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

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-Q


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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998

                                       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: 0-28480

                                EDIFY CORPORATION
             (Exact name of Registrant as specified in its charter)

            DELAWARE                                           77-0250992
 (State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                           Identification Number)


                            2840 SAN TOMAS EXPRESSWAY
                          SANTA CLARA, CALIFORNIA 95051
                    (Address of principal executive offices)

                                   ----------

                                 (408) 982-2000
              (Registrant's telephone number, including area code)

                                   ----------

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

                              (1) Yes [X]  No  [ ]



As of March 31, 1998, there were 16,927,407 shares of the Registrant's common
stock outstanding.

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

<PAGE>   2


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EDIFY CORPORATION
FORM 10-Q
INDEX
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                    PAGE
                                                                                                                   NUMBER
<S>                  <C>                                                                                           <C>
PART I               FINANCIAL INFORMATION                                                                          

ITEM 1:              Condensed Consolidated Financial Statements (unaudited)

                     Condensed Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997.............     3

                     Condensed Consolidated Statements of Operations for the three months ended March 31, 1998
                          and 1997................................................................................     4

                     Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1998
                          and 1997................................................................................     5

                     Notes to Condensed Consolidated Financial Statements.........................................     6

ITEM 2:              Management's Discussion and Analysis of Financial Condition and Results of Operations........     8

ITEM 3:              Quantitative and Qualitative Disclosures About Market Risk...................................    16



PART II              OTHER INFORMATION

ITEM 1:              Legal Proceedings............................................................................    17

ITEM 2:              Changes in Securities and Use of Proceeds....................................................    17

ITEM 3:              Defaults Upon Senior Securities..............................................................    17

ITEM 4:              Submission 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
</TABLE>


                                      -2-
<PAGE>   3

--------------------------------------------------------------------------------
PART I:  FINANCIAL INFORMATION
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------


                                EDIFY CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                  MARCH 31,       DECEMBER 31,
                                                                    1998              1997
                                                                  --------          --------
<S>                                                               <C>               <C>     
                                    ASSETS
Current assets:
    Cash, cash equivalents and short-term investments ...         $ 44,460          $ 43,161
    Accounts receivable, net ............................           13,819            16,668
    Prepaid expenses and other current assets ...........            1,580             1,457
                                                                  --------          --------

           Total current assets .........................           59,859            61,286
Property and equipment, net .............................            7,011             6,953
Other assets ............................................              237               241
                                                                  --------          --------

           Total assets .................................         $ 67,107          $ 68,480
                                                                  ========          ========


                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable ....................................         $  1,146          $  1,062
    Current installments of capital lease obligations ...              413               424
    Accrued expenses ....................................            4,960             6,265
    Unearned revenue ....................................            4,686             4,581
                                                                  --------          --------
           Total current liabilities ....................           11,205            12,332
                                                                  --------          --------
Capital lease obligations, excluding current installments              250               340
Commitments and contingencies
Stockholders' equity:
    Common stock ........................................               17                17
    Additional paid-in capital ..........................           67,974            66,624
    Deferred compensation and other .....................             (157)             (193)
    Accumulated deficit .................................          (12,182)          (10,640)
                                                                  --------          --------
           Total stockholders' equity ...................           55,652            55,808
                                                                  --------          --------

           Total liabilities and stockholders' equity ...         $ 67,107          $ 68,480
                                                                  ========          ========
</TABLE>





See notes to condensed consolidated financial statements.


                                      -3-
<PAGE>   4

                                EDIFY CORPORATION

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



<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                                 MARCH 31,
                                                           --------------------
                                                             1998         1997
                                                           --------     -------
<S>                                                        <C>          <C>    
 Net revenues:
   License ............................................    $  7,058     $ 7,132
   Services and other .................................       6,700       5,178
                                                           --------     -------
      Total net revenues ..............................      13,758      12,310
 Cost of license revenues .............................         296         131
 Cost of services and other revenues ..................       4,870       4,377
                                                           --------     -------
      Gross profit ....................................       8,592       7,802
                                                           --------     -------
 Operating expenses:
   Product development ................................       2,534       2,098
   Sales and marketing ................................       6,784       4,521
   General and administrative .........................       1,274       1,027
                                                           --------     -------
      Total operating expenses ........................      10,592       7,646
                                                           --------     -------
      Income (loss) from operations ...................      (2,000)        156
 Interest income, net .................................         480         492
                                                           --------     -------
      Income (loss) before income taxes ...............      (1,520)        648
 Provision for income taxes ...........................          22          53
                                                           --------     -------
      Net income (loss) ...............................    $ (1,542)    $   595
                                                           ========     =======

 Basic net income (loss) per share ....................    $  (0.09)    $  0.04
                                                           ========     =======
 Shares used in computing basic net income (loss) per
   share ..............................................      16,770      16,244
                                                           ========     =======

 Diluted net income (loss) per share ..................    $  (0.09)    $  0.03
                                                           ========     =======
 Shares used in computing diluted net income (loss) per
   share ..............................................      16,770      17,942
                                                           ========     =======
</TABLE>








See notes to condensed consolidated financial statements.


                                      -4-
<PAGE>   5

                                EDIFY CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED MARCH 31,
                                                                        ----------------------------
                                                                             1998         1997
                                                                           --------     --------
<S>                                                                        <C>          <C>     
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income (loss) .................................................    $ (1,542)    $    595

    Adjustments to reconcile net loss to net cash provided by operating
activities:
       Depreciation and amortization ..................................         973          766

       Amortization of deferred compensation ..........................          36           84

       Changes in operating assets and liabilities:
          Accounts receivable .........................................       2,849       (1,372)

          Prepaid expenses and other current assets ...................        (123)        (224)

          Accounts payable ............................................          84         (574)

          Accrued expenses ............................................      (1,305)      (1,014)

          Unearned revenue ............................................         105           17
                                                                           --------     --------

             Net cash provided by (used in) operating activities ......       1,077       (1,722)
                                                                           --------     --------


CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property and equipment, net ..........................      (1,031)      (1,151)

    Purchases of short-term investments ...............................      (1,998)      (5,292)

    Sales and maturities of short-term investments ....................       9,333        1,955

    Other assets ......................................................           4           --
                                                                           --------     --------

             Net cash provided by (used in) investing activities ......       6,308       (4,488)
                                                                           --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES
    Principal payments under capital lease obligations ................        (101)         (97)

    Net proceeds from issuance of common stock ........................       1,350        1,280
                                                                           --------     --------
             Net cash provided by financing activities ................       1,249        1,183
                                                                           --------     --------
Increase (decrease) in cash and cash equivalents ......................       8,634       (5,027)

Cash and cash equivalents at beginning of period ......................      31,790       33,704
                                                                           --------     --------
Cash and cash equivalents at end of period ............................    $ 40,424     $ 28,677
                                                                           ========     ========

Supplemental schedule of cash flow information:
    Cash paid during the period for interest ..........................    $     27     $     30

    Cash paid during the period for taxes .............................    $    141     $     49

Supplemental schedule of noncash investing and financing activities:
    Property and equipment acquired under capital lease obligations ...    $   --       $     35
</TABLE>



See notes to condensed consolidated financial statements.


                                      -5-
<PAGE>   6

                                EDIFY CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1)     BASIS OF PRESENTATION

        The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and, in the opinion of management, reflect all adjustments (consisting only of
normal recurring adjustments) considered necessary to fairly state the Company's
financial position, results of operations, and cash flows for the periods
presented. These consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements included in the
Company's Form 10-K for the fiscal year ended December 31, 1997. The results of
operations for the three-month period ended March 31, 1998 are not necessarily
indicative of the results to be expected for any subsequent quarter or for the
entire fiscal year ending December 31, 1998. The December 31, 1997 balance sheet
was derived from audited consolidated financial statements, but does not include
all disclosures required by generally accepted accounting principles.

(2)     NET INCOME (LOSS) PER SHARE

        The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" in 1997 and restated all comparative per share
amounts for prior periods. SFAS No. 128 requires the presentation of basic
earnings per share and, for companies with potentially dilutive securities, such
as options, diluted earnings per share.

        Basic earnings per share is computed using the weighted average number
of shares of common stock outstanding. Diluted earnings per share is computed
using the weighted average number of shares of common stock and, when dilutive,
common equivalent shares from options to purchase common stock and warrants
outstanding using the treasury stock method.

        In accordance with SFAS No. 128, primary net income (loss) per share has
been replaced with basic net income (loss) per share, and fully diluted net
income (loss) per share has been replaced with diluted net income (loss) per
share which includes potentially dilutive securities such as outstanding options
and convertible securities, using the treasury stock method. Prior periods have
been restated to conform with SFAS No. 128. Accordingly, the number of shares
used and the resulting net loss per share amounts for 1997 differ from those
amounts previously presented.


                                      -6-
<PAGE>   7

        The following table sets forth the computation of net income (loss) per
share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED 
                                                               MARCH 31,
                                                          -------------------
                                                           1998        1997
                                                          -------     -------
<S>                                                       <C>         <C>    
Net income (loss) ....................................    $(1,542)    $   595
                                                          =======     =======
 Basic:
  Weighted average common shares outstanding used
in computing basic net income (loss) per share .......     16,770      16,244
                                                          =======     =======
  Basic net income (loss) per share ..................    $ (0.09)    $  0.04
                                                          =======     =======
 Diluted:
  Weighted average common shares outstanding .........     16,770      16,244
  Dilutive options outstanding .......................         --       1,698
                                                          -------     -------
    Shares used in computing diluted net income (loss)
    per share ........................................     16,770      17,942
                                                          =======     =======
  Diluted net income (loss) per share ................    $ (0.09)    $  0.03
                                                          =======     =======
</TABLE>

        As of March 31, 1998 and 1997, there were 2,766,078 and 422,127 options
to acquire shares of common stock with weighted-average exercise prices of $8.37
and $17.23, respectively, which could potentially dilute basic earnings per
share in the future but which were not included in diluted earnings per share as
their effect was antidilutive in the periods presented.

(3)     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

        In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and disclosures of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997 and requires reclassification of financial statements for earlier
periods to be provided for comparative purposes. The Company has not determined
the manner in which it will present the information required by SFAS No. 130 in
its annual consolidated financial statements for the year ending December 31,
1998. The Company's total comprehensive income (loss) for all periods presented
herein would not have differed from those amounts reported as net income (loss)
in the consolidated statements of operations.

        Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." The Statement establishes
standards for the manner in which public business enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. This Statement is effective for annual
financial statements for periods beginning after December 15, 1997, 


                                      -7-
<PAGE>   8

and for interim periods after the first year of adoption. The Company has not
yet determined the impact of adopting its disclosure requirements.

(4)     CONTINGENCIES

        In April 1996, the Company received a letter from Lucent inviting the
Company to negotiate a license of Lucent's patents. Since then, Lucent has
asserted that it believes that certain of the Company's products infringe
certain of Lucent's patents and has offered to license those patents to the
Company for a substantial payment. In November 1997, the Company received a
letter from Lucent in which Lucent made similar assertions with respect to other
patents it holds. The Company believes that it has substantial arguments that
its current products do not violate any valid claims of the Lucent patents
referenced in the April 1996 letter and is in the process of investigating the
patents referenced in the November 1997 letter. The Company has had several
discussions with Lucent regarding the potential licensing of the patents
referenced in Lucent's letters and is currently engaged in such discussions.
Based on these discussions, it appears that obtaining a license from Lucent may
require the payment of a substantial license fee and possibly ongoing royalties,
which could have a material adverse effect on the Company's results of
operations in the periods when such payments are made, although the Company does
not believe that such payments would have a material adverse effect on the
Company's financial condition or liquidity. In the event that the Company cannot
come to an agreement with Lucent, the Company may be drawn into litigation with
Lucent. Such litigation could be protracted and expensive, and the outcome
cannot be predicted. There can be no assurance that the costs associated with
participating in or settling such litigation would not have a material adverse
effect on the Company's business, financial condition or results of operations.


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


        This Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those indicated by the forward-looking statements herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
set forth below in "Factors That May Affect Future Operating Results" as well as
those discussed in the "Business Risks" section included in the Company's Form
10-K for the fiscal year ended December 31, 1997.

RESULTS OF OPERATIONS

NET REVENUES

           Total net revenues were $13.8 million for the quarter ended March 31,
1998 as compared to $12.3 million for the comparable 1997 quarter, representing
an increase of 11.8%. The Company's revenues are principally derived from
software licenses and fees for 


                                      -8-
<PAGE>   9

services, which generally are charged separately. Revenues are recorded net of
reserves for potential product returns, which have not been significant to date.
In the three-month periods ended March 31, 1998 and 1997, 5% or less of the
Company's total net revenues were derived from international sales. Over time,
the Company intends to expand its international operations and enter additional
international markets. International operations entail a number of risks
including those associated with product customization and regulatory compliance,
and there can be no assurance that such expansion will be successful.

        LICENSE REVENUES. License revenues were $7.1 million for each of the
quarters ended March 31, 1998 and 1997. License revenues were flat due to an
increase in direct revenues offset by a decrease in indirect revenues. Revenue
from the Company's channel partners decreased in the first quarter of 1998 due
to various factors relating to transitions to the Company's Windows NT-based
software delivered in the fourth quarter of 1997. The prices of the Company's
Electronic Workforce licenses have remained relatively constant during the
comparable periods of 1998 and 1997. The Company does not believe that the
historical growth rates of license revenues are indicative of future results.

        SERVICES AND OTHER REVENUES. Services and other revenues consist
primarily of fees from consulting, post-contract customer support and, to a
lesser extent, training and installation services. Services and other revenues
were $6.7 million for the quarter ended March 31, 1998 as compared to $5.2
million for the comparable 1997 quarter. Services and other revenues as a
percentage of total net revenues increased to 48.7% for the quarter ended March
31, 1998 from 42.1% for the quarter ended March 31, 1997. The increase in
services and other revenues in absolute dollars occurred primarily due to
increased demand for consulting services, as well as increases in post-contract
customer support and installation services associated with increased volume of
licenses of the Company's software. The increase in services and other revenues
as a percentage of total net revenues was due primarily to increased services
and other revenues as compared to flat license revenues from 1997 to 1998. The
Company does not expect historical growth rates of its services revenues to be
sustainable. To the extent services and other revenues is a higher percentage of
total net revenues, overall gross profit margins may be adversely impacted.

COST OF REVENUES

        COST OF LICENSE REVENUES. Cost of license revenues consists primarily of
the cost of product media, product duplication, documentation and royalties paid
to third parties under technology licenses. Cost of license revenues was
$296,000 and $131,000 for the quarters ended March 31, 1998 and 1997,
representing 4.2% and 1.8% of the related license revenues for the respective
quarters. The increase in the cost of license revenues in absolute dollars and
as a percentage of license revenues from 1997 to 1998 was due primarily to the
costs of third-party technology used for particular customers. If the Company
were required to obtain licenses from third parties under patent or other
intellectual property rights, the cost of license revenues could increase
significantly.

        COST OF SERVICES AND OTHER REVENUES. Cost of services and other revenues
consists primarily of personnel-related costs and fees for third-party
consultants incurred in providing 


                                      -9-
<PAGE>   10

consulting, post-contract customer support, training and installation services
to customers. Cost of services and other revenues was $4.9 million and $4.4
million for the quarters ended March 31, 1998 and 1997, representing 72.7% and
84.5% of the related services and other revenues for the respective quarters.
The increase in absolute dollars for the comparable quarterly periods was due
primarily to increases in personnel-related costs as the Company continued to
expand its consulting, customer support, training and installation services
organizations. The cost of services and other revenues as a percentage of
services and other revenues may vary between periods due to the amount and mix
of services provided by the Company and to varying levels of expenditures to
build the services organizations. Any significant decline in the demand for the
Company's consulting services would have a material adverse impact on the
Company's revenues and, as a result of the under-utilization of consulting
personnel, on the Company's gross profit and results of operations.

PRODUCT DEVELOPMENT

        Product development expenses were $2.5 million and $2.1 million, or
18.4% and 17.0% of total net revenues, for the quarters ended March 31, 1998 and
1997, respectively. Product development expenses consist primarily of salaries
and other related expenses for research and development personnel, as well as
the cost of facilities and depreciation of capital equipment. The increase in
absolute dollars for the comparable periods was attributable primarily to
increased staffing related to the development of application products and
ongoing enhancements to Electronic Workforce. The increase in product
development expenses as a percentage of total net revenues was due primarily to
increased expenses as compared to flat license revenues from 1997 to 1998. The
Company believes that significant investments in product development are
required to remain competitive. As a result, the Company expects that product
development expenses will increase in absolute dollars in the future and will
not decline significantly as a percentage of total net revenues from their
current levels.

        In accordance with SFAS No. 86, the Company expects to capitalize
eligible computer software development costs upon the achievement of
technological feasibility, subject to net realizable value considerations. The
Company has defined technological feasibility as completion of a working model.
To date, the Company believes its process for developing software was
essentially completed concurrently with the establishment of technological
feasibility, and, accordingly, no software development costs have been
capitalized in the accompanying statements of operations.

SALES AND MARKETING

        Sales and marketing expenses were $6.8 million and $4.5 million, or
49.3% and 36.7% of total net revenues, for the quarters ended March 31, 1998 and
1997, respectively. Sales and marketing expenses consist primarily of salaries
and commissions earned by sales and marketing personnel and promotional
expenses. The increase in absolute dollars for the comparable periods was due
primarily to the expansion of the Company's field and indirect sales operations
and increased marketing activities. The increase in sales and marketing expenses
as a percentage of total net revenues was due primarily to increased expenses as


                                      -10-
<PAGE>   11

compared to flat license revenues from 1997 to 1998. The Company expects to
continue to expand its field sales and marketing efforts, its third party value
added reseller ("VAR") distribution channel and its operations outside the
United States and, therefore, anticipates that sales and marketing expenditures
will increase in absolute dollars in the future. In addition, sales and
marketing expenses as a percentage of total net revenues may fluctuate between
periods due to varying levels of expenditures to build the sales and marketing
organizations.

GENERAL AND ADMINISTRATIVE

        General and administrative expenses were $1.3 million and $1.0 million,
or 9.3% and 8.3% of total net revenues, for the quarters ended March 31, 1998
and 1997, respectively. General and administrative expenses consist primarily of
salaries and other related expenses of administrative, executive and financial
personnel and outside professional fees. The increase in absolute dollars for
the comparable periods was attributable primarily to an increase in the
provision for doubtful accounts. The increase in general and administrative
expenses as a percentage of total net revenues was due primarily to increased
expenses as compared to flat license revenues from 1997 to 1998. The Company
expects to continue to expand its staffing, information systems and other items
related to infrastructure and, therefore, anticipates that general and
administrative expenses will increase in absolute dollars in the future.

INTEREST INCOME, NET

        Interest income, net was $480,000 for the quarter ended March 31, 1998,
comparable to $492,000 for the quarter ended March 31, 1997.

PROVISION FOR INCOME TAXES

        The provision for income taxes was $22,000 and $53,000 for the quarters
ended March 31, 1998 and 1997, respectively. For the three months ended March
31, 1998, the provision for income taxes relates primarily to state income and
foreign withholding taxes.

LIQUIDITY AND CAPITAL RESOURCES

        At March 31, 1998, the Company's cash, cash equivalents and short-term
investments totaled $44.5 million. At March 31, 1998, the Company also had
available an $8.0 million unsecured revolving bank line of credit agreement
which expires in December 1998 and contains certain financial covenants, with
which the Company was in compliance. Borrowings accrue interest at the bank's
prime rate. As of March 31, 1998, there were no borrowings outstanding under
this line of credit.

        For the three months ended March 31, 1998, operating activities provided
cash of $1.1 million, resulting primarily from decreases in accounts receivable
and depreciation and amortization, partially offset by a net loss and a decrease
in accrued expenses. Investing activities provided cash of $6.3 million from the
net sale and maturity of $7.3 million in 


                                      -11-
<PAGE>   12

short-term investments, partially offset by the purchase of $1.0 million in
property and equipment. The Company expects that its capital expenditures will
increase as the Company's employee base grows. Net cash generated from financing
activities of $1.2 million was related primarily to proceeds from the issuance
of the Company's common stock through its Employee Stock Purchase Plan and stock
option exercises.

        At March 31, 1998, the Company's working capital was $48.7 million. In
1998, the Company expects to incur costs in excess of $500,000 associated with
the implementation of a new financial system to replace its current system. The
Company has no other significant capital spending or purchase commitments other
than normal purchase commitments and commitments under its facilities and
capital leases. The Company believes that its working capital, together with its
bank line of credit and anticipated cash flows from operations, if any, will be
sufficient to meet its working capital and capital expenditure requirements for
at least the next 12 months.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

        Except for the historical information contained in this Form 10-Q, the
matters discussed herein are forward-looking statements. These forward-looking
statements concern matters which include, but are not limited to, the
sustainability of historical revenue growth rates, the Company's expected mix of
revenues, expected gross margins on license revenues and services and other
revenues, certain expected operating expense levels and the Company's liquidity
and capital needs. These matters involve risks and uncertainties that could
cause actual results to differ materially from those in the forward-looking
statements. The revenue levels and results of operations achieved during the
quarter ended March 31, 1998 are not necessarily indicative of the results that
may be achieved in any future period. There can be no assurance that the Company
will achieve or sustain profitability or experience growth in revenues in any
future quarter. The Company's revenues, margins and operating results have
fluctuated in the past, and are expected to continue to fluctuate in the future,
on an annual and quarterly basis as a result of a number of factors, such as
demand for the Company's products, including new products and product
enhancements, sales force initiatives, transitions to new products, the mix of
products and services sold, the mix of distribution channels through which the
Company's products are sold, customer order deferrals in anticipation of new
products or product enhancements, purchasing patterns of value added resellers
and customers, Company decisions regarding hiring and other expenses and
competitive conditions in the industry. In particular, the Company plans to
increase its operating expenses to expand its sales and marketing operations,
expand its distribution channels, expand its international operations, fund
greater levels of product development, broaden its consulting services and
customer support capabilities and increase its administrative infrastructure. A
relatively high percentage of the Company's expenses is fixed in the short term
as the Company's expense levels are based, in part, on its expectations as to
future revenues. If revenues fall below expectations, expenditure levels could
be disproportionately high as a percentage of total net revenues, and operating
results would be immediately and adversely affected.


                                      -12-
<PAGE>   13

        The Company historically has operated with little backlog because its
products are generally shipped as orders are received. As a result, license
revenues in any quarter depend on the volume and timing of, and the Company's
ability to fill, orders received in that quarter. Individual orders for the
Company's products typically are for relatively large dollar amounts. The
Company also believes the purchase of its products is relatively discretionary
and generally involves a significant commitment of capital resources. Therefore,
any downturn in any potential customer's business, or any loss or delay of
individual orders for any reason, would have a significant impact on the
Company's revenues and quarterly results. In addition, because the Company
typically recognizes a substantial portion of its total revenue from
transactions booked and shipped in the last weeks, or even days, of the quarter,
the magnitude of quarterly fluctuations may not become evident until very late
in a particular quarter. Revenues are difficult to forecast because the market
for the Company's products is rapidly evolving.

        Based upon all of the foregoing, the Company believes that its quarterly
revenues, expenses and operating results could vary significantly in the future
and that period-to-period comparisons should not be relied upon as indications
of future performance. There can be no assurance that the Company will be able
to grow in future periods or that it will be able to sustain its level of total
net revenues or increase or sustain its rate of revenue growth on a quarterly or
annual basis. It is likely that, in some future quarters, the Company's
operating results will be below the expectations of stock market analysts and
investors. In such event, the price of the Company's common stock could be
materially adversely affected.

        The Company's future success will depend on its ability to design,
develop, test, sell and support new software products and enhancements of
current products on a timely basis in response to changing customer needs,
competition, technological developments and emerging industry standards.
Versions through 4.x of Electronic Workforce and 1.x of EBS and ESY run on IBM's
OS/2 operating system. In October 1997, the Company released its first version
of Electronic Workforce Release 5 for the Windows NT operating system. In
December 1997, the Company released initial versions of EBS and ESY for NT.
Because these products have been recently released, many customers licensing
these versions have not yet fully deployed the product and undetected errors may
remain in these versions. The existence of any such errors may delay the release
of future versions and adversely affect the acceptance of these products, either
of which could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, certain features of the
OS/2 versions of the Company's software are not available on currently available
NT-based versions. Accordingly, the Company is devoting significant engineering
and development resources to develop enhancements to the versions of its
products that run on the Microsoft Windows NT operating system. It is possible
that the newness of or lack of features on the Windows NT-based versions of its
products will cause potential customers to defer or forgo purchases of current
or future versions of these products, which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's future success will depend upon the timely and successful introduction
of new versions of its Windows NT-based products. There can be no assurance that
the Company will be successful in developing, on a timely basis or at all, fully
featured 


                                      -13-
<PAGE>   14

Windows NT-based versions of its products or that such versions, if developed,
will achieve customer acceptance. Failure by the Company to develop new Windows
NT-based versions successfully and in a timely manner would have a material
adverse effect on the Company's business, financial condition and results of
operations.

        The Company intends to invest a significant majority of its product
development resources on products and product enhancements for the Windows NT
operating system. The Company must manage the effect on its existing OS/2
customers of this focus on the Windows NT operating system. There can be no
assurance that updates to and enhancements for the Company's OS/2-based products
will be sufficient to encourage its OS/2 customers to continue to purchase
additional software or services from the Company. In addition, the Company must
provide its customers with an economically reasonable and technologically
feasible migration path from the OS/2-based products to the NT-based products.
There can be no assurance that the Company's OS/2 customers will migrate to the
Company's NT-based products. The failure of a significant number of its existing
OS/2 customers to purchase additional software or services from the Company, for
any reason, would have a material adverse effect on the Company's business,
operating results and financial condition.

        In March 1996, the Company received a letter from Syntellect Technology
Corporation ("Syntellect") inviting the Company to negotiate a license of
certain of Syntellect's patents. Since then, Syntellect has called additional
Syntellect patents to the Company's attention. Based on its investigation of the
patents referenced in Syntellect's March 1996 letter, the Company believes that
it has substantial arguments that it does not violate any valid claims of such
Syntellect patents.

        In April 1996, the Company received a letter from Lucent Technologies
Inc. ("Lucent") inviting the Company to negotiate a license of Lucent's patents.
Since then, Lucent has asserted that it believes that certain of the Company's
products infringe certain of Lucent's patents and has offered to license those
patents to the Company for a substantial payment. In November 1997, the Company
received a letter from Lucent in which Lucent made similar assertions with
respect to other patents it holds. The Company believes that it has substantial
arguments that its current products do not violate any valid claims of the
Lucent patents referenced in the April 1996 letter and is in the process of
investigating the patents referenced in the November 1997 letter. The Company
has had several discussions with Lucent regarding the potential licensing of the
patents referenced in Lucent's letters and is currently engaged in such
discussions. Based on these discussions, it appears that obtaining a license
from Lucent may require the payment of a substantial license fee and possibly
ongoing royalties, which could have a material adverse effect on the Company's
results of operations in the periods when such payments are made, although the
Company does not believe that such payments would have a material adverse effect
on the Company's financial condition or liquidity. In the event that the Company
cannot come to an agreement with Lucent, the Company may be drawn into
litigation with Lucent. Such litigation could be protracted and expensive, and
the outcome cannot be predicted. There can be no assurance that the costs
associated with participating in or settling such litigation would not


                                      -14-
<PAGE>   15

have a material adverse effect on the Company's business, financial condition or
results of operations.

        In the future, the Company may receive additional communications from
these or other parties asserting that the Company's products, trademarks or
other proprietary rights require a license of intellectual property rights or
infringe, or may infringe, on their property rights. As the number of software
products in the industry increases, and the functionality of these products
further overlaps, the Company believes that software developers may become
increasingly subject to infringement claims. Any such claims, with or without
merit, could be time consuming, result in costly litigation, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company, or at all, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to establish the validity of the Company's proprietary rights.
Litigation to determine the validity of any claims could result in significant
expense to the Company and divert the efforts of the Company's technical and
management personnel from productive tasks, whether or not such litigation is
determined in favor of the Company. In the event of an adverse ruling in any
such litigation, the Company may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to infringing
technology. The failure of the Company to develop or license a substitute
technology could have a material adverse effect on the Company's business,
financial condition and results of operations.

        An integral part of the Company's strategy is to develop multiple
distribution channels, including a field sales force, VARs and OEMs. The Company
intends to increase its reliance on third-party distribution partners in the
future. The Company is expending and intends to continue to expend significant
resources to develop the VAR channel. VARs and OEMs are not, however, subject to
any minimum purchase or resale requirements and can cease marketing the
Company's products at any time. Certain VARs and OEMs may offer competing
products that they produce or that are produced by third parties. There can be
no assurance that the Company's existing VARs will continue to provide the level
of services and technical support necessary to provide a complete self service
solution to the Company's customers, that they will transition smoothly to sales
of new products or enhancements of existing products or that they will not
emphasize their own or third-party products to the detriment of the Company's
products. The loss of VARs, the failure of such parties to perform under
agreements with the Company or the inability of the Company to attract and
retain new VARs with the technical, industry and application expertise required
to market the Company's products successfully in the future could have a
material adverse effect on the Company's business, financial condition and
results of operations. To the extent that the Company is successful in
increasing its sales through VARs, those sales will be at discounted rates, and
revenue to the Company for each such sale will be less than if the Company had
licensed the same products to the customer directly.

                                      -15-
<PAGE>   16

        Many currently installed computer systems and software products are
coded to accept two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Although the Company's products are Year 2000
compliant, the Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those offered by the Company, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, even if the Company's products are Year
2000 compliant, other systems or software used by the Company's customers may
not be Year 2000 compliant. The failure of such noncompliant third-party
software or systems could affect the perceived performance of the Company's
products, which could have a material adverse effect on the Company's business,
financial condition and results of operations.

        In addition, the Company is in the process of identifying operating and
application software challenges related to the Year 2000. While the Company
expects to resolve Year 2000 compliance issues substantially through normal
replacement and upgrades of software, there can be no assurance that there will
not be interruption of operations or other limitations of system functionality
or that the Company will not incur substantial costs to avoid such limitations.
Any failure to effectively monitor, implement or improve the Company's
operational, financial, management and technical support systems could have a
material adverse effect on the Company's business, financial condition and
results of operations.

        In addition to the factors discussed above, among the other factors that
could cause actual results to differ materially are the following: demand for
and market acceptance of application products; the Company's ability to deliver
on time, and market acceptance of, new products or upgrades of existing
products; customer order deferrals in anticipation of new products; the timing
of, or delay in, large customer orders; continued availability of technology and
intellectual property license rights; changes in the mix of distribution
channels through which the Company's products are offered; competitive
conditions in the industry; risks associated with global operations; general
economic conditions; and the "Business Risks" listed from time to time in
reports that the Company files with the U.S. Securities and Exchange Commission,
including but not limited to the Company's Form 10-K for the fiscal year ended
December 31, 1997.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Not applicable.


                                      -16-
<PAGE>   17

--------------------------------------------------------------------------------
PART II.        OTHER INFORMATION
--------------------------------------------------------------------------------


ITEM 1.   LEGAL PROCEEDINGS

        None.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

        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)    The following exhibits are being filed as part of this Report:

               10.11     Consulting Agreement dated January 15, 1998 between
                         Registrant and DRH Strategic Consulting Inc.

               27.01     Financial Data Schedule

               27.02     Restated Financial Data Schedule (quarter ended March
                         31, 1997 restated to reflect adoption of SFAS No. 128).

               27.03     Restated Financial Data Schedule (quarter ended June
                         30, 1997 restated to reflect adoption of SFAS No. 128).

               27.04     Restated Financial Data Schedule (quarter ended
                         September 30, 1997 restated to reflect adoption of SFAS
                         No. 128).

        (b)    Reports on Form 8-K:

               No report on Form 8-K has been filed for the quarterly period 
ended March 31, 1998.


                                      -17-
<PAGE>   18

--------------------------------------------------------------------------------
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.

                                          EDIFY CORPORATION




Date: May 14, 1998                        By:     /s/  Stephanie A. Vinella
                                              ---------------------------------
                                              Stephanie A. Vinella
                                              Vice President of Finance and 
                                              Administration, Chief Financial 
                                              Officer and Secretary


                                      -18-
<PAGE>   19

--------------------------------------------------------------------------------
EDIFY CORPORATION
FORM 10-Q
EXHIBIT INDEX
--------------------------------------------------------------------------------



                     EXHIBITS


10.11     Consulting Agreement dated January 15, 1998 between Registrant and DRH
          Strategic Consulting Inc.

27.01     Financial Data Schedule

27.02     Restated Financial Data Schedule (quarter ended March 31, 1997
          restated to reflect adoption of SFAS No. 128).

27.03     Restated Financial Data Schedule (quarter ended June 30, 1997 restated
          to reflect adoption of SFAS No. 128).

27.04     Restated Financial Data Schedule (quarter ended September 30, 1997
          restated to reflect adoption of SFAS No. 128).