<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB


[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934
         For the quarterly period ended September 30, 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
  (State or other jurisdiction of                         22-2356861
           incorporation)                     (IRS. Employer Identification No.)


                            22700 SAVI RANCH PARKWAY
                          YORBA LINDA, CALIFORNIA 92887
                    (Address of principal executive offices)

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


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 [ ]


The number of shares outstanding of the registrant's only class of Common Stock,
$.01 par value, was 5,942,498 on November 12, 1999.

<PAGE>
<TABLE>

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                     RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                                          CONSOLIDATED BALANCE SHEET
                                             SEPTEMBER 30, 1999
                                                 (Unaudited)
                                (In thousands, except share and per share amounts)
<CAPTION>

                                     ASSETS
<S>                                                                                            <C>
Current assets:
    Cash and cash equivalents                                                                  $           2,118
    Accounts receivable (net of allowance for doubtful accounts of $415)                                   3,686
    Deferred income taxes                                                                                  1,258
    Notes and related party loans receivable                                                                  54
    Prepaid expenses and other current assets                                                                840
                                                                                               ------------------

           Total current assets                                                                            7,956

Property, plant and equipment, net                                                                         4,295
Goodwill and intangible assets (net of accumulated amortization of $1,112)                                 7,496
Other assets                                                                                                 747
                                                                                               ------------------

                                                                                               $          20,494
                                                                                               ==================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Current portion of long-term bank debt                                                     $           1,308
    Current portion of capital lease obligations                                                             101
    Accounts payable                                                                                         855
    Accrued expenses                                                                                       1,149
    Income taxes payable                                                                                     435
    Deferred maintenance revenue                                                                             842
                                                                                               ------------------

           Total current liabilities                                                                       4,690

Long-term bank debt, net of current portion                                                                5,004
Capital lease obligations, net of current portion                                                            434
Deferred income taxes                                                                                        308
                                                                                               ------------------

           Total liabilities                                                                              10,436
                                                                                               ------------------

Minority Interest                                                                                             74
                                                                                               ------------------

Stockholders' equity:
    Preferred stock, par value $.01.  Authorized 5,000,000 shares; issued and
      outstanding 371,429 shares                                                                               4
    Common stock, par value $.01.  Authorized 20,000,000 shares; issued and
      outstanding 5,939,231 shares                                                                            59
    Additional paid-in capital                                                                            10,497
    Accumulated deficit                                                                                     (299)
    Accumulated other comprehensive loss:
       Cumulative foreign currency translation adjustments                                                  (277)
                                                                                               ------------------

           Total stockholders' equity                                                                      9,984
                                                                                               ------------------

                                                                                               $          20,494
                                                                                               ==================
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       2
<PAGE>
<TABLE>

                                     RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                                   (Unaudited)
                                 (In thousands, except share and per share amounts)
<CAPTION>

                                           THREE MONTHS       THREE MONTHS       SIX MONTHS        SIX MONTHS
                                              ENDED              ENDED              ENDED             ENDED
                                           SEPTEMBER 30,      SEPTEMBER 30,     SEPTEMBER 30,     SEPTEMBER 30,
                                               1999               1998              1999               1998
                                          ---------------    ---------------   ---------------   ---------------

<S>                                       <C>                <C>               <C>               <C>
Net revenues:
    Product sales                         $        1,593     $        1,720    $        3,385    $        3,463
    IT services                                    1,832                  -             3,051                 -
    Maintenance and support                          483                482               931               955
                                          ---------------    ---------------   ---------------   ---------------

           Total net revenues                      3,908              2,202             7,367             4,418

Cost of revenues:
    Product sales, maintenance and support           242                247               456               527
    IT Services                                    1,259                  -             2,117                 -
                                          ---------------    ---------------   ---------------   ---------------
           Total cost of revenues                  1,501                247             2,573               527
                                          ---------------    ---------------   ---------------   ---------------

           Gross profit                            2,407              1,955             4,794             3,891
                                          ---------------    ---------------   ---------------   ---------------

Operating expenses:
    Selling, general and administrative            2,064              1,622             3,988             3,109
    Research and development                         633                607             1,260             1,222
                                          ---------------    ---------------   ---------------   ---------------

           Total operating expenses                2,697              2,229             5,248             4,331
                                          ---------------    ---------------   ---------------   ---------------

           Operating loss                           (290)              (274)             (454)             (440)
                                          ---------------    ---------------   ---------------   ---------------

Other expense (income):
    Interest, net                                    120                 23               241                39
    Other                                            (14)                (5)              (10)              (21)
                                          ---------------    ---------------   ---------------   ---------------

           Total other expense                       106                 18               231                18
                                          ---------------    ---------------   ---------------   ---------------

Loss before income taxes                            (396)              (292)             (685)             (458)

Income tax benefit                                  (117)              (101)             (217)             (144)
Minority interest in equity of
    consolidated subsidiary                            7                  -                 7                 -
                                          ---------------    ---------------   ---------------   ---------------

           Net loss                       $         (286)    $         (191)   $         (475)   $         (314)
                                          ===============    ===============   ===============   ===============

Net loss per common share:
         Basic                            $        (0.05)    $        (0.03)   $        (0.08)   $        (0.05)
         Diluted                          $        (0.05)    $        (0.03)   $        (0.08)   $        (0.05)

Common shares used in computing net
  loss per common share:
         Basic                                 5,790,210          5,730,710         5,764,576         5,730,210
         Diluted                               5,790,210          5,730,710         5,764,576         5,730,210

</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       3
<PAGE>
<TABLE>

                                     RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (Unaudited)
                                                 (In thousands)
<CAPTION>

                                                                         SIX MONTHS ENDED     SIX MONTHS ENDED
                                                                            SEPTEMBER             SEPTEMBER
                                                                             30, 1999             30, 1998
                                                                         -----------------    -----------------
<S>                                                                      <C>                 <C>
Cash flows from operating activities:
    Net loss                                                             $           (475)   $            (314)
    Adjustments to reconcile net loss to net cash used
      in operating activities:
        Depreciation and amortization                                                 711                  494
        Deferred income taxes                                                        (200)                (241)
        Gain on sale of investments                                                     -                  (30)
        Minority interest in equity of consolidated subsidiary                          7                    -
        Changes in operating assets and liabilities:
          Accounts receivable                                                         238                  663
          Notes and related party loans receivable                                     (3)                  25
          Prepaid expenses and other current assets                                  (274)                 (92)
          Other assets                                                               (140)                (112)
          Accounts payable, accrued expenses and other current
            liabilities                                                                (2)                (145)
          Deferred maintenance revenue                                               (257)                (300)
          Income taxes payable                                                         24                  (23)
                                                                         -----------------    -----------------

                  Net cash used in operating activities                              (371)                 (75)
                                                                         -----------------    -----------------

Cash flows from investing activities:
    Purchase of property, plant and equipment                                        (436)                (332)
    Purchase of short-term investments                                                  -                 (733)
    Sale of short-term investments                                                      -                  639
    Payments to acquire companies, net of cash acquired                            (2,656)                   -
                                                                         -----------------    -----------------

                  Net cash used in investing activities                            (3,092)                (426)
                                                                         -----------------    -----------------

Cash flows from financing activities:
    Proceeds from bank debt                                                           890                   76
    Repayment of bank debt                                                             (5)                 (58)
    Repayment of capital lease obligations                                            (36)                   -
    Preferred stock issuance                                                        2,600                    -
    Common stock issuance from exercise of options                                     86                    8
                                                                         -----------------    -----------------

                  Net cash provided by financing activities                         3,535                   26
                                                                         -----------------    -----------------

    Effect of exchange rate changes on cash and cash equivalents                       35                  (23)
                                                                         -----------------    -----------------

                  Increase (decrease) in cash and cash equivalents                    107                 (498)

Cash and cash equivalents, beginning of period                                      2,011                1,390
                                                                         -----------------    -----------------

Cash and cash equivalents, end of period                                 $          2,118     $            892
                                                                         =================    =================

Supplemental cash flow information:
   Amounts paid for:
        Interest                                                         $            234     $             37
        Income taxes                                                                   41                  133
Non cash transactions:
   Acquisition of equipment under capital lease obligations              $              4     $              -
   Issuance of common shares for NetGuru acquisition                                1,194                    -
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       4
<PAGE>

                    RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999
                                   (Unaudited)


1.   BASIS OF PRESENTATION

     The unaudited consolidated financial statements include the accounts of
     Research Engineers, Inc. and its wholly and majority owned subsidiaries
     (the "Company"). All significant transactions among the consolidated
     entities have been eliminated upon consolidation. Minority interest
     represents the minority shareholder's proportionate share of the equity in
     NetGuru Systems, Inc. and NetGuru Consulting, Inc. (collectively,
     "NetGuru"). The Company's reported results for the three and six month
     periods ended September 30, 1998 have been restated to include the results
     of operations of PacSoft Incorporated ("PacSoft") as a result of the
     Company's acquisition of PacSoft in March 1999. This acquisition has been
     accounted for using the pooling of interests method of accounting for
     business combinations.

     These unaudited consolidated financial statements have been prepared by the
     Company and include all adjustments which are, in the opinion of
     management, necessary for a fair presentation of the financial position at
     September 30, 1999 and the results of operations and the cash flows for the
     three month and six month periods ended September 30, 1999 and 1998,
     pursuant to the rules and regulations of the Securities and Exchange
     Commission. Accordingly, they do not include all of the information and
     footnotes required by generally accepted accounting principles for annual
     consolidated financial statements. Results of operations for the three
     month and six month periods ended September 30, 1999 are not necessarily
     indicative of the results to be expected for the full year ended March 31,
     2000.


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 amounts reported in the unaudited consolidated
     financial statements and accompanying notes. Actual results could differ
     from those estimates.


3.   RECLASSIFICATIONS

     Certain prior quarter amounts have been reclassified to conform to the
     current quarter presentation.

4.   ACQUISITION

     Effective September 14, 1999, The Company acquired 80% of the outstanding
     capital stock of NetGuru Systems, Inc. and NetGuru Consulting, Inc.
     (collectively, "NetGuru"). The terms of the agreement provide for the
     acquisition of the remaining 20% interest on December 15, 1999. NetGuru is
     a provider of information technology ("IT") services headquartered in
     Waltham, Massachusetts. The aggregate purchase, including acquisition
     costs, will be approximately $5.4 million. Approximately $4.4 million of
     this was paid upon the closing of the initial 80% interest in a combination
     of cash, a promissory note and 170,635 shares of the Company's common
     stock. The promissory note is payable one year from the closing date and
     bears interest at 8.5%. The cash portion of the purchase price was obtained
     through the issuance of shares of the Company's newly created Series B 5%
     Convertible Preferred Stock to two investors in a private transaction not
     involving a public offering. This preferred stock accrues cumulative
     dividends and is convertible to shares of common stock at the option of the
     holder for a period of two years from issuance. The remainder of the
     purchase price will be payable upon closing the remaining 20% interest.

                                       5
<PAGE>

     In determining the purchase price for NetGuru, the Company took into
     account the value of companies of similar industry and size to NetGuru,
     comparable transactions and the market for such companies generally. The
     acquisition is being accounted for using the purchase method of accounting
     and as such all assets acquired and liabilities assumed were recorded at
     their estimated fair market values at the date of acquisition. The purchase
     price allocation for the acquisition of 80% of NetGuru (including
     acquisition costs of $363,000) is summarized as follows (in thousands):

                Current assets, including cash of $300        $         1,296
                Property and equipment                                     75
                Goodwill                                                4,473
                Current liabilities                                    (1,033)
                Capital lease obligations                                  (2)
                Minority interest                                         (67)
                                                              ----------------
                                                              $         4,742
                                                              ================

     As the Company's unaudited consolidated financial statements for the
     periods ended September 30, 1999 only include about 16 days of operations
     of NetGuru, the following selected unaudited pro forma information is being
     provided to present a summary of the combined results of the Company and
     NetGuru as if the acquisition had occurred as of April 1, 1998, giving
     effect to purchase accounting adjustments.
<TABLE>
<CAPTION>

                                     THREE MONTHS      THREE MONTHS        SIX MONTHS        SIX MONTHS
                                        ENDED              ENDED             ENDED              ENDED
                                    SEPTEMBER 30,      SEPTEMBER 30,     SEPTEMBER 30,      SEPTEMBER 30,
                                         1999              1998               1999              1998
                                    ---------------   ----------------   ---------------   ----------------
                                     (unaudited)        (unaudited)       (unaudited)        (unaudited)

     <S>                            <C>               <C>                <C>               <C>
     Net revenues                   $        5,578    $         3,814    $       11,233    $         7,633
     Net loss                       $         (326)   $          (204)   $         (422)   $          (294)
     Basic loss per share           $        (0.06)   $         (0.04)   $        (0.09)   $         (0.07)
     Diluted loss per share         $        (0.06)   $         (0.04)   $        (0.09)   $         (0.07)
</TABLE>

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

     o    Amortization of goodwill, straight-line, over a useful life of 15
          years;
     o    The addition of interest expense at 8.5% on debt incurred in the
          acquisition;
     o    Estimated income tax effect on the pro forma adjustments;
     o    Estimated income tax effect on NetGuru historical financial results
          (prior to the acquisition NetGuru was an "S" Corporation and as such
          had not reported income tax expense in their financial statements);
          and
     o    The 20% minority interest in the earnings of NetGuru.

     The unaudited pro forma loss per share data is based on the Company's
     weighted average number of common shares outstanding during fiscal 1999 and
     1998 and the addition of the 170,635 shares issued as part of the
     acquisition. The loss per share calculation was adjusted to include the
     effect of cumulative dividends on 371,429 shares of Series B 5% Convertible
     Preferred Stock issued as part of the financing of the acquisition. The
     unaudited pro forma data is for informational purposes only and may not
     necessarily reflect the results of operations of the Company had NetGuru
     operated as part of the Company for the three and six month periods ended
     September 30, 1999 and 1998, nor are they indicative of future operating
     results.

5.   SOFTWARE REVENUE RECOGNITION

     In 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 the
     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 results of operations. 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. The Company adopted SOP 98-9 in the first quarter
     of fiscal 2000, the implementation of which resulted in no material changes
     to the Company's results of operations.

                                       6
<PAGE>

6.   SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE

     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. The Company adopted SOP 98-1 in the
     first quarter of fiscal 2000, the implementation of which resulted in no
     material impact on the Company's results of operations.

7.   START-UP ACTIVITIES

     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 including organization costs. 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 customers, initiating a new process in
     an existing facility, or commencing some new operation. The Company adopted
     SOP 98-5 in the first quarter of fiscal 2000, the implementation of which
     resulted in no material changes to the Company's previous practice and no
     material impact on the Company's results of operations.

8.       COMPREHENSIVE INCOME (LOSS)

     As of April 1, 1998, the Company adopted Statement of Financial Accounting
     Standards ("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130
     establishes new rules for the reporting and display of comprehensive income
     (loss) and its components. The adoption of this statement had no impact on
     the Company's reported net (loss)/income or stockholders' equity. SFAS No.
     130 requires changes in unrealized gains or losses on the Company's
     available-for-sale investments and foreign currency translation
     adjustments, which are reported separately in stockholders' equity, to be
     included in other comprehensive income (loss). Total comprehensive loss was
     $260,000 and $207,000 for the three months ended September 30, 1999 and
     1998, respectively, and was $486,000 and $294,000 for the six months ended
     September 30, 1999 and 1998, respectively.

9.       NET LOSS PER SHARE

     In December 1997, the Financial Accounting Standards Board ("FASB") issued
     SFAS No. 128, EARNINGS PER SHARE ("EPS"). SFAS No. 128 replaced the
     calculation of primary and fully diluted EPS with basic and diluted EPS.
     Unlike primary EPS, basic EPS excludes any dilutive effects of common stock
     equivalents, such as options and warrants. Diluted EPS is very similar to
     the previously reported fully diluted EPS.

     The following table illustrates the computation of basic and diluted net
     loss per share (in thousands):

<TABLE>
<CAPTION>

                                           THREE MONTHS       THREE MONTHS       SIX MONTHS         SIX MONTHS
                                              ENDED              ENDED              ENDED             ENDED
                                           SEPTEMBER 30,      SEPTEMBER 30,      SEPTEMBER 30,     SEPTEMBER 30,
                                               1999               1998              1999               1998
                                          ---------------    ---------------   ----------------   ---------------
<S>                                       <C>                <C>               <C>                <C>
Numerator:
Net loss                                  $         (286)    $         (191)   $          (475)   $         (314)
Cumulative preferred stock dividends                  (8)                 -                 (8)                -
                                          ---------------    ---------------   ----------------   ---------------
Numerator for basic and diluted net
    loss per share                                  (294)              (191)              (483)             (314)

Denominator:
Denominator for basic net
   loss per share - average
   number of common shares
   outstanding during the period                   5,790              5,731              5,765             5,730
Incremental common shares
   attributable to exercise of
   outstanding options                                 -                  -                  -                 -
                                          ---------------    ---------------   ----------------   ---------------
Denominator for diluted net
   (loss)/income per share                         5,790              5,731              5,765             5,730
                                          ===============    ===============   ================   ===============

Basic net (loss)/income per share         $        (0.05)    $        (0.03)   $         (0.08)   $        (0.05)
                                          ===============    ===============   ================   ===============
Diluted net (loss)/income per share       $        (0.05)    $        (0.03)   $         (0.08)   $        (0.05)
                                          ===============    ===============   ================   ===============
</TABLE>

                                       7
<PAGE>

     All options, warrants, convertible preferred stock and other common stock
     equivalents amounting to 614,000 and  645,000 potential common shares for
     the three and six month periods ended September 30, 1999, respectively, and
     219,038 and 234,089 potential common shares for the three and six month
     periods ended September 30, 1998, respectively, were excluded from the
     computation of diluted EPS because the Company reported a net loss and,
     therefore, the effect would be antidilutive.

10.   SEGMENT AND GEOGRAPHIC DATA

     The Company operates in four significant segments. The Company has
     historically derived its revenues principally from sales of its stand-alone
     and network-based engineering software products and from sales of software
     maintenance contracts relating to these products. With the acquisition of
     R-Cube in February 1999, the Company expanded into the $90 billion
     information technology ("IT") services industry, providing expertise in
     data-mining and embedded technologies to Internet/Intranet design and
     communications. In April 1999, the Company launched the first of several
     e-commerce special interest portals targeting expatriates of the Asia
     Pacific region now living throughout Europe and North America. Finally, in
     June 1999 the Company announced that it has signed an agreement to provide
     digital media services for animation projects including feature films and a
     television series. The e-commerce and digital media services segments have
     not experienced significant revenues or other activity to date and
     therefore are not reportable segments for the three and six month periods
     ended September 30, 1999. The following are significant components of
     worldwide operations by reportable operating segment:



<TABLE>
<CAPTION>
                                           THREE MONTHS       THREE MONTHS       SIX MONTHS         SIX MONTHS
                                              ENDED              ENDED              ENDED             ENDED
                                           SEPTEMBER 30,      SEPTEMBER 30,      SEPTEMBER 30,     SEPTEMBER 30,
                                               1999               1998              1999               1998
                                          ---------------    ---------------   ----------------   ---------------
<S>                                       <C>                <C>               <C>                <C>
             NET REVENUE
Software sales, maintenance and
  technical support                       $        2,032     $        2,202    $         4,299    $        4,418
IT Services                                        1,832                  -              3,051                 -
Other                                                 44                  -                 17                 -
                                          ---------------    ---------------   ----------------   ---------------

         Consolidated                     $        3,908     $        2,202    $         7,367    $        4,418
                                          ===============    ===============   ================   ===============

       OPERATING (LOSS)/INCOME
Software sales, maintenance and
  technical support                       $         (479)    $         (274)   $          (611)   $         (440)
IT Services                                          306                  -                443                 -
Other                                               (117)                 -               (286)                -
                                          ---------------    ---------------   ----------------   ---------------

         Consolidated                     $         (290)    $         (274)   $          (454)   $         (440)
                                          ===============    ===============   ================   ===============
</TABLE>

     The operating loss reported as "Other" represents costs related to the
     development of the e-commerce and digital media services businesses.

                                       8
<PAGE>

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

                                           THREE MONTHS       THREE MONTHS       SIX MONTHS         SIX MONTHS
                                              ENDED              ENDED              ENDED             ENDED
                                           SEPTEMBER 30,      SEPTEMBER 30,      SEPTEMBER 30,     SEPTEMBER 30,
                                               1999               1998              1999               1998
                                          ---------------    ---------------   ----------------   ---------------
<S>                                       <C>                <C>               <C>                <C>
             NET REVENUE
United States                             $        2,691     $        1,020    $         4,892    $        2,185
The Americas (other than U.S.)                       128                191                336               363
Europe                                               666                655              1,353             1,337
Asia-Pacific                                         423                336                786               533
                                          ---------------    ---------------   ----------------   ---------------

         Consolidated                     $        3,908     $        2,202    $         7,367    $        4,418
                                          ===============    ===============   ================   ===============

             EXPORT SALES
United States                             $          396     $          279    $           792    $          279
                                          ===============    ===============   ================   ===============


                                              AS OF              AS OF
                                           SEPTEMBER 30,      SEPTEMBER 30,
                                               1999                1998
                                          ---------------    ---------------
          LONG-LIVED ASSETS
United States                             $       10,386     $        3,198
Europe                                               640                763
Asia-Pacific                                       1,512              1,051
                                          ---------------    ---------------

         Consolidated                     $       12,538     $        5,012
                                          ===============    ===============
</TABLE>

                                       9
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 as amended and
Section 21E of the Securities Exchange Act of 1934 as amended (the "Exchange
Act"), and the Company intends that such forward-looking statements be subject
to the safe harbors created thereby. The Company may experience significant
fluctuations in future operating results due to a number of factors, including,
among other things, the impact of adverse developments in overseas economies,
the size and timing of customer orders, new or increased competition, delays in
product upgrades and new product introductions, the ability to attract and
retain key technical and management personnel, the ability to penetrate the IT
services and other new markets the Company enters, Year 2000 compliance, changes
in market demand, market acceptance of new products, product returns,
integration of acquisitions, the ability to identify and consummate acquisitions
and integrate them successfully, and the ability to meet future capital
requirements. Any of these factors could cause operating results to vary
significantly from prior periods and period-to-period. As a result, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as any indication of future
performance. Fluctuations in the Company's operating results could cause the
price of the Company's Common Stock to fluctuate substantially.

The information contained in this report is not a complete description of the
Company's business or the risks associated with an investment in the Company's
Common Stock. Before deciding to buy or maintain a position in the Company's
Common Stock, you should carefully review and consider the various disclosures
made by the Company in this report and in its other materials filed with the
SEC, including its Annual Report on Form 10-KSB for the fiscal year ended March
31, 1999 (and, in particular, in the "Outlook" section therein) that discuss the
Company's business in greater detail and that also disclose various risks,
uncertainties and other factors that may affect the Company's business, results
of operations or financial condition.

Assumptions relating to the forward-looking statements involve judgments with
respect to, among other things, future economic, competitive and market
conditions, all of which are difficult or impossible to predict accurately, and
many of which are beyond the control of the Company. In addition, the business
and operations of the Company are subject to significant risks which increase
the uncertainty inherent in the forward-looking statements. In light of this,
the inclusion of forward-looking information should not be regarded as a
representation or guarantee by the Company or any other person that the
objectives or plans of the Company will be achieved.

GENERAL

The Company 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.

As a result of the acquisitions of NetGuru in September 1999 and 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.

                                       10
<PAGE>

The Company has expanded into two additional markets. 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. In June 1999, the Company announced
that it has signed an agreement to provide digital media services for animation
projects, including a television series and feature films.

The following discussion and analysis addresses the results of the Company's
operations for the three and six month periods ended September 30, 1999, as
compared to the Company's results of operations for the three and six month
periods ended September 30, 1998.


RESULTS OF OPERATIONS FOR THE Three AND SIX month PERIODS ended SEPTEMBER 30,
1999 and 1998

NET REVENUES - Net revenues for the quarter ended September 30, 1999 increased
by $1,706,000 (77%) to $3,908,000, as compared to $2,202,000 for the quarter
ended September 30, 1998. For the six months ended September 30, 1999, revenues
increased by $2,949,000 (67%) to $7,367,000 from $4,418,000 for the six months
ended September 30, 1998. These increases in net revenues were primarily
attributable to the acquisitions of R-Cube and NetGuru. Combined revenue from
these acquisitions were $1,832,000 and $3,051,000 for the three and six month
periods respectively.

International net revenues as a percentage of total revenues for the quarter
ended September 30, 1999 decreased to 27%, from 45% for the quarter ended
September 30, 1998. For the six months ended September 30, 1999, international
revenues decreased to 29%, from 42% for the six months ended September 30, 1998.
The decrease in international net revenues as a percentage of total net revenues
was primarily due to the expansion into the IT services industry. Currently, all
of the Company's IT services revenue is generated within the United States, thus
this segment's revenues increase the percentage of consolidated net revenues
generated domestically. The Company's domestic revenues are denominated in U.S.
Dollars, while revenues and expenses for the Company's foreign subsidiaries and
sales offices are usually recorded in the applicable foreign currency and
translated into U.S. Dollars. There were no foreign exchange gains or losses
that were material to the Company's financial results during the three months
and six months ended September 30, 1999 and 1998.

GROSS PROFIT - Gross profit increased by $452,000 (23%) to $2,407,000 in the
quarter ended September 30, 1999 as compared to $1,955,000 for the quarter ended
September 30, 1998. Gross profit increased by $903,000 (23%) to $4,794,000 for
the six months ended September 30, 1999 as compared to $3,891,000 for the six
months ended September 30, 1998. These increases were primarily due to the
expansion into the IT services industry. Gross profit for IT services was
$573,000 for the quarter ended September 30, 1999 and $934,000 for the six month
period. Gross margin decreased to 62% of total net revenues in the quarter ended
September 30, 1999 as compared to 89% for the quarter ended September 30, 1998,
and decreased to 65% for the six months ended September 30, 1999 as compared to
88% of the corresponding period last year. This change is due to the growth of
the IT services segment, for which the cost of generating revenues is
significantly higher than for sales of software products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE - Selling, general and
administrative ("SG&A") expense increased by $442,000 (27%) to $2,064,000 for
the quarter ended September 30, 1999 as compared to $1,622,000 for the quarter
ended September 30, 1998, and decreased as a percentage of total net revenues to
53% from 74% in the comparable quarter of the prior year. Selling, general and
administrative expense increased by $879,000 (28%) to $3,988,000 in the six
months ended September 30, 1999 as compared to $3,109,000 for the six months
ended September 30, 1998, and decreased as a percentage of total net revenues to
54% from 70% in the comparable period of the prior year. The majority of the
increase in expenses is due to the expansion into IT services upon the
acquisition of R-Cube and NetGuru. SG&A expenses for the IT services segment
totaled $266,000 for the current quarter and $491,000 for the six months ended
September 30, 1999. Additional increases resulted from goodwill amortization due
to the recent acquisitions. The remaining increase for both periods was largely
experienced in India and was related to the development of the e-commerce and
digital media services businesses.

                                       11
<PAGE>

RESEARCH AND DEVELOPMENT EXPENSE - Research and development expense increased by
$26,000 to $633,000 in the quarter ended September 30, 1999 as compared to
$607,000 for the quarter ended September 30, 1998, but decreased as a percentage
of total net revenues to 16% from 28% in the comparable quarter of the prior
year. Research and development expense increased by $38,000 to $1,260,000 in the
six months ended September 30, 1999 as compared to $1,222,000 for the six months
ended September 30, 1998, but decreased as a percentage of net revenues to 17%
from 28% in the comparable six months of the prior year. The decrease in
research and development expense as a percentage of total net revenues is
primarily due to the addition of the IT services segment. The results for both
the three and six month periods ended September 30, 1999 include added net
revenues for IT services with no addition to research and development expense.

OTHER (INCOME) EXPENSE - Net interest expense increased by $97,000 to $120,000
in the quarter ended September 30, 1999 as compared to $23,000 for the quarter
ended September 30, 1998. Net interest expense increased by $202,000 to $241,000
in the six months ended September 30, 1999 as compared to $39,000 for the six
months ended September 30, 1998. The increase in both periods is primarily due
to the increase in long-term debt used to finance the acquisition of R-Cube.

INCOME TAXES - The Company had income tax benefit of $117,000 and $217,000 for
the three months and six months ended September 30, 1999, respectively, as
compared to income tax benefit of $101,000 and $144,000 for the three months and
six months ended September 30, 1998, respectively. This increase in income tax
benefit is primarily due to an increase in pretax loss in the United States and
Singapore for the three months and six months ended September 30, 1999 for which
the related tax benefits were recognized.


LIQUIDITY AND CAPITAL RESOURCES

The Company currently finances its operations (including capital expenditures)
primarily through its existing cash and cash equivalent balances.

The Company's principal sources of liquidity at September 30, 1999 consisted of
$2,118,000 of cash and cash equivalents.

Cash and cash equivalents increased slightly during the six months ended
September 30, 1999. The increase was largely due to increased borrowings in
India as additional funds were needed for the continued development of the
e-commerce and digital media services businesses. Another $2.6 million was
obtained through the issuance of 371,429 shares of 5% convertible preferred
stock. These proceeds were used to fund a portion of the purchase price of
NetGuru. These increases were largely offset by increases in cash used in
operating and investing activities. The increase in cash used by operations is
primarily attributable to the net loss experienced for the year to date. The
increase in investing activities is largely due to the acquisition of NetGuru
and the purchase of capital assets for the e-commerce and digital media services
businesses.

The Company anticipates that it will finalize a sale and leaseback transaction
involving its Yorba Linda, California facility during the third quarter. This
transaction is expected to give the Company cash proceeds of $1.3 million, net
of transaction costs. These proceeds will provide the necessary funds for the
purchase of the remaining 20% of NetGuru in December as well as provide funds
for operating purposes. Management believes that these proceeds and its current
cash and cash equivalents balances will provide adequate working capital to fund
the Company's operations at currently anticipated levels through September 30,
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.

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.

                                       12
<PAGE>

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 was 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 November 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 June 1998, the Financial Accounting Standards Board ("FASB") 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. In June, 1999, the FASB issued SFAS No. 137, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE
OF FASB STATEMENT NO. 133 - AN AMENDMENT OF FASB STATEMENT NO. 133. This
statement delays the required implementation of SFAS No. 133 by one year, fiscal
years beginning after June 15, 2000. The Company is required to adopt the
statement in the first quarter of fiscal year 2002. The Company is currently
studying the impact of this pronouncement on its consolidated financial
statements but has not yet determined the impact on its results of operations.

                                       13
<PAGE>

PART II  --  OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

             None

ITEM 2.      CHANGES IN SECURITIES

             On September 14, 1999, the Company issued an aggregate of 371,429
             shares of its Series B 5% Convertible Preferred Stock and warrants
             to purchase an additional 50,000 shares of Common Stock to two
             institutional investors for a total of $2,600,000. The proceeds,
             net of commissions and fees of $60,000, were used to pay the cash
             portion of the purchase of 80% of the outstanding capital stock of
             NetGuru Systems, Inc. and NetGuru Consulting, Inc. (collectively,
             "NetGuru"). The transaction was exempt under Section 4(2) of the
             Securities Act of 1933.

             The Series B 5% Convertible Preferred Stock is convertible into,
             and the warrants are exercisable for, the Company's Common Stock at
             a price determined by a formula tied to the current market price of
             the Comany's Common Stock, and depends on the date of conversion or
             exercise. The warrants contain a "cashless exercise" feature
             whereby the warrant holder may use the spread between the exercise
             price and the current market price to pay the exercise price. The
             terms of the conversion formula are more particularly described in
             the Company's Form S-3 registration statement filed on October 13,
             1999.

             Also, on September 14, 1999, the Company issued 170,635 shares of
             Common Stock to Bharat Manglani as the non-cash portion of the
             purchase of 80% of NetGuru. The transaction was exempt under
             Section 4(2) of the Securities Act of 1933, and was more
             particularly described in the Company's report on Form 8-K filed on
             September 29, 1999, and amended on October 15, 1999, and November
             15, 1999.

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

             None

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

             None

ITEM 5.      OTHER INFORMATION

             None

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

             (a)      Exhibits

                      27.1     Financial Data Schedule

                      27.2     Restated Financial Data Schedule

             (b)      Reports on Form 8-K

                      The Company filed a Form 8-K on September 29, 1999,
                      reporting on Item 2 with respect to the acquisition of
                      NetGuru. On October 15, 1999, the Company filed a Form
                      8-K/A No. 1 to provide an additional exhibit, and on
                      November 15, 1999, the Company filed a Form 8-K/A No. 2 to
                      provide financial statements for NetGuru.

                                       14
<PAGE>

                                   SIGNATURES
                                   ----------

In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


Date:  November 15, 1999

                                          RESEARCH ENGINEERS, INC.


                                          By: /S/ WAYNE BLAIR
                                             -----------------------------------
                                             Wayne Blair
                                             Senior Vice President of Finance,
                                             Chief Financial Officer, Secretary
                                             and Treasurer (principal financial
                                             and accounting officer)


                                       15
<PAGE>

                                  Exhibit Index
                                  -------------



Exhibit 27.1      Financial Data Schedule

Exhibit 27.2      Restated Financial Data Schedule


                                       16