<PAGE>   1
===============================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q


(MARK ONE)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

     FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1997

                                       OR

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

     FOR THE TRANSITION PERIOD FROM _____________TO _____________

     COMMISSION FILE NUMBER: 0-26880


                                  VERITY, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                    DELAWARE                             77-0182779
         (STATE OR OTHER JURISDICTION OF              (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)              IDENTIFICATION NO.)

                                 894 ROSS DRIVE
                           SUNNYVALE, CALIFORNIA 94089
                                 (408) 541-1500
          (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

   Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                   YES [X] NO [ ]

   The number of shares outstanding of the Registrant's Common Stock, $0.001 par
value, was 11,048,000 as of August 31, 1997.


===============================================================================



<PAGE>   2




                                  VERITY, INC.

                                    FORM 10-Q

                                TABLE OF CONTENTS


                                                                        PAGE NO.
PART I:  FINANCIAL INFORMATION
Item 1:   Financial Statements.................................................1
          Condensed Consolidated Balance Sheets as of May 31, 1997 and
          August 31, 1997......................................................1
          Condensed Consolidated Statements of Operations for the Three
          Months Ended August 31, 1996 and 1997................................2
          Condensed Consolidated Statements of Cash Flows for the Three
          Months Ended August 31, 1996 and 1997................................3
          Notes to Condensed Consolidated Financial Statements.................4
Item 2:   Management's Discussion and Analysis of Financial Condition and
          Results of Operations................................................6

PART II: OTHER INFORMATION
Item 1:   Legal Proceedings...................................................17
Item 2:   Changes in Securities...............................................17
Item 3:   Defaults upon Senior Securities.....................................17
Item 4:   Submissions of Matters to a Vote of Security Holders................17
Item 5:   Other Information...................................................17
Item 6:   Exhibits and Reports on Form 8-K....................................17
Signatures....................................................................18


<PAGE>   3

PART I:  FINANCIAL INFORMATION

ITEM 1:  FINANCIAL STATEMENTS

                                  VERITY, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>

                                                          MAY 31,    AUGUST 31,
                                                           1997         1997
                                                          -------    -----------
                                                                     (unaudited)
<S>                                                      <C>         <C>  
                                     ASSETS
Current assets:
  Cash and cash equivalents .............................$  2,934      $ 4,101
  Short-term investments ................................  15,183       13,285
  Trade accounts receivable, less 
   allowance for doubtful accounts
   of $540 in 1997 and $500 in 1998 ..................... 10,868        7,477
  Prepaid and other current assets.......................  1,694        1,612
                                                          -------      -------
          Total current assets ..........................  30,679      26,475
Property and equipment, at cost, net 
 of accumulated depreciation and amortization ...........  10,048       9,956
Long-term investments ...................................   7,057       2,012
Other assets.............................................   1,659       1,496
                                                          -------      -------
          Total assets ..................................$ 49,443      $39,939
                                                          =======      =======

                                   LIABILITIES
Current liabilities:
  Current portion of long-term debt and
   capital lease obligations.............................$    617      $   575
  Accounts payable ......................................   4,409        3,264
  Accrued compensation ..................................   2,106        2,258
  Other accrued liabilities .............................   1,156        1,320
  Deferred revenue.......................................   3,715        3,860
                                                          -------      -------
          Total current liabilities .....................  12,003       11,277
Long-term debt and capital lease obligations, 
 net of current portion .................................     167           65
                                                          -------      -------
          Total liabilities..............................  12,170       11,342
                                                          -------      -------

                              STOCKHOLDERS' EQUITY
Common stock, $.001 par value:
   Authorized: 30,000,000 shares in 1997 and 1998;
   Issued and outstanding 11,018,000 shares
   in 1997 and 11,048,000 shares in 1998.................      11           11
Additional paid-in capital ..............................  90,012       90,061
Notes receivable from stockholders ......................  (1,090)          (62)
Unrealized gain on investments ..........................       6            19
Accumulated deficit ..................................... (51,666)      (61,432)
                                                         --------      --------
          Total stockholders' equity ....................  37,273        28,597
                                                         --------      --------
          Total liabilities and stockholders' equity ....$ 49,443      $ 39,939
                                                         ========      ========

</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.






                                       1



<PAGE>   4




                                  VERITY, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                                  AUGUST 31,
                                                               1996       1997
                                                               ----       ----
                                                                 (UNAUDITED)
<S>                                                       <C>          <C>
Revenues:
  Software products ......................................$  7,229     $  3,116
  Service and other.......................................   1,583        2,224
                                                          --------     ---------
          Total revenues..................................   8,812        5,340
                                                          --------     ---------
Costs of revenues:
  Software products ......................................     616          705
  Service and other.......................................     873        1,685
                                                          --------     ---------
          Total costs of revenues.........................   1,489        2,390
                                                          --------     ---------
Gross profit..............................................   7,323        2,950
                                                          --------     ---------
Operating expenses:
  Research and development ...............................   3,499        5,033
  Marketing and sales ....................................   4,529        5,745
  General and administrative..............................   1,175        2,152
                                                          --------     ---------
          Total operating expenses........................   9,203       12,930
                                                          --------     ---------
Loss from operations .....................................  (1,880)      (9,980)
Other income, net.........................................     597          264
                                                          --------     ---------
Net loss before provision for income taxes ...............  (1,283)      (9,716)
Provision for income taxes................................      --           50
                                                          --------     --------
Net loss .................................................$ (1,283)    $ (9,766)
                                                          ========     ========

Net loss available to common stockholders ................$ (1,283)    $ (9,766)
                                                          ========     =========
Net loss per share .......................................$  (0.12)    $  (0.89)
                                                          ========     =========
Number of shares used in per share calculation............  10,744       11,033
                                                          ========     =========
</TABLE>


The accompanying notes are an integral part of these condensed consolidated
financial statements.







                                       2
<PAGE>   5




                                  VERITY, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                               THREE MONTHS
                                                                   ENDED
                                                                AUGUST 31,
                                                                ----------
                                                               1996     1997
                                                               ----     ----
                                                                (UNAUDITED)
<S>                                                       <C>           <C>  
Cash flows from operating activities:
  Net loss ............................................... $(1,283)      (9,766)
  Adjustments to reconcile net loss to net 
    cash used in operating activities:
    Depreciation and amortization ........................     736        1,288
    Provision for doubtful accounts .....................      42         (130)
    Amortization of discount on securities ...............    (308)         (24)
    Changes in operating assets and liabilities:
       Trade accounts receivable .........................     208        3,519
       Prepaid and other current assets ..................    (249)          41
       Accounts payable ..................................     744       (1,147)
       Accrued compensation and other accrued liabilities.     (16)         328
       Deferred revenue...................................    (271)         138
                                                          --------      -------
          Net cash used in operating activities...........    (397)      (5,753)
                                                          --------      -------
Cash flows from investing activities:
  Acquisition of property and equipment ..................  (4,854)        (796)
  Purchases of marketable securities ..................... (38,439)      (3,691)
  Maturity of marketable securities ......................  25,800        1,400
  Proceeds from sale of marketable securities ............  16,459        9,272
  Capitalization of software .............................     --         (198)
                                                          --------      -------
          Net cash provided by (used in) 
           investing activities ..........................  (1,034)       5,987
                                                          --------      -------
Cash flows from financing activities:
  Borrowings under line of credit ........................      --        1,500
  Payments on line of credit .............................      --       (1,500)
  Proceeds from stockholders on notes receivable .........     101        1,027
  Proceeds from the sale of common stock .................      33           50
  Principal payments on notes payable 
   and capital lease obligations .........................     (97)        (145)
                                                          --------      -------
          Net cash provided by financing activities.......      37          932
                                                          --------      -------
Effect of exchange rate changes on cash...................      11            1
                                                          --------      -------
          Net increase (decrease) in cash and 
           cash equivalents...............................  (1,383)       1,167

Cash and cash equivalents, beginning of period............   2,482        2,934
                                                          --------      -------

Cash and cash equivalents, end of period .................$  1,099      $ 4,101
                                                          ========      =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for interest ...............$     43      $    57

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
 Acquisition consideration included in 
  accrued liabilities.....................................$     50      $   200

</TABLE>



The accompanying notes are an integral part of these condensed consolidated
financial statements.




                                       3



<PAGE>   6




                                  VERITY, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

          (INFORMATION AS OF AUGUST 31, 1997 AND FOR THE QUARTERS ENDED
              AUGUST 31, 1996 AND 1997 AND THEREAFTER IS UNAUDITED)

1. INTERIM FINANCIAL DATA (UNAUDITED):

   The unaudited financial statements for the quarters ended August 31, 1996 and
1997 have been prepared on the same basis as the audited financial statements
and, in the opinion of management, include all material adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations in accordance with generally
accepted accounting principles. Although certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission, the Company
believes the disclosures made are adequate to make the information presented not
misleading. It is suggested that the accompanying financial statements be read
in conjunction with the Company's annual financial statements on Form 10-K for
the year ended May 31, 1997.

   The Company's balance sheet as of May 31, 1997 was derived from the Company's
audited financial statements but does not include all disclosures necessary for
the presentation to be in accordance with generally accepted accounting
principles.

2. COMPUTATION OF NET LOSS PER SHARE

   Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options, warrants
and preferred stock are excluded from the computation when their effect is
antidilutive, except that, pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins, common and common equivalent shares and mandatorily
redeemable convertible preferred stock, issued at prices below the initial
public offering price during the twelve months immediately preceding the
Company's initial public offering have been included in the calculation as if
they were outstanding for all periods ending prior to the effectiveness of the
Company's initial public offering using the treasury stock method and the
initial public offering price.

3. RECENT ACCOUNTING PRONOUNCEMENTS

   In February 1997, the Financial Accounting Standards Board (FASB) issued 
Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings 
Per Share," which specifies the computation, presentation and disclosure 
requirements for earnings per share. SFAS No. 128 supersedes Accounting 
Principles Board Opinion No. 15, and is effective for financial  statements
issued for interim and annual periods ending after December 15, 1997 and 
requires  that prior periods be restated. The impact of the adoption of SFAS 
No. 128 on the financial statements of the Company has not yet been determined.

   In June 1997, the FASB issued SFAS No. 130, "Comprehensive Income." SFAS No.
130 becomes effective for fiscal years beginning after December 15, 1997 and
requires reclassification of earlier financial statements for comparative
purposes. SFAS No. 130 requires that changes in the amounts of certain items,
including foreign currency translation adjustments and gains and losses on
certain securities be shown in the financial statements. SFAS No. 130 does not
require a specific format for the financial statement in which comprehensive
income is reported, but does require than an amount representing total
comprehensive income be reported in that statement. Management has not yet
determined the effect, if any, of the adoption of SFAS No. 130 on the
consolidated financial statements.


                                       4

<PAGE>   7

   Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This Statement will change the way
public companies report information about segments of their business in annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to stockholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. The Statement is effective for fiscal years beginning after December
15, 1997. Management has not yet determined the effect, if any, of the adoption
of SFAS No. 131 on the consolidated financial statements.

4. BANK LINE OF CREDIT

   The Company also maintains an unsecured line of credit providing for up to
$7.5 million in credit, bearing interest at the bank's prime rate, and,
pursuant to a recent amendment, expiring on November 29, 1997. The line of
credit requires that, in order to borrow funds under the line of credit, the
Company must be in compliance with certain financial covenants. As of October
14, 1997, due primarily to its results of operations for the quarter ended
August 31, 1997, the Company was not in compliance with the line's covenant
relating to minimum required tangible net worth. As of October 14, 1997, no
borrowings were outstanding under the line of credit.

5. CAPITALIZED SOFTWARE

   During the three months ended August 31, 1997, the Company capitalized
approximately $198,000 and amortized approximately $352,000 of software
development costs, as required under generally accepted accounting principles,
in connection with the development of a number of products included in the
Company's new SEARCH'97 product line.

6. MANAGEMENT IN TRANSITION

   On July 31, 1997, Mr. Gary J. Sbona replaced Mr. Philippe F. Courtot as the
Company's President and Chief Executive Officer, and the Company entered into an
agreement with Regent Pacific Management Corporation, a management firm of which
Mr. Sbona is the Chief Executive Officer. Pursuant to the agreement, Regent
Pacific will provide management services to the Company, including the services
of Mr. Sbona as Chief Executive Officer and President and at least three other
Regent Pacific personnel as part of the Company management team. The agreement
has a one year term and may be canceled by the Company after expiration of the
initial 26 week period, with a minimum compensation to Regent Pacific of
$1,300,000 for the initial period.
 
  On October 9,  1997, the Company announced the resignation of Donald C. 
McCauley  as Vice President and Chief Financial  Officer. Mr. McCauley had 
served as the Company's Chief Financial Officer since joining the Company as 
a consultant in March 1994.





                                       5




<PAGE>   8




ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
         AND RESULTS OF OPERATIONS

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

   Verity develops, markets and supports software tools and applications that
enable individuals, enterprises and publishers to intelligently search, filter
and disseminate textual information residing on enterprise networks, online
services, the Internet, CD-ROM and other electronic media. The Company was
founded in 1988, and, historically, derived the substantial majority of its
revenue from the licensing of high-priced, custom search and retrieval
applications for use almost entirely by large organizations and government
agencies. During these years, the Company also generated a substantial portion
of its revenues by providing the consulting services required to support these
products.

   In early fiscal 1994, the Company shifted its strategy from the sale of
high-priced products requiring significant customization to leveraging the
Company's core technology to develop a number of new, lower-priced products that
address the needs of broader markets. During this period, the Company also
focused on building strategic alliances for the primary purpose of expanding the
user base of the Company's technology, rather than generating significant
revenues. The objectives of the Company's strategy are to establish its software
as a de facto standard and to offset lower unit prices for its products with
higher sales volumes.

   The Company's ongoing implementation of this strategy has involved several
significant actions. During recent years, the Company has reduced significantly
its average unit license fees. Also, during this period, the Company has devoted
significant resources to modify and enhance its core technology to support a
broader set of search and retrieval solutions for use on desktop and
enterprise-wide systems, and over the Internet. Key engineering efforts in this
regard have included the continued enhancement of the functionality of the
Company's search engine and the modification of software to facilitate its
incorporation in third parties' information management, publishing and groupware
software applications. In recent years, the Company's engineering efforts have
also resulted in the development of new applications of software for use with
CD-ROM, online services and the Internet. The Company's core SEARCH'97
technology is deployed within the Company's own suite of applications, and also
as an embedded feature within broadly distributed third-party software
applications, such as Lotus Notes, Adobe Acrobat, Frame FrameViewer and
Documentum Server and WorkSpace. The Company has also licensed its SEARCH'97
technology to prominent providers of Internet products and online services,
including Netscape Communications, NetManage, Quarterdeck, AT&T WorldNet
Services, and MCI's Delphi Internet, together with Internet publishers,
including Cisco Systems, Compaq Computer, the Financial Times and Tandem
Computer.

   In connection with its new strategy, the Company has also replaced the
majority of its work force and substantially reorganized all of the departments
within the Company. While experiencing significant turnover, the Company
increased the number of research and development personnel from 29 at the
beginning of fiscal 1994 to 132 at August 31, 1997.

   Since inception, the Company has incurred significant losses and substantial
negative cash flow. Due in part to the transition, the Company experienced
declining revenues and increased net losses in fiscal years 1994 and 1995. At
August 31, 1997, the Company had cumulative operating losses of $50.9 million,
with net losses of $313,000, $17.9 million and $9.8 million for fiscal 1996,
fiscal 1997 and the three months ended August 31, 1997, respectively. For the
three months ended August 31, 1997, total revenues decreased 39% over the
corresponding fiscal 1997 period, primarily as a result of a 57% decrease in
software product revenues. Total revenues for the three months ended August 31,
1997 decreased 52% from the $11.1 million for the previous three months ended
May 31, 1997. Operating expenses for the 


                                       6



<PAGE>   9

three months ended August 31, 1997 decreased in absolute dollars from the prior 
three months, due primarily to $4.9 million of in-process research and 
development expenses incurred during the three months ended May 31, 1997 as a 
result of the acquisition of 64k Incorporated (64k) and FTP Software Inc.'s 
KeyView product line (KeyView). Operating expenses for the three months ended 
August 31, 1997 increased from the prior three months as a percentage of 
revenues, due primarily to lower revenue levels and, with respect to research 
and development expense, increased expenses related to 64k and KeyView. 
Research and development expenses were $5.0 million, or 94% of revenues, 
compared with $3.5 million, or 40% of revenues, for the same period last year. 
For the Company's previous quarter ended May 31, 1997, research and development 
expenses were $3.5 million or 31% of revenues. While it is the Company's goal 
to increase revenues and generate net income in future periods, no assurance 
can be given that the Company's revenues will increase from quarter to quarter 
in future periods, or that the Company will achieve positive cash flow or 
profitability.

    The ongoing implementation of the Company's new strategy has placed, and may
continue to place, a significant strain on the Company's resources, including
its personnel. The Company believes that hiring and retaining qualified
individuals at all levels in the Company is essential to its success, and there
can be no assurance that the Company will be successful in attracting and
retaining the necessary personnel. As noted above, the Company has experienced
significant turnover, including turnover of several senior members of
management. In particular, on July 31, 1997, Mr. Gary J. Sbona replaced Mr.
Philippe F. Courtot as the Company's President and Chief Executive Officer, and
the Company entered into an agreement with Regent Pacific Management
Corporation, a management firm of which Mr. Sbona is the Chief Executive
Officer. Pursuant to the agreement, Regent Pacific will provide management
services to the Company, including the services of Mr. Sbona as Chief Executive
Officer and President and at least three other Regent Pacific personnel as part
of the Company management team. The agreement has a one year term and may be
canceled by the Company after expiration of the initial 26 week period, with a
minimum compensation to Regent Pacific of $1,300,000 for that initial period.
The agreement requires that the Company indemnify Regent Pacific and Mr. Sbona
for certain liabilities arising out of the performance of services under the
agreement. Also, on October 9, 1997, the Company announced the resignation of
Donald C. McCauley as Vice President and Chief Financial Officer. If Company
management is unable to effectively manage the Company's operations, identify
opportunities in a timely fashion, and evaluate and manage the Company's
business and competitive position, the Company's results of operations and
financial condition will be materially and adversely affected. Furthermore,
there can be no assurance that the Company will successfully develop and
introduce new products on a timely basis or that its new or recently introduced
products will achieve market acceptance.

   The Company's revenues are derived from license fees for its software
products and fees for services complementary to its products, including software
maintenance, consulting and training. Fees for services generally are charged
separately from the license fees for the Company's software products. The
Company recognizes revenues in accordance with the provisions of American
Institute of Certified Public Accountants Statement of Position No. 91-1,
Software Revenue Recognition. Accordingly, maintenance revenues from ongoing
customer support and product upgrades are recognized ratably over the term of
the applicable maintenance agreement, which is typically 12 months. Payments for
maintenance fees generally are received in advance and are nonrefundable.
Revenues for consulting and training generally are recognized when the services
are performed.





                                       7

<PAGE>   10




RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>

                                                         THREE MONTHS
                                                             ENDED
                                                           AUGUST 31,
                                                        1996       1997
                                                        ----      -----
<S>                                                    <C>        <C> 
Revenues:
  Software products ..............................      82.0 %     58.4 %
  Service and other ..............................      18.0       41.6
                                                       -----      -----
          Total revenues .........................     100.0      100.0
                                                       -----      -----
Costs of revenues:
  Software products ..............................       7.0       13.2
  Service and other ..............................       9.9       31.6
                                                       -----      -----
          Total costs of revenues ................      16.9       44.8
                                                       -----      ------
Gross profit .....................................      83.1       55.2
                                                       -----      -----  
Operating expenses:
  Research and development .......................      39.7       94.2
  Marketing and sales ............................      51.4      107.6
  General and administrative .....................      13.3       40.3
                                                       -----      -----   
          Total operating expenses ...............     104.4      242.1
                                                       -----      -----
Loss from operations .............................     (21.3)    (186.9)
Interest and other expenses ......................       6.7        4.9
Income before provision for income taxes .........     (14.6)    (182.0)
Provision for income taxes........................        --        0.9
                                                       -----     ------
Net loss .........................................     (14.6)%   (182.9)%
                                                       =====     ======
</TABLE>


   REVENUES

   Total revenues decreased 39.4% from $8.8 million for the three months ended
August 31, 1996 to $5.3 million for the three months ended August 31, 1997.
Total revenues for the comparable three month period decreased primarily due to
decreased revenues from licensing of enterprise products and tools and, to a
lesser extent, Internet/publishing products. Software product revenues decreased
as a percentage of total revenues from 82.0% for the three months ended August
31, 1996 to 58.4% for the three months ended August 31, 1997. Conversely,
service and other revenues increased as a percentage of total revenues from
18.0% for the three months ended August 31, 1996 to 41.6% for the three months
ended August 31, 1997.

   Software product revenues. Software product revenues decreased 56.9% from
$7.2 million for the three months ended August 31, 1996 to $3.1 million for the
three months ended August 31, 1997. The decrease for the three months ended
August 31, 1997 in comparison to the three months ended August 31, 1996 was due
principally to decreased revenues from licensing of enterprise products and
tools and, to a lesser extent, Internet/publishing products.

   Service and other revenues. Service and other revenues increased 40.5% from
$1.6 million for the three months ended August 31, 1996 to $2.2 million for the
three months ended August 31, 1997. Maintenance revenues increased significantly
between the comparable periods, but these increases were partially offset by
reduced training revenues.

   Revenues from foreign operations accounted for 3.9% and 10.6% of total
revenues, respectively, for the three months ended August 31, 1996 and 1997,
with European operations alone accounting for 3.9%




                                       8



<PAGE>   11

and 10.6% of total revenues for those periods. For the three months ended August
31, 1996 and 1997, export sales accounted for 23.7% and 21.9% of total revenues,
respectively. The increase in revenues from foreign operations as a percentage 
of revenues resulted primarily from increased consulting revenues related to the
recent acquisition of Verity Interactive and decreased domestic revenues. The 
Company expects that revenues derived from foreign operations and export sales 
will continue to vary in future periods as a percentage of total revenues.

    No single customer accounted for more than 10% of the Company's revenues for
the three months ended August 31, 1996 and 1997. Revenues derived from sales to
the federal government and its agencies were 9.2% and 8.8% of the Company's
revenues for the three months ended August 31, 1996 and 1997, respectively. The
Company expects that revenues from such government sales will continue to vary
in future periods as a percentage of revenues.

   COSTS OF REVENUES

   Costs of software products. Costs of software products increased 14.4% from
$616,000 for the three months ended August 31, 1996 to $705,000 for the three
months ended August 31, 1997, representing 8.5% and 22.6%, respectively, of the
software product revenues. The increase in absolute dollars was principally due
to the amortization of $352,000 of software development costs. The increase in
costs as a percentage of software product revenues was primarily related to
decreased software product revenues for the three months ended August 31, 1997.

   Costs of service and other. Costs of service and other revenues increased
93.0% from $873,000 for the three months ended August 31, 1996 to $1.7 million
for the three months ended August 31, 1997, representing 55.2% and 75.8%,
respectively, of service and other revenues. The increase in absolute dollars
and in costs as a percentage of service and other revenues was due principally
to increases in technical support and consulting personnel.

   OPERATING EXPENSES

   Research and development. Research and development expenses increased 43.8%
from $3.5 million for the three months ended August 31, 1996 to $5.0 million for
the three months ended August 31, 1997, representing 39.7% and 94.2%,
respectively, of total revenues. The increase in absolute costs was primarily
due to a significant increase in headcount of research and development personnel
focused on development of products addressing online, Internet/publishing,
CD-ROM, and groupware applications. In particular, in the three months ended
August 31, 1997, the Company incurred increased staffing expense relating
principally to the recent acquisitions of Cognisoft, KeyView and 64k. The
increase in costs as a percentage of total revenues was primarily related to
decreased revenues for the three months ended August 31, 1997. Future research
and development expenses may vary as a percentage of total revenues.

   Marketing and sales. Marketing and sales expenses increased 26.8% from $4.5
million in the three months ended August 31, 1996 to $5.7 million for the three
months ended August 31, 1997, representing 51.4% and 107.6%, respectively, of
total revenues. The increase in absolute costs was primarily related to the
Company's expansion of its marketing and sales organization in the United States
and Europe. The increase in costs as a percentage of total revenues was
primarily related to decreased revenues for the three months ended August 31,
1997. The Company anticipates it will continue to make significant investments
in marketing and sales.

   General and administrative. General and administrative expenses increased
83.1% from $1.2 million in the three months ended August 31, 1996 to $2.2
million for the three months ended August 31, 1997, representing 13.3% and
40.3%, respectively, of total revenues. The increase in absolute costs was
primarily related to expenses associated with management in transition. See
"Risk Factors - Management 





                                       9


<PAGE>   12
in Transition; Employee Turnover." The increase in costs as a percentage of 
total revenues was primarily related to decreased revenues for the three months 
ended August 31, 1997.

   The Company intends to continue to make significant investments in marketing
and sales and in research and development throughout fiscal 1998, which could
cause operating expenses to increase faster than revenues.

   INCOME TAXES

   The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management evaluates on a quarterly basis the recoverability of the deferred tax
assets and the level of the valuation allowance. At such time as it is
determined that it is more likely than not that deferred tax assets are
realizable, the valuation allowance will be appropriately reduced.



                                       10

<PAGE>   13
LIQUIDITY AND CAPITAL RESOURCES

   Since its inception, the Company has financed its operations primarily
through proceeds of approximately $23.6 million from private sales of Preferred
Stock, proceeds from its initial public offering and secondary public offering
of Common Stock and, to a lesser extent, bank credit lines and capital operating
leases. The Company completed its initial public offering of Common Stock in
October 1995 and realized net proceeds of $32.5 million. In January 1996, the
Company completed its secondary public offering of Common Stock, which generated
net proceeds of $16.5 million. The Company has used a portion of those proceeds
to repay borrowings under its line of credit in the amount of $1.6 million. As
of August 31, 1997, the Company had $19.4 million in cash and cash equivalents
and available-for-sale securities.

   The Company's operating activities used cash of $397,000 and $5.8 million for
the three months ended August 31, 1996 and 1997, respectively. In the three
months ended August 31, 1996, an increase in accounts payable and depreciation
and amortization expense were offset by the Company's net loss for the period.
For the three months ended August 31, 1997, the Company's net loss for the
period offset cash provided by a decrease in accounts receivable and
depreciation and amortization expense.

   The Company's investing activities used cash of $1.0 million and provided
cash of $6.0 million for the three months ended August 31, 1996 and 1997,
respectively. For the three months ended August 31, 1996, cash used in investing
activities consisted primarily of purchases of marketable securities offset by
proceeds from the maturity of marketable securities and proceeds from the sale
of marketable securities. For the three months ended August 31, 1997, cash
provided by investing activities consisted primarily of proceeds from the sale
and maturity of marketable securities partially offset by purchases of
marketable securities.

   Cash provided by financing activities was $37,000 and $932,000 for the three
months ended August 31, 1996 and 1997, respectively. In the three months ended
August 31, 1996 and 1997, financing activities consisted primarily of proceeds
from stockholders on notes receivable.

   At August 31, 1997, the Company's principal sources of liquidity were
its cash, cash equivalents, and short-term investments of $17.4 million. 
The Company also maintains an unsecured line of credit providing for up to $7.5
million in credit, bearing interest at the bank's prime rate, and, pursuant to
a recent amendment, expiring on November 29, 1997. The line of credit requires
that, in order to borrow funds under the line of credit, the Company must be in
compliance with certain financial covenants. As of October 14, 1997, due
primarily to its results of operations for the quarter ended August 31, 1997,
the Company was not in compliance with the line's covenant relating to minimum
required tangible net worth. As of October 14, 1997, no borrowings were
outstanding under the line of credit.

   Capital expenditures, including capital leases, were approximately $4.9
million and $796,000 for the three months ended August 31, 1996 and 1997,
respectively. For the three months ended August 31, 1996, these expenditures
consisted primarily of leasehold improvements and capital equipment related to
the Company's relocation to a new facility. In the three months ended August 31,
1997, these expenditures consisted principally of purchases of property and
equipment, primarily for computer hardware and software.

   The Company believes that its current cash and cash equivalents and funds
generated from operations, if any, will provide adequate liquidity to meet the
Company's capital and operating requirements through at least fiscal 1998.
Thereafter, or if the Company does not generate sufficient revenues or if the
Company's spending plans change, the Company may find it necessary to seek to
obtain additional sources of financing to support its capital needs, but there
is no assurance that such financing will be available on commercially reasonable
terms, or at all.




                                       11
<PAGE>   14



RISK FACTORS

   In addition to the other information in this report on Form 10-Q, the
following risk factors should be considered carefully in evaluating the Company
and its business:

   History of Losses; Strategic Realignment. Since inception, the Company has
incurred significant losses and substantial negative cash flow. In the three
months ended August 31, 1997, the Company had a net loss of approximately $9.8
million, and an operating loss of approximately $10.0 million. The Company was
founded in 1988, and historically derived the substantial majority of its
revenues from the licensing of high-priced, custom search and retrieval
applications for use almost entirely by large organizations and government
agencies. During these years, the Company also generated a substantial portion
of its revenues by providing the consulting services required to support these
products. In early fiscal 1994, the Company shifted its strategy to focus
increasingly on more versatile, lower-priced software applications which require
less specialized consulting. To achieve revenue growth, the Company must, among
other things, increase market acceptance of the Company's technology, achieve
significantly increased sales levels, respond effectively to competitive
developments, continue to attract, retain and motivate qualified persons, and
continue to upgrade its technologies and commercialize products and services
incorporating such technologies. There can be no assurance that the Company's
strategy will be successful or that the Company will experience increased
revenues or become profitable or cash flow positive at any time in the future.

   Management in Transition; Employee Turnover. The Company is experiencing a
period of transition and new product introductions that have placed, and will
continue to place, a significant strain on its resources, including personnel.
During the past few years, management and other personnel have focused on
modifying and enhancing the Company's core technology to support a broader set
of search and retrieval solutions for use on desktop and enterprise-wide
systems, and over online services, the Internet and on CD-ROM. In order for the
Company's strategy to succeed, the Company must, among other things, leverage
its core technology to develop new product offerings by the Company and by its
original equipment manufacturer ("OEM") customers that address the needs of
these new markets. Many of the Company's products are still being developed or
have only recently been introduced, and there is no assurance that such products
will be successfully completed on a timely basis, will achieve market acceptance
or will generate significant revenues. Projects relating to these efforts,
including the development and commercial deployment of the Company's next
generation SEARCH'97 suite of products, including its IntelliServ and Agent
Server products and its groupware products for Microsoft Exchange, continued
enhancement of the functionality of the Company's search engine, and technical
integration of the Company's products with the products of the Company's
strategic partners, when added to the day-to-day activities of the Company, will
continue to strain the Company's resources and personnel.

   In connection with its strategy, the Company has also replaced the majority
of its work force and substantially reorganized all of the departments within
the Company. While experiencing substantial turnover, the Company increased the
number of research and development personnel from 29 at the beginning of fiscal
1994 to 132 at August 31, 1997. Continuity of personnel can be an important
factor in the successful completion of the Company's development projects, and
ongoing turnover in the Company's research and development personnel could
materially and adversely impact the Company's development and marketing efforts.
The Company believes that hiring and retaining qualified individuals at all
levels in the Company is essential to its success, and there can be no assurance
that the Company will be successful in attracting and retaining the necessary
personnel. As noted above, the Company has experienced significant turnover,
including turnover of several senior members of management. In particular, on
July 31, 1997, Mr. Gary J. Sbona replaced Mr. Philippe F. Courtot as the
Company's President and Chief Executive Officer, and the Company entered into an
agreement with Regent Pacific Management Corporation, a management firm of which
Mr. Sbona is the Chief Executive Officer. Pursuant to the agreement, Regent
Pacific will provide management services to the Company, including the services
of Mr. Sbona as Chief Executive Officer and President and at least three other
Regent Pacific 



                                       12

<PAGE>   15

personnel as part of the Company management team. The agreement has a one year
term and may be canceled by the Company after expiration of the initial 26 week
period, with a minimum compensation to Regent Pacific of $1,300,000 for that
initial period. Also, on October 9, 1997, the Company announced the resignation
of Donald C. McCauley as Vice President and Chief Financial Officer. Mr.
McCauley had served as the Company's Chief Financial Officer since joining the
Company as a consultant in March 1994. If Company management is unable to
effectively manage the Company's operations, identify opportunities in a timely
fashion, and evaluate and manage the Company's business and competitive
position, results of operations and financial condition will be materially and
adversely ]affected.

   Fluctuations in Operating Results. The Company's quarterly operating results
have varied and are expected to vary significantly in the future. These
fluctuations may be caused by many factors, including, among others, the size
and timing of individual orders; customer order deferrals in anticipation of new
products; changes in the budgets or purchasing patterns of government agencies;
timing of introduction or enhancement of products by the Company or its
competitors; market acceptance of new products; technological changes in search
and retrieval, database, networking, or communications technology; competitive
pricing pressures; changes in the Company's operating expenses; personnel
changes; foreign currency exchange rates; mix of products sold; quality control
of products sold; and general economic conditions.

   A significant portion of the Company's revenues in recent quarters has been
derived from relatively large sales to a limited number of customers, and the
Company currently anticipates that future quarters will continue to reflect this
trend. Sales cycles for these customers can be up to six months or longer. In
addition, like many software companies, the Company has generally recognized a
substantial portion of its revenues in the last month of each quarter, with
these revenues concentrated in the last weeks of the quarter. Accordingly, the
cancellation or deferral of even a small number of purchases of the Company's
products could have a material adverse effect on the Company's business, results
of operations and financial condition in any particular quarter. To the extent
that significant sales occur earlier than expected, operating results for
subsequent quarters may fail to keep pace or even decline.

   Product revenues are also difficult to forecast because the market for search
and retrieval software is uncertain and evolving. Because the Company generally
ships software products within a short period after receipt of an order, the
Company typically does not have a material backlog of unfilled orders, and
revenues in any quarter are substantially dependent on orders booked in that
quarter. In addition, a portion of the Company's revenues are derived from
royalties based upon sales by third-party vendors of products incorporating the
Company's technology. These revenues may be subject to extreme fluctuation and
are difficult for the Company to predict. The Company's expense levels are
based, in part, on its expectations as to future revenues and to a large extent
are fixed. Therefore, the Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Any significant
shortfall of demand in relation to the Company's expectations or any material
delay of customer orders would have an almost immediate adverse affect on the
Company's operating results and on the Company's ability to achieve
profitability.

   The Company's revenues, and particularly its software products revenues,
increased significantly in fiscal 1997 over fiscal 1996. As evidenced in the
period ending August 31, 1997, however, there can be no assurance that the
Company's revenues will increase significantly or at all in future periods.

   As a result of the foregoing and other factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Fluctuations in operating results have in the past, and may in the future, also
result in volatility in the price of the shares of the Company's Common Stock.

   Developing Market; Unproven Acceptance of the Company's Products. The Company
has recently introduced or announced several products addressing a market which
has only recently begun to develop, is rapidly evolving and is characterized by
an increasing number of market entrants who have introduced 





                                       13


<PAGE>   16

or developed products and services addressing search and retrieval requirements 
over private and public networks, CD-ROM, online services and the Internet. 
There is no assurance that such products will be developed and released on a 
timely basis, or that such products will achieve market acceptance.

   As is typical in the case of a new and evolving industry, demand and market
acceptance for recently introduced products and services are subject to a high
level of uncertainty. The software industry addressing the information
management requirements of networked systems, CD-ROM, online services and the
Internet is young and has few proven products. Moreover, critical issues
concerning the commercial use of online services and the Internet (including
security, reliability, cost, ease of use and access, and quality of service)
remain unresolved and may impact the growth of the Internet and online markets,
together with the software standards and electronic media employed in such
markets.

   The Company's future operating results will depend in substantial part upon
its ability to increase the installed base of its intelligent search and
filtering technology and to begin to generate significant product revenues from
its Topic Enterprise Server, Topic Client, SEARCH'97 CD Publisher, SEARCH'97
Information Server, IntelliServ, SEARCH'97 Agent Server, KeyView products and
other products addressing the information retrieval and viewing requirements of
individuals and corporations from data sources within an enterprise, and on
CD-ROM, online services and the Internet. The Company's future operating results
will also depend upon its ability to successfully market its technology to
online and Internet publishers who use such technology to index their published
information in the format used by Verity. To the extent that such publishers do
not adopt the Company's technology for indexing their published information,
users will be unable to search such information using the Company's search and
retrieval products, which in turn will limit the demand for the Company's
products.

   Because the market for certain of the Company's products and services is new
and evolving, it is difficult to assess or predict with any assurance the growth
rate, if any, and size of this market. There can be no assurance that the market
for the Company's products and services will develop, or that the Company's
products or services will achieve market acceptance. If the market fails to
develop, develops more slowly than expected or becomes saturated with
competitors, or if the Company's products do not achieve significant market
acceptance, the Company's business, operating results and financial condition
will be materially adversely affected.

   A significant element of the Company's strategy is to embed its SEARCH'97
technology in products offered by the Company's OEM customers. Many of the
markets for such products are also new and evolving and, therefore, subject to
the same risks faced by the Company in the markets for its own products. In
addition, consolidation in the industries served by the Company could, and
acquisition or development by any of the Company's significant customers of
technology competitive with the Company's would, materially and adversely affect
the Company's business and prospects.

   Dependence on International Operations. In fiscal 1996, fiscal 1997 and the
three months ended August 31, 1997, revenues derived from foreign operations
accounted for approximately 6.6%, 4.6% and 10.6% of the Company's total
revenues, respectively, with European operations alone accounting for 5.6%, 4.6%
and 10.6% of revenues for these periods. The Company's export sales accounted
for 19.1%, 23.8% and 21.9% of revenues in fiscal 1996, fiscal 1997, and the
three months ended August 31, 1997, respectively. Accordingly, on a combined
basis, foreign operations and export sales accounted for approximately 25.7%,
28.4% and 32.5% of revenues in fiscal 1996, fiscal 1997 and the three months
ended August 31, 1997, respectively. The Company expects that revenues derived
from foreign operations and export sales will continue to account for a
significant percentage of the Company's revenues for the foreseeable future;
however, these revenues may fluctuate significantly as a percentage of revenues
from period to period. Certain of these revenues have been derived from sales to
foreign government agencies which may be subject to risks similar to those
described below.

   There are a number of risks inherent in the Company's international business
activities, including unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs and risks of 




                                       14

<PAGE>   17

localizing products for foreign countries, longer accounts receivable payment 
cycles, potentially adverse tax consequences, limits on repatriation of earnings
and the burdens of complying with a wide variety of foreign laws. Additionally, 
the Company does not engage in hedging activities to protect against the risk of
currency fluctuations. Fluctuations in currency exchange rates could cause 
sales denominated in U.S. dollars to become relatively more expensive to 
customers in a particular country, leading to a reduction in sales or 
profitability in that country. Also, such fluctuations could cause sales 
denominated in foreign currencies to affect a reduction in the current U.S. 
dollar revenues derived from sales in a particular country. Furthermore, 
future international activity may result in increased foreign currency 
denominated sales and, in such event, gains and losses on the conversion to U.S.
dollars of accounts receivable and accounts payable arising from international 
operations may contribute significantly to fluctuations in the Company's 
results of operations. The financial stability of foreign markets could also 
affect the Company's international sales. In addition, revenues of the Company 
earned in various countries where the Company does business may be subject to 
taxation by more than one jurisdiction, thereby adversely affecting the 
Company's earnings. There can be no assurance that such factors will not have 
an adverse effect on the revenues from the Company's future international sales 
and, consequently, the Company's results of operations.

   Dependence on United States Government and the Risk of Contract Termination.
Agencies of the United States government have accounted for a significant
portion of the Company's revenues. Specifically, these agencies accounted for
approximately 10.5%, 9.5% and 8.8% of revenues in fiscal 1996, fiscal 1997 and
the three months ended August 31, 1997, respectively. Sales to government
agencies declined as a percentage of revenues during these periods, and may
decline in the future. In recent years, budgets of many government agencies have
been reduced, causing certain customers and potential customers of the Company's
products to re-evaluate their needs. Such budget reductions are expected to
continue over at least the next several years. Future reductions in United
States spending on information technologies could have a material adverse effect
on the Company's operating results.

   Almost all of the Company's government contracts contain termination clauses
which permit contract termination upon the Company's default or for convenience
of the other contracting party. There can be no assurance such cancellations
will not occur in the future, and any such termination could adversely affect
the Company's operating results.

   Technological Change; Market Acceptance of Evolving Standards. Historically,
the Company has derived substantially all of its revenues from the license of
custom search and retrieval applications and consulting and other services
related to such applications. Recently, the Company has refined and enhanced its
core technology to add functionality and facilitate incorporation of the
Company's technology in a variety of applications addressing the desktop,
CD-ROM, enterprise, online and Internet markets. Nevertheless, the Company
expects that for the foreseeable future it will continue to derive the largest
portion of its revenues from licensing its technology for enterprise
applications.

   The computer software industry is subject to rapid technological change,
changing customer requirements, frequent new product introductions and evolving
industry standards that may render existing products and services obsolete. As a
result, the Company's position in its existing markets or other markets that it
may enter could be eroded rapidly by product advancements by competitors. The
life cycles of the Company's products are difficult to estimate. The Company's
future success will depend, in part, upon its ability to enhance existing
products and to develop new products on a timely basis. In addition, its
products must keep pace with technological developments, conform to evolving
industry standards, particularly client/server and Internet communication and
security protocols, as well as publishing formats such as Hypertext Markup
Language ("HTML"), and address increasingly sophisticated customer needs. There
can be no assurance that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of new
products, or that new products and product enhancements will meet the
requirements of the marketplace and achieve market acceptance. If the Company is
unable to develop and introduce products in a timely manner in 



                                       15

<PAGE>   18

response to changing market conditions or customer requirements, the Company's 
financial condition and results of operations would be materially and adversely 
affected.

   In addition, a significant strategy of the Company is to achieve
compatibility between the Company's products and the text publication formats
the Company believes are or will become popular and widely adopted. The Company
invests substantial resources in development efforts aimed at achieving such
compatibility. Any failure by the Company to anticipate or respond adequately to
technology or market developments could result in a loss of competitiveness or
revenue. For instance, to date the Company has focused its efforts on
integration with the Adobe PDF and Lotus Notes environments and, more recently,
the Microsoft Exchange environment. Should any of these products or technologies
lose or fail to achieve acceptance in the marketplace or be replaced by other
products or technologies, the Company's business could be materially adversely
affected.

   Because one of the Company's strategies is to embed its basic search engine
in key OEM application products, the Company's sales of its intelligent search
and filtering products depend in part on its ability to maintain compatibility
with these OEM applications. There is no assurance that the Company will be able
to maintain compatibility with these vendors' products or continue to be the
search technology of choice for such OEMs, and the failure to maintain
compatibility with or be selected by such OEMs would materially adversely affect
the Company's sales. Further, the failure of the products of the Company's key
OEM partners to achieve market acceptance could have a material adverse effect
on the Company's results of operations.

   Software products as complex as those offered by the Company may contain
errors that may be detected at any point in the products' life cycles. The
Company has in the past discovered software errors in certain of its products
and has experienced delays in shipment of products during the period required to
correct these errors. There can be no assurance that, despite testing and
quality assurance efforts by the Company and by current and potential customers,
errors will not be found, resulting in loss of or delay in market acceptance and
sales, diversion of development resources, injury to the Company's reputation,
or increased service and warranty costs, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. Although the Company generally attempts to limit by contract its
exposure to incidental and consequential damages, and to cap the Company's
liabilities under the contract, if a court failed to enforce the liability
limiting provisions of the Company's contracts for any reason, or if liabilities
arose which were not effectively limited, the Company's operating results could
be materially and adversely affected.





                                       16


<PAGE>   19

PART II:  OTHER INFORMATION

Item 1: Legal Proceedings:

        Not Applicable.

Item 2: Changes in Securities:

        Not Applicable.

Item 3: Defaults upon Senior Securities:

        Not Applicable.

Item 4: Submission of Matters to a Vote of Security Holders:

        Not Applicable.

Item 5: Other Information:

        Not Applicable.

Item 6: Exhibits and Reports on Form 8-K:

        A.  Exhibits - - See Exhibit Index
        B.  Form 8-K

               On June 13, 1997, the Company filed a report on Form 8-K with the
            Securities and Exchange Commission relating to the Agreement for 
            Purchase and Sale of Assets dated May 30, 1997 among the Company, 
            FTP Software, Inc., and FTP Software Canada Ltd.

               On June 13, 1997, the Company filed a report on Form 8-K with the
            Securities and Exchange Commission relating to a Stock Purchase 
            Agreement dated May 31, 1997 among the Company, 64k, Inc., and 
            certain shareholders of 64k.

                On August 13, 1997, the Company filed a report on Form 8-K/A
            amending its report on Form 8-K dated June 13, relating to the 
            Agreement for Purchase and Sale of Assets dated May 30, 1997 among 
            the Company, FTP Software, Inc., and FTP Software Canada Ltd. 
            Audited financial statements of the KeyView operations of FTP 
            Software, Inc. for the years ended December 31, 1995 and 1996, and 
            the three months ended March 31, 1996 and 1997 were filed as 
            exhibits to the Form 8-K/A.

               On August 13, 1997, the Company filed a report on Form 8-K/A
            amending its report on Form 8-K dated June 13, relating to a Stock 
            Purchase Agreement dated May 31, 1997 among the Company, 64k, Inc., 
            and certain shareholders of 64k. Audited financial statements of 
            64k, Inc. for the year ended May 31, 1997 were filed as exhibits 
            to the Form 8-K/A.




                                       17

<PAGE>   20



                                   SIGNATURES

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

                                            VERITY, INC.

                                            By: /s/  JAMES E. TICEHURST
                                                ----------------------------
                                                James E. Ticehurst
                                                Vice President, Controller
                                                and Administration
                                                (Principal Accounting Officer)

Dated: October 15, 1997





                                       18


<PAGE>   21



                                  EXHIBIT INDEX


EXHIBIT                                                                        
NUMBER                             DESCRIPTION OF DOCUMENT                    
------                             -----------------------                   

  2.1  Form of Agreement and Plan of Merger between Verity, Inc., a California
       corporation, and Verity Delaware Corporation, a Delaware corporation, 
       filed September 22, 1995.(1)
  2.2  Agreement and Plan of Reorganization dated January 10, 1997 among
       Verity, Inc., Cognisoft Acquisition Corporation and Cognisoft
       Corporation, and certain shareholders of Cognisoft.(7)
  2.3  Form of Stock Purchase Agreement dated as of May 31, 1997 among Verity,
       64K and certain shareholders of 64K.(8)
  2.4  Agreement for Purchase and Sale of Assets dated as of May 30, 1997 among
       FTP US, FTP Canada, Verity US and Verity Canada.(9)
  3.1  Certificate of Incorporation of the Company.(1)
  3.2  By-Laws.(1)
  3.3  Certificate of  Retirement of Series of Preferred Stock.(7)
  3.4  Certificate of Designation, Preferences and Rights of Series A Preferred
       Stock.(7)
  4.1  Amended and Restated Rights Agreement dated August 1, 1995, as
       amended.(1)
  4.2  Form of Rights Agreement between Verity, Inc. and First National Bank of
       Boston dated September 18, 1996.(6)
 10.1  Form of Indemnification Agreement for directors and officers.(1)
 10.2  Amended and Restated 1995 Stock Option Plan and forms of agreements
       thereunder.(7)
 10.3  1995 Employee Stock Purchase Plan.(1),(4)
 10.4  1995 Outside Directors Stock Option Plan and forms of agreement
       thereunder.(1),(4)
 10.5  Employment Agreement between Philippe F. Courtot and the Company
       dated July 15, 1993, together with related Amended and Restated Stock
       Purchase Agreement dated as of June 1, 1995.(1),(4)
 10.6  Security and Loan Agreement between Imperial Bank and the Company
       dated April 7, 1994, as amended.(2)
 10.7  Series G Preferred Stock Purchase Agreement dated August 29, 1994.(2)
 10.8  Series H Preferred Stock Purchase Agreement dated August 1, 1995.(2)
 10.18 Lease Agreement between Ross Drive Investors and the Company dated
       January 22, 1996.(3)
 10.19 Retainer Agreement between Regent Pacific Management Corporation and
       Verity, Inc. dated July 13, 1997.(10)
 10.20 Confidential Severance Option Agreement between Verity, Inc. and Richard
       Lo dated August 20, 1997.(10)
 10.21 Employment Agreement between Anthony J. Bettencourt and the Company
       dated August 28, 1997.
 11.1  Statement of computation of net loss per share.                        
 27.1  Financial Data Schedule                                                

----------------
(1)   Incorporated by reference from the exhibits with corresponding numbers 
      from the Company's Registration Statement (No. 33-96228), declared 
      effective on October 5, 1995.
(2)   Incorporated by reference from the exhibits with corresponding numbers 
      from the Company's Registration Statement (No. 33-80567), declared 
      effective on January 17, 1996.
(3)   Incorporated by reference from the exhibits with corresponding numbers 
      from the Company's Form 10-Q for the quarter ended February 29, 1996. 
(4)   Management contract or compensatory plan covering executive officers and 
      directors of the Company. 
(5)   Confidential Treatment has been granted for portions of these exhibits. 
(6)   Incorporated by reference from exhibit no. 1 from the Company's Form 8-K 
      as filed with the Securities and Exchange Commission on October 10, 1996.
(7)   Incorporated by reference from the exhibits with corresponding numbers 
      from the Company's Form 10-Q for the quarter ended August 31, 1996. 
(8)   Relating to the 64K acquisition, incorporated by reference from Exhibit 
      No. 2.1 to the Company's report on Form 8-K as filed with the Securities 
      and Exchange Commission on June 13, 1997.
(9)   Relating to the KeyView acquisition, incorporated by reference from 
      Exhibit No. 2.1 to the Company's report on Form 8-K as filed with the 
      Securities and Exchange Commission on June 13, 1997.
(10)  Incorporated by reference from the exhibits with corresponding numbers 
      from the Company's Form 10-K for the year ended May 31, 1997.





                                       19