Filed as an exhibit to the Company's  Form 8-K dated  February 26, 1999 and
     filed with the  Securities  and  Exchange  Commission  on March 5, 1999 and
     incorporated herein by reference.
+    Filed as an exhibit to the  Company's  Proxy  Statement  filed  pursuant to
     section 14(a) of the Securities  Act on November 12, 1998 and  incorporated
     herein by reference.
++   Filed herewith.