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

                                   FORM 10-Q
     [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
          THE SECURITIES AND EXCHANGE ACT OF 1934

For Quarterly Period Ended December 31, 1998

                                      OR

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


                        Commission File Number: 0-28900

                                        
                           ROGUE WAVE SOFTWARE, INC.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

       Delaware                                          93-1064214
--------------------------------------------------------------------------------
(State or other jurisdiction of                       (IRS Employer
incorporation or organization)                        Identification No.)

5500 Flatiron Parkway, Boulder, Colorado                    80301
--------------------------------------------------------------------------------
(Address of principal executive offices)                 (Zip Code)

                                (303) 473-9118
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months  (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.              YES    X    NO
                                                     -----      ----

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

        Class                                   Outstanding at December 31, 1998
        -----                                   -------------------------------
Common Stock, $0.001 par value                             10,502,262

                                      1.
50576 v2/SH
130w02!.DOC
<PAGE>
 
                           ROGUE WAVE SOFTWARE, INC.
                                   FORM 10-Q
                                        
                                     INDEX



                                                                        Page No.
                                                                        --------

PART I - FINANCIAL INFORMATION

Item 1.   Consolidated Financial Statements:
                               
             Condensed Consolidated Balance Sheets at September 30, 1998
             and December 31, 1998......................................   3
                               
             Consolidated Statements of Operations for the three
             months ended December 31, 1997 and 1998....................   4
                               
             Consolidated Statements of Cash Flows for the
             three months ended December 31, 1997 and 1998..............   5
                               
            Notes to Consolidated Financial Statements.................    6
 
Item 2      Management's Discussion and Analysis of Financial
            Condition and Results of Operations........................    7
 
Item 3.     Quantitative and Qualitative Disclosures About Market Risk.   17
 
PART II - OTHER INFORMATION
 
Item 5.     Other information..........................................   18
Item 6.     Exhibits and Reports on Form 8-K...........................   18
 
SIGNATURES.............................................................   20

                                       2.
<PAGE>
 
                            ROGUE WAVE SOFTWARE, INC.
                                 AND SUBSIDIARIES
                                        
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                        
                                  (in thousands)
                                        


<TABLE>
<CAPTION>
                                                                            September 30,           December 31,
                                                                                 1998                   1998
                                                                        -------------------     ------------------
                                                                                                     (unaudited)
                                 ASSETS
 
Current assets:
<S>                                                                       <C>                     <C>
   Cash, cash equivalents and short term investments....................            $35,264                $36,320
   Accounts receivable, net.............................................              7,341                  7,888
   Prepaid expenses and other current assets............................              2,799                  2,718
                                                                                    -------                -------
   Total current assets.................................................             45,404                 46,926
 
Equipment, net..........................................................              4,820                  4,389
Other assets, net.......................................................              4,303                  4,419
                                                                                    -------                -------
   Total assets.........................................................            $54,527                $55,734
                                                                                    =======                =======
 
 
 
                LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable.....................................................            $ 1,067                $   632
   Accrued expenses.....................................................              2,862                  3,329
   Deferred revenue.....................................................              7,577                  8,454
   Current portion of long-term obligations.............................                116                     85
                                                                                    -------                -------
   Total current liabilities............................................             11,622                 12,500
 
Stockholders' equity:
   Common stock.........................................................                  9                      9
     Additional paid-in capital.........................................             37,849                 37,195
   Retained earnings....................................................              5,073                  5,962
   Other comprehensive income (loss)....................................                (26)                    68
                                                                                    -------                -------
 
   Total stockholders' equity...........................................             42,905                 43,234
                                                                                    -------                -------
 
   Total liabilities and stockholders' equity...........................            $54,527                $55,734
                                                                                    =======                =======
 
 
</TABLE>


                            See accompanying notes.

                                       3.
<PAGE>
 
                            ROGUE WAVE SOFTWARE, INC.
                                 AND SUBSIDIARIES
                                        
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                        
                 (in thousands, except per share data, unaudited)
                                        
<TABLE>
<CAPTION>
                                                                             Three months ended
                                                                               December 31,
                                                                          ------------------------
                                                                             1997         1998
                                                                          -----------  -----------
 
Revenue:
<S>                                                                       <C>          <C>
   License revenue......................................................      $ 7,371      $ 7,809
   Service and maintenance revenue......................................        3,501        4,376
                                                                              -------      -------
    Total revenue........................................................      10,872       12,185
                                                                              -------      -------
 
Cost of revenue:
   Cost of license revenue..............................................          539          496
   Cost of service and maintenance revenue..............................          933        1,574
                                                                              -------      -------
 
   Total cost of revenue................................................        1,472        2,070
                                                                              -------      -------
 
   Gross profit.........................................................        9,400       10,115
                                                                              -------      -------
 
Operating expenses:
   Product development..................................................        2,176        2,241
   Sales and marketing..................................................        4,355        5,408
   General and administrative...........................................        1,073        1,213
                                                                              -------      -------
 
   Total operating expenses.............................................        7,604        8,862
                                                                              -------      -------
 
   Income from operations...............................................        1,796        1,253
Other income, net.......................................................          383          115
                                                                              -------      -------
 
   Income before income taxes...........................................        2,179        1,368
Income tax expense......................................................          621          479
                                                                              -------      -------
 
   Net income...........................................................      $ 1,558      $   889
                                                                              =======      =======
 
 
 
Pro forma net income data:
   Income before income taxes, as reported..............................      $ 2,179
   Pro forma income tax expense.........................................          763
                                                                              -------
 
   Pro forma net income.................................................      $ 1,416
                                                                              =======
 
   Pro forma diluted earnings per share.................................        $0.13
                                                                              =======
 
 
Basic earnings per share................................................        $0.16        $0.09
                                                                              =======      =======
Diluted earnings per share..............................................        $0.14        $0.08
                                                                              =======      =======
 
 
Shares used in basic per share calculation..............................       10,040       10,444
Shares used in diluted per share calculation............................       10,862       10,970
</TABLE>
                                                                               
                            See accompanying notes.

                                       4.
<PAGE>
 
                            ROGUE WAVE SOFTWARE, INC.
                                 AND SUBSIDIARIES
                                        
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        
                            (in thousands, unaudited)
<TABLE>
<CAPTION>
                                                                                                        Three months ended
                                                                                                            December 31,
                                                                                                      ------------------------
                                                                                                           1997         1998
                                                                                                      --------------  --------
<S>                                                                                                   <C>             <C>
Cash flows from operating activities:
   Net income.......................................................................................        $ 1,558   $   889
 Adjustments to reconcile net income to net cash from operating activities:
   Depreciation and amortization....................................................................            611       779
   Loss on disposal of assets.......................................................................             --        58
  Changes in assets and liabilities:
    Accounts receivable.............................................................................             79      (547)
    Prepaid expenses and other current assets.......................................................            124       136
    Other noncurrent assets.........................................................................           (295)     (588)
    Accounts payable and accrued expenses...........................................................         (1,265)      332
    Deferred  revenue...............................................................................            128       877
                                                                                                            -------   -------
 
      Net cash from operating activities............................................................          1,484     1,936
                                                                                                            -------   -------
 
Cash flows from investing activities:
   Equipment acquisitions...........................................................................           (944)     (288)
                                                                                                            -------   -------
 
      Net cash from investing activities............................................................           (944)     (288)
                                                                                                            -------   -------
 
Cash flows from financing activities:
   Payments on long-term debt and capital lease obligations.........................................            (48)      (31)
   Purchase of treasury stock.......................................................................             --      (815)
   Stock issuance costs.............................................................................            (23)       --
   Payments of dividends............................................................................           (141)       --
   Proceeds from exercise of stock options..........................................................            134       160
                                                                                                            -------   -------
 
      Net cash from financing activities............................................................            (78)     (686)
                                                                                                            -------   -------
 
Effect of exchange rate changes on cash.............................................................            110        94
                                                                                                            -------   -------
 
      Net change in cash and cash equivalents.......................................................            572     1,056
Cash, cash equivalents and short term investments at beginning of period............................         35,738    35,264
                                                                                                            -------   -------
 
Cash, cash equivalents and short term investments at end of period..................................         36,310    36,320
                                                                                                            =======   =======
</TABLE>



                            See accompanying notes.

                                       5.
<PAGE>
 
                           ROGUE WAVE SOFTWARE, INC.
                                    NOTES TO
                       CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)
                                        
1. Basis of Presentation
   The accompanying financial statements have been prepared in conformity with
   generally accepted accounting principles. However, certain information or
   footnote disclosures normally included in financial statements prepared in
   accordance with generally accepted accounting principles have been condensed,
   or omitted, pursuant to the rules and regulations of the Securities and
   Exchange Commission. In the opinion of management, the statements include all
   adjustments necessary (which are of a normal and recurring nature) for the
   fair presentation of the results of the interim periods presented. These
   financial statements should be read in conjunction with the Company's audited
   consolidated financial statements for the year ended September 30, 1998, as
   included in the Company's annual report on Form 10-K.

2. Common stock repurchase
   In October 1998, the Board of directors authorized the Company to repurchase
   up to the lessor of 500,000 shares of the Company's common stock or
   $10,000,000. The Company purchased 90,000 ($815,000) of its common shares
   during the three months ended December 31, 1998, of which 23,607 were used
   for employee benefit plans. The effect of the common stock repurchase on the
   calculation of earnings per share was insignificant.

                                       6.
<PAGE>
 
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties.  The Company's actual results could differ materially from those
discussed herein.  Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, as well as in
the section "Risk Factors" and "Business" in the Company's Annual Report on Form
10-K for the year ended September 30, 1997.  Readers are cautioned not to place
undue reliance on these forward-looking statements which reflect management's
analysis only as of the date hereof.  The Company undertakes no obligation to
publicly release the results of any revision to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.

Overview

     Rogue Wave was founded in 1989 to provide reusable software parts for the
development of object-oriented software applications.  The Company operated as a
Subchapter S corporation until June 1994.  In October 1995, Rogue Wave merged
with Inmark Development Corporation ("Inmark"), a privately held corporation
specializing in the development, distribution and support of an object-oriented
graphical user interface library written in the C++ programming language.  In
February 1998, the Company merged with Stingray Software, Inc. ("Stingray"), a
privately held corporation specializing in the development and distribution of
object-oriented development tools for Windows programmers and is a leading
provider of Visual C++ class libraries.  Both transactions were accounted for as
a pooling-of-interests business combination.  See Note 2 of Notes to
Consolidated Financial Statements.

     To date, the Company's revenue has been derived from licenses of its
software products and related maintenance, training and consulting services.
License revenue is recognized upon execution of a license agreement and shipment
of the product if no significant contractual obligations remain and collection
of the resulting receivable is probable.  Allowances for credit risks and for
estimated future returns are provided for upon shipment.  Returns to date have
not been material.  Service and maintenance revenue consists of fees that are
charged separately from the product licenses.  Maintenance revenue consists of
fees for ongoing support and product updates and is recognized ratably over the
term of the contract, which is typically 12 months.  Service revenue consists of
training and consulting services and is recognized upon completion of the
related activity.  The Company's revenue recognition policies are in compliance
with American Institute of Certified Public Accountants Statements of Position
91-1, 97-2 and 98-4, relating to Software Revenue Recognition.  See Note 1 of
Notes to Consolidated Financial Statements.

     The Company markets its products primarily through its direct sales force,
and to a lesser extent through the Internet and an indirect channel consisting
of OEMs, VARs, dealers and distributors.  The Company's direct sales force
consist of an inside telesales group that focuses on smaller orders ($50,000 or
less), and an outside sales force that focuses on larger site licenses.  The
Company makes all of its products available for sale and distribution over the
Internet.  Revenue through this channel has not been significant to date, and
there can be no assurance that the Company will be successful in marketing its
products through this channel.

     International revenue accounted for approximately 24%, 28% and 26% of total
revenue in fiscal 1997, 1998 and the three months ended December 31, 1998,
respectively.  In January 1996, the Company established a wholly owned
subsidiary in Germany to market and support the Company's products in Germany
and neighboring countries.  In February 1997, the Company expanded its European
operations by acquiring Precision, a distributor of Rogue Wave software products
in Germany, the United Kingdom, France and the Benelux countries.  The Company
anticipates further expansion in foreign countries and expects that
international license and service and maintenance revenue will account for an
increasing portion of its total revenue in the future.  The Company has
committed and continues to commit significant management time and financial
resources to developing direct and indirect international sales and support
channels.  There can be no assurance, however, that the Company will be able to
maintain or increase international market demand for its products.

     The majority of the Company's international revenue is generated by the
Company's European subsidiaries and is denominated in local currencies.  The
Company may enter into forward foreign exchange contracts to reduce

                                       7.
<PAGE>
 
the risk associated with currency fluctuations. Although exposure to currency
fluctuations to date has been insignificant, to the extent international revenue
is denominated in local currencies, foreign currency translations may contribute
to significant fluctuations in, and could have a material adverse effect upon,
the Company's business, financial condition and results of operations. See "Risk
Factors- Risks Inherent in International Operations."

     The Company acquired a controlling interest in HotData Inc. ("HotData") for
$1.3 million on October 1, 1997.  HotData began operations during 1997 and has
developed technology relating to the collection and verification of data across
the Internet.  On September 1, 1998, HotData issued common stock to additional
investors thereby reducing the Company's percentage ownership from 78% to 42%.
The HotData investment has been accounted for using the equity method of
accounting for fiscal 1998 and the Company expects to continue to account for
the HotData investment using the equity method of accounting in fiscal 1999.

     In February 1998, the Company acquired all of the outstanding shares of
Stingray common stock in a business combination accounted for as a pooling of
interests for approximately 1.65 million shares of Rogue Wave common stock.
Stingray is a privately held company that develops and distributes development
tools for Windows programmers. The merger added several new product lines to
Rogue Wave's current slate of object-oriented C++ and Java TM class libraries
and builders. Stingray offers an extensive line of add-on libraries that extend
and enhance the Microsoft Foundation Classes (MFC), providing additional,
prebuilt functionality for creating sophisticated GUI controls, grids, diagrams
and charts. Stingray also offers ActiveX components, and several Java class
libraries that will further strengthen Rogue Wave's offerings in the Java
marketplace. The Company incurred approximately $700,000 in merger related costs
during fiscal 1998 primarily in the quarter ended March 31, 1998. The financial
results for all periods presented include the accounts of the Company and
Stingray.

     In June 1998, the Company implemented a reorganization and realignment of
its product strategy. Cost saving actions were taken which resulted in the
closing of its Mountain View, California, and Charlotte, North Carolina,
development operations, reducing its domestic administration staff and began the
process of consolidating the Oregon operations into one facility. In connection
with these actions, the Company incurred a $589,000 reorganization charge
primarily consisting of severance and lease termination costs in the quarter
ended June 30, 1998.

                                       8.
<PAGE>
 
Results of Operations

The following table sets forth for the periods indicated the percentage of net
revenues represented by certain line items in the Company's Consolidated
Statements of Operations.

<TABLE>
<CAPTION>
                                                                             Percentage of Total
                                                                                 Net Revenues
                                                                          --------------------------
                                                                             Three months ended
                                                                                 December 31,
                                                                          --------------------------
                                                                              1997          1998
                                                                          ------------  ------------
 
Revenue:
<S>                                                                       <C>           <C>
 License revenue........................................................       68%           64%
 Service and maintenance revenue........................................       32%           36%
                                                                              ----          ----
   Total revenue........................................................      100%
                                                                              ----          ----
Cost of revenue:
 Cost of license revenue................................................        5%            4%
 Cost of service and maintenance revenue................................        9%           13%
                                                                              ----          ----
 
   Total cost of revenue................................................       14%           17%
                                                                              ----          ----
   Gross profit                                                                86%           83%
                                                                              ----          ----
 
Operating expenses:
 Product development....................................................       20%           19%
 Sales and marketing....................................................       40%           44%
 General and administrative.............................................       10%           10%
                                                                              ----          ----
   Total operating expenses.............................................       70%           73%
                                                                              ----          ----
 
   Income from operations...............................................       16%           10%
Other income, net.......................................................        4%            1%
                                                                              ----          ----
   Income before income taxes...........................................       20%           11%
Income tax expense......................................................        6%            4%
                                                                              ----          ----
   Net income...........................................................       14%            7%
                                                                              ====          ====
 
 
</TABLE>
                                                                                

Revenue

     Total revenue for the three months ended December 31, 1998 was $12.2
million versus $10.9 million for the three months ended December 31, 1997,
representing an increase of 12%.  License revenue for the three months ended
December 31, 1998 was $7.8 million versus $7.4 million for the three months
ended December 31, 1997, representing an increase of 6%.  License revenue
increased primarily as a result of an increase in the number of licenses sold to
existing and new customers, reflecting additional product offerings, an
expanding market, increased market awareness, expansion of the Company's
telesales and direct sales organization and increased international presence.

     Service and maintenance revenue for the three months ended December 31,
1998 was $4.4 million versus $3.5 million for the three months ended December
31, 1997, representing an increase of 25%.  The increase in service and
maintenance revenue was primarily attributable to increased sales volume of the
Company's support and maintenance services related to the Company's larger
installed base.

Cost of Revenue

     Cost of license revenue for the three months ended December 31, 1998 was
$496,000 versus $539,000 for the three months ended December 31, 1997,
representing a decrease of 8%.  The decrease in cost of license revenue was

                                       9.
<PAGE>
 
due primarily to reduced levels of royalties paid, changes in product mix and
the timing of large site license sales. As a percentage of total revenue, cost
of license revenue was relatively flat for the three month period.

     Cost of service and maintenance revenue for the three months ended December
31, 1998 was $1.6 million versus $933,000 for the three months ended December
31, 1997 representing an increase of 69%.  As a percentage of total revenue,
cost of service and maintenance revenue was 36% for the three months ended
December 31, 1998 versus 26% for the three months ended December 31, 1997.  The
increases in cost of service and maintenance revenue was due primarily to the
use of outside contractors during the quarter ended December 31, 1998 to help
provide consulting services. While the Company expects that service and
maintenance revenue will continue to grow, the Company does not believe the cost
of such revenue will increase as a percentage of total revenue.

Operating Expenses

     Product development expense for the three months ended December 31, 1998
was $2.2 million versus $2.2 million for the three months ended December 31,
1997.  As a percentage of total revenue, product development expenses were 19%
for the three months ended December 31, 1998 versus 20% for the three months
ended December 31, 1997. The decrease in product development expenses as a
percentage of revenue was primarily due to the slower growth development expense
relative to the growth in revenue.  The Company anticipates that it will
continue to devote substantial resources to product development and that product
development expenses will increase in absolute dollars and as a percentage of
revenue through fiscal 1999 as the Company continues to increase its product
development capacity.

     Sales and marketing expense for the three months ended December 31, 1998
was $5.4 million versus $4.4 million for the three months ended December 31,
1997 representing an increase of 24%.  As a percentage of total revenue, sales
and marketing expenses was 44% for the three months ended December 31, 1998
versus 40% for the three months ended December 31, 1997.  The increases were
primarily due to continued investment in systems and personnel to expand the
Company's sales channels and the addition of telesales and field sales
personnel.  While the Company expects that sales and marketing expenses will
continue to grow, the Company does not believe such expenses will increase as a
percentage of total revenue.

     General and administrative expense for the three months ended December 31,
1998 was $1.2 million versus $1.1 million for the three months ended December
31, 1997 representing an increase of 13%.  The increase in general and
administrative expense was primarily due to increased staffing, investment in
infrastructure and associated expenses necessary to manage and support the
Company's growing operations.  The Company believes that during the near term
its general and administrative expenses will continue to grow in absolute
dollars as a result of additional anticipated expansion.

                                      10.
<PAGE>
 
Other Income, Net

     Other income decreased during the three months ended December 31, 1998
versus the three months ended December 31, 1997 due primarily to the Company's
minority share in the loss of an equity investment of  $197,000.   The majority
of other income consists of interest income on the Company's short-term
investment which did not materially change for the quarter ended December 31,
1998 compared to December 31, 1997.

Income Tax Expense

     The Company's effective tax rate for three months ended December 31, 1998,
was 35% compared to 29% for the three months ended December 31, 1997.  The
effective rate for the quarter ended December 31, 1997 reflects the exclusion of
earnings due to the Subchapter S status of Stingray.  The Company anticipates
its fiscal 1999 effective tax rate will be approximately 35% percent; however,
this rate could change based on a change in the percentage of total revenue
derived from international sources.

Liquidity and Capital Resources

     The increase in cash flows from operations was due primarily to a decrease
in net income offset by changes in working capital. The Company's investing
activities consist primarily of the purchase and sale of short-term investments
and purchases of equipment. Short-term investments primarily consist of
commercial paper with original maturities of 180 days or less which are held as
securities available for sale. The Company believes that expected cash flow from
operations combined with existing cash and cash equivalents and short-term
investments will be sufficient to meet its cash requirements for the foreseeable
future. See "Risk Factors - Uncertainty of Future Operating Results;
Fluctuations in Quarterly Operating Results," and "-Future Acquisitions."

Factors That May Affect Future Results

     In evaluating the Company's business, prospective investors should
carefully consider the following factors in addition to the other information
presented in this report.

     Uncertainty of Future Operating Results.  Our future operating results are
difficult to predict due to a variety of factors, many of which are outside of
our control.  These factors include:

 . the demand for our products and services;
 . the level of product and price competition;
 . the size, type and timing of individual license transactions;
 . the delay or deferral of customer implementations;
 . our success in expanding our direct sales force and indirect distribution
  channels;
 . the timing of new product introductions and product enhancements;
 . levels of international sales;
 . changes in our pricing policy or that of our competitors;
 . publication of opinions about us, our products and object-oriented,
  component technology by industry analysts;
 . our ability to retain key employees and hire new employees; and
 . our ability to develop and market new products and control costs.

     One or more of the foregoing factors may cause our operating expenses to be
disproportionately high during any given period or may cause our net revenue and
operating results to fluctuate significantly.  Based on the preceding factors,
we may experience a shortfall in revenue or earnings or otherwise fail to meet
public market expectations, which could materially adversely affect our
business, financial condition and the market price of our common stock.  For
example, our financial results for the second fiscal quarter of 1998 were below
the expectations of public market financial analysts.  The primary factors
leading to the lower than expected results were (1) the delay of a number of
large orders, several due to industry mergers, and (2) the lingering effects of
our sales force reorganization during the fall of 1997. After our announcement
of such financial results, the price of our common stock declined materially.

                                      11.
<PAGE>
 
     Fluctuations in Quarterly Operating Results.  We generally ship orders as
received and as a result typically have little or no backlog.  The lack of
significant backlog means that quarterly revenue and operating results depend
substantially on the volume and timing of orders we receive during the quarter,
which are difficult to forecast due to a number of reasons, many of which are
outside our control.  Such reasons include:

 . lack of a reliable means to assess overall customer demand;
 . historically we have earned a substantial portion of our revenue in
 . the last weeks, or even days, of each quarter;
 . larger customer orders are subject to long sales cycles and are
 . frequently delayed; and
 . our service and maintenance revenue tends to fluctuate as consulting
  contracts are undertaken, renewed, completed or terminated.

                                      12.
<PAGE>
 
     We base operating expenses on anticipated revenue trends and a high
percentage of these expenses are relatively fixed.  As a result, a delay in the
recognition of revenue from a limited number of transactions could cause
significant variations in operating results from quarter to quarter and could
lead to significant losses.  In addition, we contributed technology to and made
an investment in HotData Inc. ("HotData") in order to develop technology
relating to the collection and verification of data across the Internet.  We
account for HotData using the equity method of accounting.  Accordingly,
HotData's financial results affect our financial results, and fluctuations in
their results will cause fluctuations in our operating results.  As a result of
these factors, operating results and growth rates for any particular quarter or
other fiscal period may not be indicative of future operating results.
Furthermore, fluctuations in our quarterly operating results will likely result
in volatility in the price of our Common Stock in the future.

     Management of Growth.  Our business has grown rapidly in the recent years.
This growth has placed a significant strain on our management systems and
resources.  To manage future growth we must continue to (1) improve our
financial and management controls, reporting systems and procedures on a timely
basis and (2) expand, train and manage our employee work force.  If we fail to
manage our growth effectively, our business, financial condition and results of
operations could be materially and adversely affected.

     For example, the acquisition of Stingray Software, Inc. resulted in our
product development team being distributed in four separate sites across the
country.  The difficulty of managing this distribution contributed to our
decision during 1998 to close two of our four development sites.  The closures
resulted in one-time charges of approximately $580,000 and caused disruption to
our development efforts.  In addition, we recently moved our administrative
operations from Corvallis, Oregon, to Boulder, Colorado.  This move has resulted
in the distribution of our senior management team, which may make managing our
operations in the future more difficult.

     Dependence on Emerging Market for C++, Visual C++/MFC and Java.  Our
product lines are designed for use in object-oriented software application
development, specifically the C++, Visual C++/MFC and Java programming
languages.  To date, a substantial majority of our revenue has been attributable
to sales of products and related maintenance and consulting services related to
C++ programming and development.  We believe that while the market for object-
oriented technology is growing, our growth depends upon broader market
acceptance of object-oriented technology.  Object-oriented programming languages
are very complex and the number of software developers using them is relatively
small compared to the number of developers using other software development
technology.  Our financial performance will depend in part upon continued growth
in object-oriented technology and markets and the development of standards that
our products address.  There can be no assurance that the market will continue
to grow or that we will be able to respond effectively to the evolving
requirements of the market.

     We have also developed several products for use in the Java market.  We
have spent and will continue to devote resources to the development of new and
enhanced products that address the Java market.  There can be no assurance that
we will be successful in marketing our Java products or that the market for Java
products will grow.  If the Java market fails to grow, or grows more slowly than
we currently anticipate, our business could be adversely affected.

     Competition.  Our products target the emerging market for C++, Visual
C++/MFC, Visual Basic/ActiveX and Java software parts and programming tools.
Direct competitors in the C++ market include Microsoft (with its Microsoft
Foundation Classes, "MFC"), IBM, ILOG and several privately held companies.
Microsoft is a particularly strong competitor due to its large installed base
and the fact that it bundles its MFC library with its own and other C++
compilers.  Microsoft may decide in the future to devote more resources to or
broaden the functions of MFC in order to address and more effectively compete
with the functionality of our products.  We face direct competition in the Java
market from Inprise, JavaSoft (a business unit of Sun Microsystems), Microsoft,
Sybase, Symantec and other companies for our Java products and expect to face
significant competition in the future from such companies with respect to other
Java products we may introduce.

     Software applications can also be developed using software parts and
programming tools in environments other than C++ or Java.  Indirect competitors
with such offerings include Microsoft (with its ActiveX technology), Inprise,
Oracle, and Powersoft (a subsidiary of Sybase).  Many of these competitors have
significantly greater resources, name recognition and larger installed bases of
customers than we do.  In addition, several database vendors, such as Informix,
Oracle and Sybase are increasingly developing robust software parts for
inclusion with

                                      13.
<PAGE>
 
their database products and may begin to compete with us in the future. These
potential competitors have well-established relationships with current and
potential customers and have the resources to enable them to more easily offer a
single vendor solution. Like our current competitors, many of these companies
have longer operating histories, significantly greater resources and name
recognition and larger installed bases of customers than we do. As a result,
these potential competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than us.

     We also face competition from systems integrators and our customers'
internal information technology departments.  Many systems integrators possess
industry specific expertise that may enable them to offer a single vendor
solution more easily, and already have a reputation among potential customers
for offering enterprise-wide solutions to software programming needs.  Systems
integrators may market competitive software products in the future.

     There are many factors that may increase competition in the market for
object-oriented software parts and programming tools, including (1) entry of new
competitors, (2) alliances among existing competitors and (3) consolidation in
the software industry.  Increased competition may result in price reductions,
reduced gross margins or loss of market share, any of which could materially
adversely affect our business, operating results and financial condition.  If we
cannot compete successfully against current and future competitors or overcome
competitive pressures, our business, operating results and financial condition
may be adversely affected.

     Risk Associated with New Versions and New Products; Rapid Technological
Change.  The software market in which we compete is characterized by (1) rapid
technological change, (2) frequent introductions of new products, (3) changing
customer needs and (4) evolving industry standards.  To keep pace with
technological developments, evolving industry standards and changing customer
needs, we must support existing products and develop new products.  We may not
be successful in developing, marketing and releasing new products or new
versions of our products that respond to technological developments, evolving
industry standards or changing customer requirements.  We may also experience
difficulties that could delay or prevent the successful development,
introduction and sale of these enhancements.  In addition, these enhancements
may not adequately meet the requirements of the marketplace and may not achieve
any significant degree of market acceptance.  If release dates of any future
products or enhancements are delayed, or if these products or enhancements fail
to achieve market acceptance when released, our business, operating results and
financial condition could be materially and adversely affected.  In addition,
new products or enhancements by our competitors may cause customers to defer or
forgo purchases of our products, which could have a material adverse effect on
our business, financial condition and results of operations.

     Risks of Future Acquisitions.  In the second fiscal quarter of 1998 we
completed a business combination with Stingray Software, Inc.  Completing the
acquisition and commencing the integration of the acquired business required
significant attention from our management and caused disruption to our ongoing
business.  We believe that such disruption had a material adverse effect on the
Company's financial results for the second fiscal quarter of 1998.

     We frequently evaluate strategic opportunities available to us and may in
the future pursue additional acquisitions of complementary technologies,
products or businesses.  Future acquisitions of complementary technologies,
products or businesses will result in the diversion of management's attention
from the day-to-day operations of our business and may include numerous other
risks, including difficulties in the integration of the operations, products and
personnel of the acquired companies.  Future acquisitions may also result in
dilutive issuances of equity securities, the incurrence of debt and amortization
expenses related to goodwill and other intangible assets.  Our failure to
successfully manage future acquisitions may have a material adverse effect on
our business and financial results.

     Risks Associated with International Operations.  A significant portion of
our revenues is derived from international sources.  To service the needs of
these companies, we must provide worldwide product support services.  We have
expanded, and intend to continue expanding, our international operations and
enter additional international markets.  This will require significant
management attention and financial resources that could adversely affect our
operating margins and earnings.  We may not be able to maintain or increase
international

                                      14.
<PAGE>
 
market demand for our products. If we do not, our international sales will be
limited, and our business, operating results and financial condition could be
materially and adversely affected.

     Our international operations are subject to a variety of risks, including
(1) foreign currency fluctuations, (2) economic or political instability, (3)
shipping delays and (4) various trade restrictions.  Any of these risks could
have a significant impact on our ability to deliver products on a competitive
and timely basis.  Significant increases in the level of customs duties, export
quotas or other trade restrictions could also have an adverse effect on our
business, financial condition and results of operations.  In situations where
direct sales are denominated in foreign currency, any fluctuation in foreign
currency or the exchange rate may adversely affect our business, financial
condition and results of operations.

     Dependence Upon Key Personnel.  Our future performance depends in
significant part upon the continued service of our key technical, sales and
senior management personnel, none of whom is bound by an employment agreement.
We believe that the technological and creative skills of our personnel are
essential to establishing and maintaining a leadership position, particularly in
light of the fact that our intellectual property, once sold to the public
market, is easily replicated.  The loss of the services of one or more of our
executive officers or key technical personnel would have a material adverse
effect on our business.  In particular, the services of Thomas Keffer and
Michael Scally, the Company's Chairman of the Board, and President and Chief
Executive Officer, respectively, would be difficult to replace.  We have key
person life insurance policies in the amount of $1.0 million each for Dr. Keffer
and Mr. Scally.

     Our future success also depends on our continuing ability to attract and
retain highly qualified technical, sales and managerial personnel.  In the past,
we have experienced some difficulty in attracting key personnel.  Competition
for such personnel is intense, and there can be no assurance that we can retain
key employees or that we can attract, assimilate or retain other highly
qualified personnel in the future.

     Variability of Sales Cycles.  We distribute our products through two
different direct sales channels, a telesales force and a field sales force, each
of which is subject to a variable sales cycle.  Products sold by our telesales
force may be sold after a single phone call or may require several weeks of
education and negotiation before a sale is made.  As such, the sales cycle
associated with telesales typically ranges from a few days to two months.  On
the other hand, the purchase of products from our field sales force is often an
enterprise-wide decision and may require the sales person to provide a
significant level of education to prospective customers regarding the use and
benefits of our products.  For these and other reasons, the sales cycle
associated with the sale of our products through our field sales force typically
ranges from two to six months and is subject to a number of significant delays
over which we have little or no control.  As a result, quarterly revenue and
operating results can be variable and are difficult to forecast, and we believe
that period-to-period comparisons of quarterly revenue are not necessarily
meaningful and should not be relied upon as an indicator of future revenue.

     Proprietary Rights, Risks of Infringement and Source Code Release.  We rely
primarily on a combination of copyright, trademark and trade secret laws,
confidentiality procedures and contractual provisions to protect our proprietary
rights.  We also believe that factors such as the technological and creative
skills of our personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are essential to
establishing and maintaining a technological leadership position.  We seek to
protect our software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection.  Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to obtain and use information that we regard as
proprietary.  The nature of many of our products requires the release of the
source code to all customers.  As such, policing unauthorized use of our
products is difficult, and while we are unable to determine the extent to which
piracy of our products exists, software piracy can be expected to be a
persistent problem.  In addition, the laws of some foreign countries do not
protect our proprietary rights as fully as do the laws of the United States.
There can be no assurance that our means of protecting its proprietary rights in
the United States or abroad will be adequate or that competition will not
independently develop similar technology.

     Although we do not believe that we are infringing any proprietary rights of
others, third parties may claim that we have infringed their intellectual
property rights.  Furthermore, former employers of our former, current or future
employees may assert claims that such employees have improperly disclosed to us
the confidential or

                                      15.
<PAGE>
 
proprietary information of such former employers. Any such claims, with or
without merit, could (1) be time consuming to defend, (2) result in costly
litigation, (3) divert management's attention and resources, (4) cause product
shipment delays, and (5) require us to pay money damages or enter into royalty
or licensing agreements. A successful claim of intellectual property
infringement against us and our failure or inability to license or create a
workaround for such infringed or similar technology may materially and adversely
affect our business, operating results and financial condition.

     Uncertainty of the Effects of the Year 2000 on Computer Programs and
Systems.  Many currently installed computer systems and software programs were
designed to use only a two-digit date field.  These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates.  Until the date fields are updated, the systems and programs could fail
or give erroneous results when referencing dates following December 31, 1999.
Such failure or errors could occur prior to the actual change in century.

     We are currently reviewing and testing all of our products for the
transition to the 21st century.  In addition we have developed and circulated to
our customers a standard for evaluating software reliability during the century
transition and provides information on compliance with existing standards
addressing the year 2000 problem.

     Three of our products perform date and time manipulations; Tools.h++,
Tools.h++ Professional, and DBTools.h++:   Class RWDate, Class RWTime, and
RWDBDateTime.  All three products were designed to function properly during the
century transition.  However, the range of years that the current implementation
of RWTime can store spans only 1901 to 2037.  This upper limit is found on
platforms that implement unsigned longs with 32 bits.  A future release of
Tools.h++ will include a 64-bit implementation of RWTime that will eliminate the
year 2037 restriction.

     Although our products have and are continuing to undergo normal quality
testing procedures, there can be no assurance that these products contain all
necessary date code changes.  Any system malfunctions due to the onset of the
year 2000 and any disputes with customers relating to year 2000 compliance,
including licensees of non-compliant products that we are unable to locate,
could have a material adverse effect on our business.

     We do, however, utilize some third-party vendor network equipment,
telecommunication products and other products that may or may not be year 2000
compliant.  We also rely, directly and indirectly, on external systems of
customers, suppliers, creditors, financial organizations and governmental
entities for accurate exchange of data.  We are evaluating our information
technology infrastructure for year 2000 compliance to determine what actions are
required to make all internal systems year 2000 compliant and what actions are
needed to mitigate vulnerability to problems related to enterprises with which
we interact.

     While we have not fully identified the impact of the year 2000 issue on our
internal systems or our operations, we expect to complete our evaluation of the
Year 2000 issue in March 1999.  To date, amounts spent on the Year 2000 issue
have been immaterial.  In addition, our current estimate is that the costs
associated with the year 2000 issue, and the consequences of incomplete or
untimely resolution of the year 2000 issue, will not have a material adverse
effect on our business or financial condition.

     There can be no assurance that we will not be affected by year 2000
disruption in the operation of the enterprises with which we interact.
Accordingly, year 2000 problems could have a material adverse effect upon our
business.

     Product Liability.  Our license agreements with our customers typically
contain provisions designed to limit our exposure to potential product liability
claims.  It is possible, however, that the limitation of liability provisions
contained in our license agreements may not be effective under the laws of
certain jurisdictions.  A successful product liability claim brought against us
could have a material adverse effect upon our business, operating results and
financial condition.

     Risk Of Product Defects.  Software products frequently contain errors or
failures, especially when first introduced or when new versions are released.
Also, new products or enhancements may contain undetected errors, or "bugs," or
performance problems that, despite testing, are discovered only after a product
has been installed and used by customers.  Errors or performance problems could
cause delays in product introduction and shipments or

                                      16.
<PAGE>
 
require design modifications, either of which could lead to a loss in revenue.
Our products are typically intended for use in applications that may be critical
to a customer's business. As a result, we expect that our customers and
potential customers have a greater sensitivity to product defects than the
market for software products generally. Despite extensive testing by us and by
current and potential customers, errors may be found in new products or releases
after commencement of commercial shipments, resulting in loss of revenue or
delay in market acceptance, diversion of development resources, the payment of
monetary damages, damage to our reputation, or increased service and warranty
costs, any of which could have a material adverse effect upon our business and
results of operations.


ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          The Company's market risk exposure is the potential loss arising from
changes in interest rates and its impact on short-term investments and foreign
currency exchange rate fluctuations.

     As of December 31, 1998, short-term investments of $29.0 million were held
available for sale with acquired maturities of less than 180 days.  Short-term
investments consist primarily of high credit and highly liquid corporate
commercial paper.  A substantial reduction in overall interest rates would not
have a material affect on the financial position of the Company.

     Exposure to variability in foreign currency exchange rates is managed
primarily through the use of natural hedges, whereby funding obligations and
assets are both managed in the local currency.  In addition, the Company will
from time to time enter into foreign currency exchange agreements to manage its
exposure arising from fluctuating exchange rates, primarily in the German mark.
The Company does not enter into any derivative transactions for speculative
purposes.  The sensitivity of earnings and cash flows to variability in exchange
rates is assessed by applying an appropriate range of potential rate
fluctuations to the Company's assets, obligations and projected results of
operations denominated in foreign currencies.  Based on the Company's overall
foreign currency rate exposure at December 31, 1998, movements in foreign
currency rates would not materially affect the financial position of the
Company.  As of December 31, 1998, the Company had outstanding short-term
forward exchange contracts to exchange German marks for U.S. dollars in the
amount of $1.3 million.

                                      17.
<PAGE>
 
PART II - OTHER INFORMATION

Item 5.  -   OTHER INFORMATION

     Pursuant to the Company's bylaws, stockholders who wish to bring matters or
propose nominees for director for inclusion in the Company's proxy statement and
form of proxy for the Company's 2000 annual meeting of stockholders pursuant to
Rule 14a-8 must provide specified information to the Company by August 13, 1999.
The deadline for submitting a stockholder proposal or a nomination for director
that is not to be included in such proxy statement is November 22, 1999.

Item 6.  -   EXHIBITS AND REPORTS ON FORM 8-K

  2.1(1)  Agreement and Plan of Reorganization between Registrant, Inmark
  Development Corporation and RW Acquisitions, Inc., dated as of September 19,
  1995.

  2.2(1)  Agreement and Plan of Merger between the Registrant and Rogue Wave
  Software, Inc., an Oregon corporation.

  2.3(3)  Agreement and Plan of Merger and Reorganization among Rogue Wave
  Software, Inc., a Delaware corporation, SR Acquisition Corp., a North Carolina
  corporation, Stingray Software, Inc., a North Carolina corporation and the
  shareholders of Stingray Software, Inc., dated as of January 19, 1998.

  2.4(4)  Articles of Merger and Plan of Merger dated February 27, 1998, filed
  with the Secretary of State of North Carolina on February 27, 1998.

  3.1(2)  Amended and Restated Certificate of Incorporation of Rogue Wave
  Software, Inc., a Delaware corporation.

  3.2(1)  Bylaws of Rogue Wave Software, Inc., a Delaware corporation.

  4.1(1)  Reference is made to Exhibits 3.1 and 3.2.

  4.2(1)  Specimen Stock Certificate.

  4.3(1)  Amended and Restated Investors' Rights Agreement between the
  Registrant and certain investors, dated November 10, 1995, as amended June 27,
  1996.

  4.4(5)  Form of Registration Rights Agreement between Rogue Wave Software,
  Inc. and the former shareholders of Stingray Software, Inc.

  10.1(1) Registrant's 1996 Equity Incentive Plan.

  10.2(1) Registrant's Employee Stock Purchase Plan.

  10.3(1) Form of Indemnity Agreement to be entered into between the Registrant
  and its officers and directors.

  10.4(1) Lease Agreement between Registrant and the State of Oregon, dated May
  1, 1996.

  10.5(1) Lease Agreement between the Registrant and the Landmark, dated April
  22, 1996.

  10.6(1) Loan and Security Agreement between the Registrant and Silicon Valley
  Bank, dated October 16, 1996.

  10.7(1) Collateral Assignment, Patent Mortgage and Security Agreement between
  the Registrant and Silicon Valley Bank, dated October 16, 1996.

                                      18.
<PAGE>
 
  27.1   Financial Data Schedule.

  (1) Filed as an Exhibit to the Registrant's Registration Statement on Form SB-
  2, as amended (No. 333 -13517)

  (2)  Filed as an Exhibit to the Registrant's quarterly report on Form 10-Q for
  the quarter ended December 31, 1996.

  (3) Filed as Exhibit 2.1 to the Registrant's Form 8-K dated February 27, 1998
  and filed on March 9, 1998.

  (4) Filed as Exhibit 2.2 to the Registrant's Form 8-K dated February 27, 1998
  and filed on March 9, 1998.

  (5) Filed as Exhibit 4.1 to the Registrant's Form 8-K dated February 27, 1998
  and filed on March 9, 1998.

Items 1, 3, 4, and 5 are not applicable and have been omitted.

                                      19.
<PAGE>
 
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                           ROGUE WAVE SOFTWARE, INC.
                           (Registrant)



Date:  February 12, 1999   ______________________________________
                           ROBERT M. HOLBURN, JR.
                           CHIEF FINANCIAL OFFICER
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                           ROGUE WAVE SOFTWARE, INC.
                           (Registrant)



Date:  February 12, 1999   /S/ ROBERT M. HOLBURN, JR.
                           ______________________________________
                           ROBERT M. HOLBURN, JR.
                           CHIEF FINANCIAL OFFICER

                                      20.