<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, 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 jurisdiction of               (IRS. Employer 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 October 31, 1998.
<PAGE>
 
PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                   RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEET
                              SEPTEMBER 30, 1998
                                  (Unaudited)
              (In thousands, except share and per share amounts)

<TABLE>
<S>                                                                                                <C>
                             Assets
Current assets:
 Cash and cash equivalents                                                                          $   811
 Short-term investments                                                                               1,672
 Accounts receivable (net of allowance for doubtful accounts of $376)                                 1,574
 Deferred income taxes                                                                                  852
 Notes and related party loans receivable                                                                81
 Prepaid expenses and other current assets                                                              521
                                                                                                    -------
      Total current assets                                                                            5,511
                                                                                                     
Property, plant and equipment, net                                                                    3,210
Goodwill (net of accumulated amortization of $651)                                                      937
Other assets                                                                                            854
                                                                                                    -------
                                                                                                    $10,512
                                                                                                    =======
               Liabilities and Stockholders' Equity                                                                 
Current liabilities:                                                                                 
 Current portion of long-term bank debt                                                             $   144
 Accounts payable                                                                                       281
 Accrued expenses                                                                                       424
 Income taxes payable                                                                                   398
 Deferred maintenance revenue                                                                           732
 Other                                                                                                   32
                                                                                                    -------
      Total current liabilities                                                                       2,011
                                                                                                     
Long-term bank debt                                                                                   1,785
Deferred income taxes                                                                                    72
                                                                                                    -------
      Total liabilities                                                                               3,868
                                                                                                    -------
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                                                                                      310
 Accumulated other comprehensive income                                                                (325)
                                                                                                    -------
      Total stockholders' equity                                                                      6,644
                                                                                                    -------
                                                                                                    $10,512
                                                                                                    =======
</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 Months     Three Months      Six Months         Six Months 
                                              Ended            Ended             Ended              Ended
                                           September 30,    September 30,     September 30,     September 30,
                                               1998             1997              1998              1997
                                           -------------    -------------     -------------     -------------
<S>                                        <C>              <C>               <C>               <C>
Net revenues:                                                                              
 Product sales                             $    1,643        $    2,646         $    3,295        $    5,015
 Maintenance and support                          465               448                919               873
                                           ----------        ----------         ----------        ---------- 
      Total net revenues                        2,108             3,094              4,214             5,888
Cost of revenues                                  230               180                478               422
                                           ----------        ----------         ----------        ---------- 
      Gross profit                              1,878             2,914              3,736             5,466
                                           ----------        ----------         ----------        ---------- 
Operating expenses:                                                                                
 Selling, general and administrative            1,560             2,304              2,971             4,432
 Research and development                         607               504              1,222               954
                                           ----------        ----------         ----------        ---------- 
      Total operating expenses                  2,167             2,808              4,193             5,386
                                           ----------        ----------         ----------        ---------- 
      Operating (loss) income                    (289)              106               (457)               80
                                           ----------        ----------         ----------        ---------- 
Other (income)/expense:                                                                            
 Interest, net                                     22                (3)                37               (22)
 Other                                             (5)              (29)               (21)              (46)
                                           ----------        ----------         ----------        ---------- 
     Total other (income)/expense                  17               (32)                16               (68)
                                           ----------        ----------         ----------        ---------- 
(Loss)/income before income taxes                (306)              138               (473)              148
Income tax (benefit)/expense                     (101)               25               (144)               20
                                           ----------        ----------         ----------        ---------- 
      Net (loss)/income                    $     (205)       $      113         $     (329)       $      128
                                           ==========        ==========         ==========        ========== 
Net (loss)/income per common share:                                                                
         Basic                             $    (0.04)       $     0.02         $    (0.06)       $     0.02
         Diluted                           $    (0.04)       $     0.02         $    (0.06)       $     0.02
                                                                                                   
Common shares used in computing net                                                                
 (loss)/income per common share:                                                                   
         Basic                              5,680,710         5,703,446          5,680,210         5,703,446
         Diluted                            5,680,710         5,816,647          5,680,210         5,789,052
</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>
                                                                                Six Months          Six Months
                                                                                  Ended               Ended
                                                                               September 30,      September 30,
                                                                                   1998                1997
                                                                               -------------      -------------
<S>                                                                            <C>                <C>
Cash flows from operating activities:                                                          
 Net (loss)/income                                                               $ (329)            $   128
 Adjustments to reconcile net (loss)/income to net cash used in operating                            
  activities:                                                                                        
    Depreciation and amortization                                                   482                 401
    Deferred income taxes                                                          (241)                (86)
    Gain on investments                                                             (30)                 (1)
    Changes in operating assets and liabilities:                                                     
     Accounts receivable                                                            652                   -
     Notes and related party loans receivable                                        25                  (1)
     Prepaid expenses and other current assets                                      (96)                (96)
     Other assets                                                                  (112)               (563)
     Accounts payable, accrued expenses and other current liabilities              (147)               (251)
     Deferred maintenance revenue                                                  (300)                 31
     Income taxes payable                                                           (23)                (54)
     Other long-term liabilities                                                      -                 (18)
                                                                                 ------             -------
          Net cash used in operating activities                                    (119)               (510)
                                                                                  -----              ------
Cash flows from investing activities:                                                                
 Purchase of property, plant and equipment                                         (320)               (196)
 Purchase of short-term investments                                                (733)             (3,381)
 Sale of short term investments                                                     639               2,567
                                                                                  -----              ------
          Net cash used in investing activities                                    (414)             (1,010)
                                                                                  -----              ------
Cash flows from financing activities:                                                                
 Proceeds from bank debt                                                             76                   9
 Repayment of bank debt                                                             (57)                (57)
 Common stock issuance from exercise of options                                       8                   -
                                                                                  -----              ------
          Net cash provided by (used in) financing activities                        27                 (48)
                                                                                  -----              ------
Effect of exchange rate changes on cash and cash equivalents                        (23)                (40)
                                                                                  -----              ------
          Decrease in cash and cash equivalents                                    (529)             (1,608)
                                                                                                     
Cash and cash equivalents, beginning of period                                    1,340               2,579
                                                                                  -----              ------
Cash and cash equivalents, end of period                                         $  811                 971
                                                                                  =====              ======
</TABLE>
 
See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
 
                   RESEARCH ENGINEERS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              SEPTEMBER 30, 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 six months ended September 30, 1998 and 1997, the financial
    position at September 30, 1998, and the cash flows for the six months ended
    September 30, 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 six months ended September 30, 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.


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 September
    30, 1998 and 1997, total comprehensive (loss)/income was ($221,000) and
    $146,000, respectively, and was ($503,000) and $149,000 for the six months
    ended September 30, 1998 and 1997, respectively.

                                       5
<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 Months       Three Months      Six Months        Six Months
                                                Ended             Ended             Ended             Ended
                                            September 30,      September 30,     September 30,     September 30,
                                                1998               1997              1998              1997
                                            -------------      -------------     -------------     ------------- 
<S>                                         <C>                <C>               <C>               <C>
Numerator:
Numerator for basic and diluted net                                                                
 (loss)/income per share - net
 (loss)/income                                 $ (205)            $  113            $ (329)            $  129 
                                               ======             ======            ======             ====== 
Denominator:                                                                                            
Denominator for basic net (loss)/income                                                                       
 per share - average number of common                                                                    
 shares outstanding during the period           5,681              5,703             5,680              5,703 
Incremental common shares attributable                                                                        
 to exercise of outstanding options                 -                114                 -                 86 
                                               ------             ------            ------             ------
Denominator for diluted net                                                                             
 (loss)/income per share                        5,681              5,817             5,680              5,789 
                                               ======             ======            ======             ====== 
Basic net (loss)/income per share              $(0.04)            $ 0.02            $(0.06)            $ 0.02
                                               ======             ======            ======             ====== 
Diluted net (loss)/income per share            $(0.04)            $ 0.02            $(0.06)            $ 0.02
                                               ======             ======            ======             ====== 
</TABLE>


     The computation of diluted loss per share for the three months and six
     months ended September 30, 1998 excluded the effect of 219,000 and 234,000,
     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 six months ended September 30, 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.   SUBSEQUENT EVENT
     On October 23, 1998, the Company signed a definitive agreement (the
     "Agreement") to acquire Engineering Physics Software, Inc., dba COADE.
     Under the terms of the Agreement, the Company will acquire all of the
     outstanding stock of COADE for $5,250,000 in cash and 980,000 shares of the
     Company's common stock.

                                       6
<PAGE>
 
ITEM 2.  MANAGEMENT'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 six months ended September 30, 1998, as
compared to the Company's results of operations for the three months and six
months ended September 30, 1997.


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

Net revenues - Net revenues for the quarter ended September 30, 1998 decreased
by $986,000 (32%) to $2,108,000, as compared to $3,094,000 for the quarter ended
September 30, 1997.  For the six months ended September 30, 1998, revenues
decreased by $1,675,000 (28%) to $4,214,000 from $5,888,000 for the six months
ended September 30, 1997. These decreases in net revenues were primarily
attributable to the decline in economic conditions in Southeast Asia that
started during the latter part of fiscal 1998. Revenues to Southeast Asia for
the three months and six months ended September 30, 1997 represented 30% for
both periods of the Company's total revenues, compared to only 16% and 13% for
the three months and six months ended September 30, 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.

International net revenues as a percentage of total revenues for the quarter
ended September 30, 1998 decreased to 47%, from 59% for the quarter ended
September 30, 1997.  For the six months ended September 30, 1998, international
revenues decreased to 44%, from 60% for the six months ended September 30, 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 this trend 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 were material to the Company's financial
results during the three months and six months ended September 30, 1998 and
1997.

Cost of revenues - Cost of revenues increased by $50,000 (28%) to $230,000 in
the quarter ended September 30, 1998 as compared to $180,000 for the quarter
ended September 30, 1997. Cost of revenues

                                       7
<PAGE>
 
increased by $56,000 (13%) to $478,000 for the six months ended September 30,
1998 as compared to $422,000 for the six months ended September 30, 1997. These
increases were primarily due to increased capitalized software amortization as a
result of additions to the capitalized software balance during fiscal years 1998
and 1999.

Gross profit - Gross profit decreased by $1,036,000 (36%) to $1,878,000 in the
quarter ended September 30, 1998 as compared to $2,914,000 for the quarter ended
September 30, 1997. Gross profit decreased by $1,731,000 (32%) to $3,736,000 for
the six months ended September 30, 1998 as compared to $5,467,000 for the six
months ended September 30, 1997.  These decreases were primarily due to
decreased sales volume.

Selling, general and administrative expense - Selling, general and
administrative expense decreased by $744,000 (32%) to $1,560,000 for the quarter
ended September 30, 1998 as compared to $2,304,000 for the quarter ended
September 30, 1997, and decreased as a percentage of net revenues to 74% from
75% in the comparable quarter of the prior year.  Selling, general and
administrative expense decreased by $1,461,000 (33%) to $2,971,000 in the six
months ended September 30, 1998 as compared to $4,432,000 for the six months
ended September 30, 1997, and decreased as a percentage of net revenues to 71%
from 75% in the comparable period of the prior year. The majority of the
fluctuation is due to a decrease in sales commissions being paid associated with
declining net revenues in the Southeast Asia markets, which are among the
Company's highest commission rate markets. General and administrative expenses
in the six-month period decreased due to a one-time charge for severance paid to
a former QSE (Bristol) Limited employee during the first quarter of fiscal 1998,
combined with a decrease in royalties paid to outside companies due to the
expiration of certain royalty agreements.

Research and development expense - Research and development expense increased by
$103,000 (20%) to $607,000 in the quarter ended September 30, 1998 as compared
to $504,000 for the quarter ended September 30, 1997, and increased as a
percentage of net revenues to 29% from 16% in the comparable quarter of the
prior year. Research and development expense increased by $268,000 (28%) to
$1,222,000 in the six months ended September 30, 1998 as compared to $954,000
for the six months ended September 30, 1997, and increased as a percentage of
net revenues to 29% from 16% in the comparable six months of the prior year. The
increases in research and development expense are primarily due to the addition
of research and development personnel since the first two quarters 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 $25,000 to
$22,000 in the quarter ended September 30, 1998 as compared to ($3,000) for the
quarter ended September 30, 1997. Net interest (income) expense decreased by
$59,000 to $37,000 in the six months ended September 30, 1998 as compared to
($22,000) for the six months ended September 30, 1997. The decreases result from
a decline in the Company's short-term investment balances since the second
quarter of fiscal 1998 and the resulting decrease in interest income. Other
(income) expense decreased by $24,000 to ($5,000) in the quarter ended September
30, 1998 as compared to ($29,000) for the quarter ended September 30, 1997.
Other (income) expense decreased by $25,000 to ($21,000) in the six months ended
September 30, 1998 as compared to ($46,000) for the six months ended September
30, 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 benefit of $101,000 and $144,000 for
the three months and six months ended September 30, 1998, respectively, as
compared to income tax expense of $25,000 and $20,000 for the three months and
six months ended September 30, 1997, respectively.  These fluctuations are
primarily due to a pretax loss in the United States for the three months and six
months ended September 30, 1998 and the related tax benefit for the net
operating loss that was recorded.  The Company increased its deferred tax asset
during the current quarter by $164,000 and believes that this asset will be
realizable against future earnings and could potentially be realized against
prior earnings.

                                       8
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

Certain statements contained in this "Liquidity and Capital Resources" 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 September 30, 1998 consisted of
$811,000 of cash, $1,672,000 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 six months ended September
30, 1998 was primarily attributable to the purchase of capital assets, primarily
in India in connection with the occupation of a new building in Calcutta,
combined with decreases in accounts payable, accrued expenses, deferred
maintenance revenue and other current liabilities, and increases in prepaid and
other current assets, offset by a decrease in accounts receivable.

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 December 1, 1998, at which time the Company plans to renew the
agreement.  As of September 30, 1998, there were no amounts outstanding under
the line of credit.

During fiscal 1998 and the first two 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 $780,000 in past-due receivables from Asian
customers at September 30, 1998.  The Company expects to collect the past-due
receivables from Asian customers throughout fiscal 1999 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 September 30, 1999. The
Company, however, is currently working with their investment banker to raise all
or a significant portion of the cash component of the COADE purchase price
through a combination of long-term secured and unsecured borrowings. 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.

The Company is in the process of identifying and assessing its mission-critical
systems related to the Year 2000 and will commit the resources necessary to
resolve any potential Year 2000 issues. This identification and assessment also
involves 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 

                                       9
<PAGE>
 
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, it is expected that the remediation will not have a
material impact on the Company's financial condition or operating results.
Presently, the Company does not have a contingency plan for Year 2000 issues.
The Company expects to have a plan in place by the third quarter 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 second quarter of fiscal 1999 and
1998, total comprehensive (loss)/income was ($221,000) and $146,000,
respectively, and was ($503,000) and $149,000 for the six months ended September
30, 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.  The Company adopted SFAS No. 131 in the first quarter of
fiscal 1999 with no material impact on the financial statements.

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.

                                       10
<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

         None

ITEM 5.  OTHER INFORMATION

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)   Exhibits

                   27.1 Financial Data Schedule

         (b)   Reports on Form 8-K

                   None

                                       11
<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 13, 1998

                                    RESEARCH ENGINEERS, INC.


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

                                       12
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
                                        
EXHIBIT 27.1    FINANCIAL DATA SCHEDULE

                                       13