<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 December 31, 1998



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



                         Commission file number: 0-28560


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


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


                            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 5,680,710 on January 29, 1999.



<PAGE>


PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                    RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1998
                                   (Unaudited)
               (In thousands, except share and per share amounts)
<TABLE>
<S>                                                           <C> 
                                  Assets
Current assets:
   Cash and cash equivalents                                 $     1,314
   Short-term investments                                            270
   Accounts receivable (net of allowance for doubtful              2,226
    accounts of $373)
   Deferred income taxes                                             923
   Notes and related party loans receivable                           77
   Prepaid expenses and other current assets                         400
                                                               ------------

        Total current assets                                       5,210

Property, plant and equipment, net                                 3,266
Goodwill (net of accumulated amortization of $750)                 1,204
Other assets                                                         865
                                                               ------------

                                                             $    10,545
                                                               ============

                   Liabilities and Stockholders' Equity 
Current liabilities:
   Current portion of long-term bank debt                    $       145
   Accounts payable                                                  356
   Accrued expenses                                                  463
   Income taxes payable                                              312
   Deferred maintenance revenue                                      716
   Other                                                              30
                                                               ------------

        Total current liabilities                                  2,022

Long-term bank debt                                                1,753
Deferred income taxes                                                 72
                                                               ------------

        Total liabilities                                          3,847
                                                               ------------

Stockholders' equity:
   Preferred stock, par value $ .01.  Authorized 5,000,000
    shares; issued and outstanding none                                -
   Common stock, par value $.01.  Authorized 20,000,000
    shares; issued and outstanding 5,680,710 shares                   57   
   Additional paid-in capital                                      6,602
   Retained earnings                                                 294
   Accumulated other comprehensive loss                             (255)
                                                               ------------

        Total stockholders' equity                                 6,698
                                                               ------------

                                                             $    10,545
                                                               ============
</TABLE>

See accompanying notes to consolidated financial statements.
                                      
                                       2

<PAGE>


                    RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
               (In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
                              Three        Three         Nine         Nine
                              Months       Months       Months       Months
                              Ended        Ended        Ended        Ended
                             December     December     December     December
                             31, 1998     31, 1997    31, 1998      31, 1997
                            -----------  -----------  ----------   ----------
<S>                         <C>          <C>          <C>          <C>
Net revenues:
   Product sales            $   2,467    $   2,787    $   5,762    $   7,802
   Maintenance and                
    support                       460          493        1,379        1,367
                            -----------  -----------  ----------   ----------

        Total net               
         revenues               2,927        3,280        7,141        9,169

Cost of revenues                  238          185          716          607
                            -----------  -----------  ----------   ----------

        Gross profit            2,689        3,095        6,425        8,562
                            -----------  -----------  ----------   ----------

Operating expenses:
   Selling, general and         
    administrative              2,082        2,109        5,053        6,541
   Research and                   
    development                   598          543        1,820        1,497
   Acquired in-process           
    research and
    development costs               -          450            -          450
                            -----------  -----------  ----------   ----------

        Total operating         
         expenses               2,680        3,102        6,873        8,488
                            -----------  -----------  ----------   ----------

        Operating                   
         income/(loss)              9           (7)        (448)          74
                            -----------  -----------  ----------   ----------

Other expense/(income):
   Interest, net                   13          (14)          50          (36)
   Other                           11          (17)         (10)         (63)
                            -----------  -----------  ----------   ----------

      Total other                  
      expense/(income)             24          (31)          40          (99)
                            -----------  -----------  ----------   ----------

(Loss)/income before              
   income taxes                   (15)          24         (488)         173

Income tax                         
   expense/(benefit)                1          150         (143)         170
                            -----------  -----------  ----------   ----------

        Net (loss)/income   $     (16)   $    (126)   $    (345)   $       3
                            ===========  ===========  ==========   ==========

Net (loss)/income per 
  common share:
         Basic              $   (0.00)   $    (0.02)  $   (0.06)   $    0.00
         Diluted            $   (0.00)   $    (0.02)  $   (0.06)   $    0.00

Common shares used in 
  computing net (loss)/
  income per common share:
         Basic               5,680,710     5,699,618   5,680,377   5,701,373
         Diluted             5,680,710     5,699,618   5,680,377   5,778,497
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3

<PAGE>


                    RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)
<TABLE>
<CAPTION>
                                                      Nine          Nine
                                                     Months        Months
                                                      Ended         Ended
                                                    December      December
                                                    31, 1998      31, 1997
                                                   ------------  ------------
<S>                                                <C>           <C>
Cash flows from operating activities:
   Net (loss)/income                               $    (345)    $       3
   Adjustments to reconcile net (loss)/income
    to net cash used in operating activities:
      In-process research and development                  -           450
      Depreciation and amortization                      760           533
      Deferred income taxes                             (312)          (80)
      Gain on investments                                (20)          (30)
      Changes in operating assets and
       liabilities:
       Accounts receivable                                (3)         (638)
       Notes and related party loans receivable           77           (27)
       Prepaid expenses and other current assets          (2)          (29)
       Other assets                                     (231)         (609)
       Accounts payable, accrued expenses and            
         other current liabilities                       (27)         (168)
       Deferred maintenance revenue                     (309)           97
       Income taxes payable                             (108)           43
       Other long-term liabilities                         -           (21)
                                                   ------------  ------------

            Net cash used in operating                  
              activities                                (520)         (476)
                                                   ------------  ------------

Cash flows from investing activities:
   Purchase of property, plant and equipment            (474)         (396)
   Purchase of short-term investments                   (764)       (3,958)
   Sale of short-term investments                      2,142         4,100
   Payments to acquire companies, net of cash           
    acquired                                            (366)         (550)
                                                   ------------  ------------

            Net cash provided by (used in)               
              investing activities                       538          (804)
                                                   ------------  ------------

Cash flows from financing activities:
   Proceeds from bank debt                                75             -
   Repayment of bank debt                                (89)         (107)
   Payments to repurchase common stock                     -          (200)
   Common stock issuance from exercise of                 
    options                                                8             9
                                                   ------------  ------------

            Net cash used in financing                    
              activities                                  (6)         (298)
                                                   ------------  ------------

Effect of exchange rate changes on cash and              
  cash equivalents                                       (38)         (174)
                                                   ------------  ------------

            Decrease in cash and cash                    
              equivalents                                (26)       (1,752)



Cash and cash equivalents, beginning of period         1,340         2,579
                                                   ------------  ------------

Cash and cash equivalents, end of period           $   1,314     $     827
                                                   ============  ============
</TABLE>


See accompanying notes to consolidated financial statements.

                                       4
<PAGE>


                    RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                                   (Unaudited)
                                 (In thousands)
<TABLE>
<CAPTION>
                                                      Nine          Nine
                                                     Months        Months
                                                      Ended         Ended
                                                    December      December
                                                    31, 1998      31, 1997
                                                   ------------  ------------
<S>                                                <C>           <C>
Supplemental cash flow information:
   Amounts paid for:
      Interest                                     $     118     $     114
      Income taxes                                       280           136

Non-cash transactions:
   Unrealized gain/(loss) on investments                   2           (48)
   Payment of related party note receivable               
    from transfer of short-term investments               66             -

   Payments to acquire companies, net of cash 
    acquired:
      Assets acquired                                    407           100
      Purchased research and development                   -           450
                                                   ------------  ------------

                                                   $     407     $     550
                                                   ============  ============
</TABLE>












See accompanying notes to consolidated financial statements.

                                       5


<PAGE>


                    RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998
                                   (Unaudited)


1. BASIS OF PRESENTATION
   The  consolidated  financial  statements  include  the  accounts  of Research
   Engineers,  Inc. (the  "Company") and its  wholly-owned  subsidiaries.  These
   consolidated financial statements have been prepared by the Company,  without
   audit,  and include all adjustments  which are, in the opinion of management,
   necessary for a fair  presentation of the results of operations for the three
   months and nine  months  ended  December  31,  1998 and 1997,  the  financial
   position at December 31,  1998,  and the cash flows for the nine months ended
   December  31,  1998 and 1997,  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 complete financial  statements.  Results of operations for the
   three  months and nine months  ended  December  31, 1998 are not  necessarily
   indicative  of the results to be  expected  for the full year ended March 31,
   1999.


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 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. SOFTWARE REVENUE RECOGNITION
   In October  1997,  the American  Institute of  Certified  Public  Accountants
   ("AICPA")  issued  Statement  of  Position  ("SOP")  97-2,  Software  Revenue
   Recognition,  which  supercedes  SOP  91-1.  SOP 97-2  distinguishes  between
   significant  and  insignificant  vendor  obligations as a basis for recording
   revenue  with  a  requirement  that  each  element  of a  software  licensing
   arrangement be separately identified and accounted for based on relative fair
   values of each element.  The Company adopted SOP 97-2 in the first quarter of
   fiscal 1999, the  implementation  of which resulted in no material changes to
   the  Company's  previous  practice.  SOP 97-2 has been  amended  by SOP 98-9,
   Modification  of SOP 97-2,  Software  Revenue  Recognition,  With  Respect to
   Certain Transactions, which is effective for fiscal years beginning March 15,
   1999.  Application  of this  accounting  standard  is not  expected to have a
   material impact on the Company's consolidated financial position,  results of
   operations or liquidity.


5. COMPREHENSIVE INCOME
   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
   and its components;  however, 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.  The  prior  year  Consolidated   Statement  of
   Stockholders'  Equity will be reclassified at year-end fiscal 1999 to conform
   to the  requirements of SFAS No. 130. For the three months ended December 31,
   1998 and 1997, total comprehensive  income/(loss) was $54,000 and ($368,000),
   respectively,  and was  ($449,000)  and  ($219,000) for the nine months ended
   December 31, 1998 and 1997, respectively.

                                       6

<PAGE>



6. NET (LOSS)/INCOME 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. All EPS amounts for all periods have
   been restated to conform to the SFAS No. 128 requirements.

   The following  table  illustrates  the  computation  of basic and diluted net
   income/(loss) per share (dollars in thousands):
<TABLE>
<CAPTION>
                              Three        Three        Nine          Nine
                              Months       Months       Months       Months
                              Ended        Ended        Ended        Ended
                             December     December     December     December
                             31, 1998     31, 1997     31, 1998      31,1997
                            -----------  -----------  ----------   ----------
<S>                         <C>          <C>          <C>          <C>   
Numerator:
Numerator for basic and   
  diluted net
  (loss)/income per
  share - net
  (loss)/income             $     (16)   $    (126)   $    (345)   $       3
                            ===========  ===========  ==========   ==========

Denominator:
Denominator for basic      
  net (loss)/income per
  share - weighted
  average number of
  common shares
  outstanding during the
  period                        5,681        5,700        5,680        5,701
Incremental common          
  shares attributable to
  exercise of
  outstanding options               -            -            -           77
                            -----------  -----------  ----------   ----------
Denominator for diluted         
  net (loss)/income per
  share                         5,681        5,700        5,680        5,778
                            ===========  ===========  ==========   ==========

Basic net (loss)/income   
  per share                 $   (0.00)   $   (0.02)   $   (0.06)   $    0.00
                            ===========  ===========  ==========   ==========
Diluted net (loss)/              
  income per share          $   (0.00)   $   (0.02)   $   (0.06)   $    0.00
                            ===========  ===========  ==========   ==========
</TABLE>

   The computation of diluted loss per share for the three months ended December
   31, 1998 and 1997 and the nine months ended  December  31, 1998  excluded the
   effect of 145,000,  70,000 and 210,000,  respectively,  of incremental common
   shares  attributable  to the exercise of  outstanding  common  stock  options
   because their effect was antidilutive.

   Warrants issued to the  underwriters as part of the Company's  initial public
   offering to purchase  130,000  shares of common stock at $6.00 per share were
   outstanding  during the three months and nine months ended  December 31, 1998
   and 1997 but were not included in the  computation of diluted EPS because the
   warrants'  exercise  price was greater  than the average  market price of the
   common shares and, therefore, the effect would be antidilutive.

                                       7

<PAGE>



7. ACQUISITIONS
   On October 1, 1998,  the Company  purchased the assets of Techna  Consultancy
   Private Limited ("Techna"), a software developer and consultant,  through its
   India  subsidiary.  The  purchase  price  of  $357,000  in cash  included  an
   agreement not to compete and was allocated as follows:
<TABLE>
            <S>                     <C>  
            Goodwill                $287,000
            Property and equipment    70,000
                                    --------
                                    $357,000
                                    ========
</TABLE>
                                   
   The goodwill  associated with the Techna  acquisition  will be amortized over
   five years on a straight-line basis.

   On October 23, 1998,  the Company  signed a definitive  agreement (the "COADE
   Agreement") to acquire Engineering Physics Software, Inc., dba COADE. Certain
   terms and conditions of the COADE Agreement were not met by specified  dates,
   and therefore, the COADE Agreement was terminated in January 1999.


8. SUBSEQUENT EVENT
   On January 19, 1999, the Company  signed a definitive  agreement (the "R-Cube
   Agreement")  to  acquire  R-Cube  Technologies,  Inc.  Under  the  terms  and
   conditions of the R-Cube Agreement,  the Company has agreed to acquire all of
   the outstanding stock of R-Cube Technologies for $2.3 million in cash.


                                       8


<PAGE>


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

GENERAL

Research  Engineers,  Inc. (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-III,  the  Company's  flagship  structural  analysis  and design
software;  STAAD/Pro, the first comprehensive structural design office solution;
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 analysis and design of industrial,
commercial,   transportation  and  utility  structures,   pipelines,  machinery,
automotive  and  aerospace  products,  and survey,  contour and digital  terrain
modeling.

The  following  discussion  and analysis  addresses the results of the Company's
operations  for the three  months and nine months ended  December  31, 1998,  as
compared to the Company's  results of  operations  for the three months and nine
months ended December 31, 1997.


RESULTS OF OPERATIONS  FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997 AND
NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997

Net revenues - Net revenues for the quarter ended December 31, 1998 decreased by
$353,000  (11%) to  $2,927,000,  as compared to $3,280,000 for the quarter ended
December  31,  1997.  For the nine months  ended  December  31,  1998,  revenues
decreased by $2,028,000  (22%) to $7,141,000 from $9,169,000 for the nine months
ended  December  31,  1997.  These  decreases  in net  revenues  were  primarily
attributable to: (1) the decreased  performance of the Company's  distributor in
Germany,  which  was  partially  offset by the  addition  of the  Company's  new
subsidiary  in France,  and (2) the decline in economic  conditions in Southeast
Asia that  started  during  the  latter  part of fiscal  1998,  which was offset
somewhat in the third quarter by the revenues  derived from the  acquisition  of
Techna.  Revenues to  Southeast  Asia for the three months and nine months ended
December 31, 1997  represented 28% and 30%,  respectively,  compared to only 21%
and  16%  for the  three  months  and  nine  months  ended  December  31,  1998,
respectively.

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

International  net  revenues as a percentage  of total  revenues for the quarter
ended  December  31,  1998  decreased  to 53%,  from 57% for the  quarter  ended
December 31, 1997.  For the nine months ended  December 31, 1998,  international
revenues decreased to 48%, from 59% for the nine months ended December 31, 1997.
The decrease in international  revenues for the periods was primarily the result
of the decline in economic  conditions in Southeast Asia that started during the
latter part of fiscal 1998. The Company expects these conditions to continue for
at least the next several  quarters,  and therefore,  remains cautious about its
short-term Southeast Asia prospects.  The previous sentence is a forward-looking
statement.  The state of the Asian economy at any particular point in the future
depends  on a large  number of  factors  which are  beyond  the  control  of the
Company, and is impossible for the Company to predict accurately.  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 
                                       9
<PAGE>

were material to the  Company's  financial  results  during the three months and
nine months ended December 31, 1998 and 1997.

Cost of revenues - Cost of revenues  increased  by $53,000  (29%) to $238,000 in
the quarter  ended  December  31,  1998 as compared to $185,000  for the quarter
ended  December  31,  1997.  Cost of revenues  increased  by  $109,000  (18%) to
$716,000 for the nine months ended December 31, 1998 as compared to $607,000 for
the nine months ended December 31, 1997.  These  increases were primarily due to
increased  amortization of capitalized  software as a result of additions to the
capitalized software balance during fiscal years 1998 and 1999.

Gross profit - Gross profit  decreased by $406,000  (13%) to  $2,689,000  in the
quarter ended  December 31, 1998 as compared to $3,095,000 for the quarter ended
December 31, 1997.  Gross profit decreased by $2,137,000 (25%) to $6,425,000 for
the nine months ended  December 31, 1998 as compared to $8,562,000  for the nine
months ended December 31, 1997.  These decreases were primarily due to decreased
sales volume.

Selling,   general   and   administrative   expense  -  Selling,   general   and
administrative  expense  decreased by $27,000 (1%) to $2,082,000 for the quarter
ended December 31, 1998 as compared to $2,109,000 for the quarter ended December
31, 1997,  and  increased as a percentage of net revenues to 71% from 64% in the
comparable  quarter  of the prior  year.  Selling,  general  and  administrative
expense  decreased by  $1,488,000  (23%) to  $5,053,000 in the nine months ended
December 31, 1998 as compared to $6,541,000  for the nine months ended  December
31,  1997,  and  remained  71%  of net  revenues  for  both  periods.  The  most
significant  contributor to the decline for both the  three-month and nine-month
periods in fiscal 1999 was a decrease in sales commissions, due primarily to the
decline in revenue  from  Southeast  Asia.  Included  in  selling,  general  and
administrative expense,  however, were non-recurring costs related to terminated
acquisitions of $205,000 and $318,000 for the three months and nine months ended
December 31, 1998,  respectively.  Excluding these non-recurring costs, selling,
general  and  administrative   expense,  other  than  sales  commissions,   also
experienced a decrease in comparison to the same periods in fiscal 1998.

Research and development expense - Research and development expense increased by
$55,000 (10%) to $598,000 in the quarter ended  December 31, 1998 as compared to
$543,000 for the quarter ended  December 31, 1997, and increased as a percentage
of net  revenues  to 20% from 17% in the  comparable  quarter of the prior year.
Research and  development  expense  increased by $323,000 (22%) to $1,820,000 in
the nine months ended  December 31, 1998 as compared to $1,497,000  for the nine
months ended December 31, 1997, and increased as a percentage of net revenues to
25% from 16% in the  comparable  nine months of the prior year. The increases in
research and  development  expense are primarily due to the addition of research
and  development  personnel  during the latter part of fiscal  1998,  as well as
additional  costs paid to  outside  consultants  for  research  and  development
projects.

Other (income) expense - Net interest  (income) expense  decreased by $27,000 to
$13,000 in the quarter ended  December 31, 1998 as compared to ($14,000) for the
quarter ended  December 31, 1997.  Net interest  (income)  expense  decreased by
$86,000 to $50,000 in the nine  months  ended  December  31, 1998 as compared to
($36,000) for the nine months ended December 31, 1997. The decreases result from
a decline in the Company's  short-term  investment balances since the first part
of fiscal 1998 and the resulting  decrease in interest  income.  Other  (income)
expense  decreased by $28,000 to $11,000 in the quarter ended  December 31, 1998
as compared to ($17,000) for the quarter ended December 31, 1997. Other (income)
expense  decreased by $53,000 to ($10,000) in the nine months ended December 31,
1998 as compared to  ($63,000)  for the nine months  ended  December  31,  1997.
During October 1997,  one of the Company's  tenants who was renting space in the
Corporate  building  terminated  its lease,  resulting  in a decrease  in rental
income.

Income  taxes - The  Company  had income  tax  expense  (benefit)  of $1,000 and
($143,000)  for the three  months  and nine  months  ended  December  31,  1998,
respectively, as compared to income tax expense of $150,000 and $170,000 for the
three  months and nine months  ended  December  31,  1997,  respectively.  These
fluctuations  are  primarily  due to a pretax loss in the United  States for the
three months and nine months ended December 31, 1998 and the related tax benefit
for the net operating loss that was recorded. 
                                       10
<PAGE>

The Company  increased  its  deferred  tax asset  during the current  quarter by
$71,000 and $312,000  for the nine months  ended  December 31, 1998 and believes
that this asset will be realizable against future earnings and could potentially
be realized against prior earnings.


LIQUIDITY AND CAPITAL RESOURCES

Certain  statements  contained in this "Liquidity and Capital Resources" section
are  "forward-looking  statements"  that involve  risks and  uncertainties.  The
actual  future  results  of the  Company  could  differ  materially  from  those
statements.  Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in this report,  uncertainties regarding
market  acceptance  of new  products  and  product  enhancements,  delays in the
introduction of new products,  and risks  associated with managing the Company's
growth,  as well as those factors discussed in the Company's Form 10-KSB for the
fiscal  year  ended  March 31,  1998  which was filed  with the  Securities  and
Exchange  Commission  on June 29, 1998 and the risks  described in the "Outlook"
section therein.

The Company currently finances its operations  (including capital  expenditures)
primarily  through cash flows from operations as well as its cash and short-term
investment balances.

The Company's  principal  sources of liquidity at December 31, 1998 consisted of
$1,314,000 of cash,  $270,000 of short-term  investments and $500,000  available
under a line of credit with Union Bank of California.

The decrease in total cash and investments during the nine months ended December
31, 1998 was primarily  attributable to the net loss, the acquisition of Techna,
acquisition  costs related to  discontinued  acquisitions  during the first nine
months of fiscal 1999,  the purchase of fixed assets,  primarily  related to the
acquisition of Techna,  the payment of income taxes in the UK,  combined with an
increase in accounts receivable and a decrease in deferred  maintenance revenue,
offset by a decrease  in prepaid  and other  current  assets  and  increases  in
accounts payable and accrued expenses.

The Company has a $500,000  line of credit  with Union Bank of  California.  The
line  of  credit  bears  interest  at  the  prime  rate.  This  credit  line  is
collateralized  by substantially  all of the assets of the Company.  The line of
credit  expires on March 1, 1999,  at which time the Company  plans to renew the
agreement.  As of December 31, 1998, there were no amounts outstanding under the
line of credit.

During  fiscal 1998 and the first three  quarters  of fiscal  1999,  the Company
experienced  a decrease in Southeast  Asia revenues as a result of a downturn in
economic  conditions in key Asian markets.  Payment from the Company's customers
in these markets has been hampered by difficulty in obtaining  favorable foreign
exchange resulting in approximately  $744,000 in past-due receivables from Asian
customers at December 31, 1998,  which  represents a slight  decrease from prior
quarter.  The Company  expects to collect the  past-due  receivables  from Asian
customers over the next few quarters net of the allowance for doubtful accounts.

The Company  believes that its current cash and short-term  investment  balances
and cash generated from operations and borrowings  available under the Company's
line of credit  will  provide  adequate  working  capital to fund the  Company's
operations at currently  anticipated  levels  through  December 31, 1999. 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.  In  addition,  the  Company is
currently  working  with its  investment  banker to raise  all or a  significant
portion of the cash component of the R-Cube purchase price through a combination
of long-term secured and unsecured borrowings.
                                       11


<PAGE>


IMPACT OF YEAR 2000

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

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

The Company  anticipates  that its  systems,  equipment  and  processes  will be
substantially Year 2000 ready by the end of March 1999. The Company is currently
assessing the cost to remediate  its Year 2000 issues.  Although the actual cost
to  remediate  these issues is not yet fully known,  based upon  information  to
date, the Company estimates the costs should not exceed $250,000,  most of which
represents  lease payments for software that will be paid ratably  through 2002.
It is  expected  that the  remediation  will not have a  material  impact on the
Company's  financial  condition or operating  results.  The Company is currently
working on its contingency plan for Year 2000 issues, which is expected to be in
place by the end of fiscal 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

As of April 1, 1998, the Company adopted SFAS No. 130,  Reporting  Comprehensive
Income.  SFAS No. 130  establishes  new rules for the  reporting  and display of
comprehensive income and its components; however, 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. The prior year Consolidated Statement of
Stockholders'  Equity will be reclassified at year-end fiscal 1999 to conform to
the  requirements  of SFAS No. 130.  During the third quarter of fiscal 1999 and
1998,   total   comprehensive   income/(loss)   was  $54,000   and   ($368,000),
respectively,  and was  ($449,000)  and  ($219,000)  for the nine  months  ended
December 31, 1998 and 1997, respectively.

In December 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise  and  Related  Information,  which  requires  the Company to disclose
certain  information  about  reportable  operating  segments in complete sets of
financial  statements  of the Company and in condensed  financial  statements of
interim periods. Application of this accounting standard is not expected to have
a material impact on the Company's consolidated  financial position,  results of
operations or liquidity.
                                       12

<PAGE>



In  June  1998,  the  FASB  issued  SFAS  No.  133,  Accounting  for  Derivative
Instruments and Hedging Activities,  which establishes  accounting and reporting
standards for derivative instruments embedded in other contracts and for hedging
activities.  SFAS 133 is  effective  for all  fiscal  quarters  or fiscal  years
beginning after June 15, 1999.  Application of this  accounting  standard is not
expected  to have a  material  impact on the  Company's  consolidated  financial
position, results of operations or liquidity.
                                    
                                       13

<PAGE>


PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None

ITEM 2.  CHANGES IN SECURITIES

         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

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

         (a)   The Annual  Meeting of  Stockholders  of the  Company was held on
               December 15, 1998.

         (b)   Omitted pursuant to Instruction 3 to Item 4 of Form 10-QSB.

         (c)(i)PROPOSAL ONE:Election of five Directors by the holders of issued 
               and outstanding shares of Common Stock:
<TABLE>
<CAPTION>
                                       For         Abstain          Against
                                    ---------     ---------        ---------
               <S>                  <C>           <C>              <C>   
               Amrit K. Das         5,370,621         0             13,000
               Jyoti Chatterjee     5,370,621         0             13,000
               Dan W. Heil          5,370,621         0             13,000
               Bruce E. Cummings    5,370,621         0             13,000
               Santanu Das          5,370,621         0             13,000
</TABLE>
                                  
         (c)(ii)PROPOSAL TWO:Ratification of the approval of the Company's 1998 
               Stock Option Plan:
<TABLE>
                        <S>                       <C>      
                        For:                      4,643,827      
                        Against:                     38,050
                        Abstain:                     56,888
                        Broker Non-Voting           644,856
</TABLE>
         (c)(iii)PROPOSAL THREE:Ratification of the appointment of KPMG Peat 
               Marwick LLP as the Company's independent accountants for the 
               fiscal year beginning April 1, 1998:
<TABLE>
                        <S>                       <C>  
                        For:                      5,374,128
                        Against:                      8,400
                        Abstain:                      1,093
                        Broker Non-Voting                -
</TABLE>
         (d)   Not applicable.

ITEM 5.  OTHER INFORMATION

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits
               10.35 Purchase Agreement dated August 13, 1998 between Research 
                     Engineers Private Limited and Techna Consultancy Private 
                     Limited
               10.36 Agreement Not To Compete dated October 1, 1998 between 
                     Research Engineers, Inc. and Techna Consultancy Private 
                     Limited
               27.1  Financial Data Schedule

         (b)       Reports on Form 8-K
               None
                                       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:  February 11, 1999

                                          RESEARCH ENGINEERS, INC.


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

                                       15

<PAGE>


                                  EXHIBIT INDEX
                                  -------------

Exhibit 10.35  Purchase Agreement dated August 13, 1998 between Research 
               Engineers Private Limited and Techna Consultancy Private Limited

Exhibit 10.36  Agreement Not To Compete dated October 1, 1998 between Research
               Engineers, Inc. and Techna Consultancy Private Limited

Exhibit 27.1   Financial Data Schedule

                                       16