<PAGE>   1
 
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                                 UNITED STATES
                       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 SEPTEMBER 30, 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 0-25494
 
                            ------------------------
 
                               REMEDY CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                   DELAWARE                                      77-0265675
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NUMBER)
 
     1505 SALADO DRIVE, MOUNTAIN VIEW, CA                          94043
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>
 
                                 (650) 903-5200
              (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
 
                            ------------------------
 
     Indicate by check mark 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.
 
                             Yes  [X]       No  [ ]
 
     There were 28,468,980 shares of the Company's Common Stock, par value
$.00005, outstanding on October 30, 1998.
 
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<PAGE>   2
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                       PAGE NO.
                                                                       --------
<S>      <C>                                                           <C>
                         PART I  FINANCIAL INFORMATION
Item 1.  Financial Statements:
         Condensed Consolidated Balance Sheets as of September 30,
           1998 and December 31, 1997................................      3
         Condensed Consolidated Statements of Income for the Three
           and Nine Months Ended September 30, 1998 and 1997.........      4
         Condensed Consolidated Statements of Cash Flows for the Nine
           Months Ended September 30, 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.................................      9
 
                          PART II  OTHER INFORMATION
Item 5.  Stockholder Proposals.......................................     19
Item 6.  Exhibits and Reports on Form 8-K............................     19
SIGNATURE............................................................     20
</TABLE>
 
                                        2
<PAGE>   3
 
PART I  FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                               REMEDY CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1998            1997
                                                              -------------   ------------
                                                               (UNAUDITED)        (1)
<S>                                                           <C>             <C>
Current assets:
  Cash and cash equivalents.................................    $ 77,944        $ 70,568
  Short-term investments....................................      61,373          63,265
  Accounts receivable, net of allowance for doubtful
     accounts of $2,659 and $1,974 respectively.............      30,501          31,528
  Prepaid expenses and other current assets.................       6,673           2,682
  Deferred tax asset........................................       3,562           3,101
                                                                --------        --------
          Total current assets..............................     180,053         171,144
Property and equipment, net.................................      12,851          10,472
                                                                --------        --------
                                                                $192,904        $181,616
                                                                ========        ========
 
                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $  2,246        $  1,230
  Accrued compensation and related liabilities..............       4,229           5,519
  Income taxes payable......................................       2,804             806
  Other accrued liabilities.................................       7,630           6,141
  Deferred revenue..........................................      22,522          18,986
  Current portion of obligations under capital leases.......         567             360
                                                                --------        --------
          Total current liabilities.........................      39,998          33,042
Noncurrent portion of obligations under capital leases......         245             502
Stockholders' equity:
Common stock and additional paid-in capital.................      97,496          92,397
Treasury stock..............................................     (13,977)             --
Notes receivable from stockholders..........................         (46)            (47)
Deferred compensation.......................................          --             (75)
Retained earnings...........................................      69,188          55,797
                                                                --------        --------
          Total stockholders' equity........................     152,661         148,072
                                                                --------        --------
                                                                $192,904        $181,616
                                                                ========        ========
</TABLE>
 
---------------
(1) The balance sheet at December 31, 1997 has been derived from the audited
    financial statements at that date, but does not include all the information
    and footnotes required by generally accepted accounting principles for
    complete financial statements.
 
                            See accompanying notes.
                                        3
<PAGE>   4
 
                               REMEDY CORPORATION
 
                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED     NINE MONTHS ENDED
                                                       SEPTEMBER 30,          SEPTEMBER 30,
                                                     ------------------    -------------------
                                                      1998       1997        1998       1997
                                                     -------    -------    --------    -------
<S>                                                  <C>        <C>        <C>         <C>
Revenue:
  Products.........................................  $25,912    $27,001    $ 67,745    $64,191
  Maintenance and service..........................   14,205     10,065      39,584     26,178
                                                     -------    -------    --------    -------
          Total revenue............................   40,117     37,066     107,329     90,369
Costs and expenses:
  Cost of product revenue..........................    1,152        849       3,130      2,478
  Cost of maintenance and service revenue..........    5,487      4,266      15,759     10,952
  Research and development.........................    8,417      6,286      24,163     14,306
  Sales and marketing..............................   14,347     11,728      40,345     29,945
  General and administrative.......................    2,345      2,282       7,242      5,861
                                                     -------    -------    --------    -------
          Total costs and expenses.................   31,748     25,411      90,639     63,542
Income from operations.............................    8,369     11,655      16,690     26,827
Interest income, net...............................    1,356      1,081       4,233      2,945
                                                     -------    -------    --------    -------
Income before provision for income taxes...........    9,725     12,736      20,923     29,772
Provision for income taxes.........................    3,501      4,623       7,532     10,711
                                                     -------    -------    --------    -------
Net income.........................................  $ 6,224    $ 8,113    $ 13,391    $19,061
                                                     =======    =======    ========    =======
Net income per share:
  Basic............................................  $  0.22    $  0.29    $   0.46    $  0.70
  Diluted..........................................  $  0.21    $  0.27    $   0.45    $  0.63
                                                     =======    =======    ========    =======
Shares used in computing per share amounts:
  Basic............................................   28,688     27,789      28,833     27,363
  Diluted..........................................   29,574     30,592      30,134     30,470
                                                     =======    =======    ========    =======
</TABLE>
 
                            See accompanying notes.
                                        4
<PAGE>   5
 
                               REMEDY CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                NINE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                              ----------------------
                                                                1998         1997
                                                              ---------    ---------
<S>                                                           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................  $  13,391    $  19,061
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation and amortization..........................      4,328        2,304
     Amortization of deferred compensation..................         76          135
     Changes in assets and liabilities:
       Accounts receivable..................................      1,027       (4,058)
       Prepaid expenses and other current assets............     (3,991)        (822)
       Deferred tax asset...................................       (461)        (145)
       Accounts payable.....................................      1,016         (426)
       Accrued compensation and related liabilities.........     (1,290)      (1,556)
       Income taxes.........................................      2,602        7,186
       Other accrued liabilities............................      1,489          371
       Deferred revenue.....................................      3,536        3,963
                                                              ---------    ---------
Net cash provided by operating activities...................     21,723       26,013
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.........................   (141,065)    (115,658)
Maturities of short-term investments........................    142,957      107,716
Capital expenditures........................................     (6,375)      (5,639)
                                                              ---------    ---------
Net cash used in investing activities.......................     (4,483)     (13,581)
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations..........       (382)         (95)
Proceeds from issuance of common stock......................      4,495        6,169
Purchase of treasury stock..................................    (13,977)          --
                                                              ---------    ---------
Net cash provided by (used in) financing activities.........     (9,864)       6,074
                                                              ---------    ---------
Net increase in cash and cash equivalents...................      7,376       18,506
Cash and cash equivalents at beginning of period............     70,568       39,770
                                                              ---------    ---------
Cash and cash equivalents at end of period..................  $  77,944    $  58,276
                                                              =========    =========
</TABLE>
 
                            See accompanying notes.
                                        5
<PAGE>   6
 
                               REMEDY CORPORATION
 
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
 1. BASIS OF PRESENTATION
 
     The condensed consolidated balance sheet as of September 30, 1998, and the
condensed consolidated statements of income for the three months and nine months
ended September 30, 1998 and 1997, and the condensed consolidated statements of
cash flows for the nine months ended September 30, 1998 and 1997, have been
prepared by the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
September 30, 1998 and for all periods presented have been made. The condensed
consolidated balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date.
 
     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations. These condensed financial statements should
be read in conjunction with the audited financial statements and notes thereto
included in the Company's 1997 Annual Report on Form 10-K filed with the
Securities and Exchange Commission in March 1998.
 
     The results of operations for the three and nine months ended September 30,
1998 are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year.
 
 2. EARNINGS PER SHARE
 
     In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share.
 
     Basic earnings per share is computed using the weighted average number of
common shares outstanding. Diluted earnings per share also includes the weighted
average number of common share equivalents outstanding during the period.
Dilutive common share equivalents consist of employee stock options using the
treasury method.
 
     The following table sets forth the computation of basic and diluted
earnings per share:
 
<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED    NINE MONTHS ENDED
                                                SEPTEMBER 30,         SEPTEMBER 30,
                                              ------------------    ------------------
                                               1998       1997       1998       1997
                                              -------    -------    -------    -------
                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                            (UNAUDITED)
<S>                                           <C>        <C>        <C>        <C>
Numerator:
  Net Income................................  $ 6,224    $ 8,113    $13,391    $19,061
                                              =======    =======    =======    =======
Denominator:
  Denominator for basic earnings per share-
     weighted-average shares................   28,688     27,789     28,833     27,363
  Effect of dilutive securities:
  Employee stock options....................      886      2,803      1,301      3,107
                                              -------    -------    -------    -------
  Dilutive potential common shares..........      866      2,803      1,301      3,107
  Denominator for diluted earnings per
     share..................................   29,574     30,592     30,134     30,470
                                              =======    =======    =======    =======
  Basic earnings per share..................  $  0.22    $  0.29    $  0.46    $  0.70
  Diluted earnings per share................  $  0.21    $  0.27    $  0.45    $  0.63
</TABLE>
 
                                        6
<PAGE>   7
                               REMEDY CORPORATION
 
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
 3. REVENUE RECOGNITION
 
     As of January 1, 1998, the Company adopted AICPA SOP 97-2, Software Revenue
Recognition, as amended by EITF 98-4 which was effective for transactions that
the Company entered into in 1998. Prior years were not restated. The adoption of
SOP 97-2 did not have a material affect on the revenues or earnings for the
period.
 
 4. COMPREHENSIVE INCOME
 
     As of January 1, 1998, the Company adopted Financial Accounting Standards
Board's Statement No. 130, Reporting Comprehensive Income (Statement 130).
Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components. Comprehensive income is the same as net
income as there are no necessary adjustments reported in stockholders' equity
which are to be included in the computation. Accordingly, the adoption of this
statement had no impact on the Company's net income or stockholders' equity.
 
 5. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
 
     Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (Statement
131). Statement 131 superseded Statement No. 14, Financial Reporting for
Segments of a Business Enterprise. Statement 131 established standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports.
Statement 131 also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The adoption of Statement
131 did not affect the results of operations or financial position, but may
affect the disclosure of the segment information that will be disclosed in the
annual report on Form 10-K.
 
 6. STOCK OPTION EXCHANGE
 
     On February 4, 1998, the Compensation Committee of the Board of Directors
approved the exchange of certain outstanding stock options under the Company's
1995 Stock Option/Stock Issuance Plan with exercise prices ranging from $17.92
to $53.75. Each employee who elected prior to February 2, 1998 to participate in
the exchange program received a new option with an exercise price of $16.75 per
share (the fair market value on February 4, 1998). Each new option that replaces
an option outstanding for at least 12 months shall vest in equal monthly
installments over the period remaining under the original option plus an
additional 12 months, not to exceed 48 months. Each new option that replaces an
option outstanding for less than 12 months shall vest 25% at the end of 12
months from the grant date of February 4, 1998 and 1/48th per month thereafter.
Approximately, 3,200,000 stock options were exchanged pursuant to this program.
The Board of Directors of the Company were not eligible to participate in this
program.
 
 7. SHARE REPURCHASE
 
     On August 5, 1998, the Board of Directors authorized management of the
Company to repurchase up to 3 million shares or approximately 10 percent of the
Company's outstanding shares of common stock over the next twelve months. The
Company plans to purchase the shares on the open market from time to time,
depending on market conditions. The repurchases will be funded from the
Company's cash and short-term investments. As of September 30, 1998, the Company
had repurchased a total of approximately 1.1 million shares of the Company's
stock at an average price of $12.50 for approximately $14.0 million dollars.
 
                                        7
<PAGE>   8
                               REMEDY CORPORATION
 
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
 8. SUBSEQUENT EVENT
 
     In October 1998, the Company announced a definitive agreement to purchase
BayStone Software, a privately held provider of a suite of customer support,
quality assurance, and opportunity management and telesales automation
applications for rapidly growing businesses. Under the terms of the agreement,
Remedy will pay approximately $10 million cash with various performance
contingencies in exchange for all the assets and liabilities of BayStone
Software. The transaction is subject to approval by BayStone's shareholders and
certain closing conditions, including completion of due diligence. Remedy
anticipates it will recognize a one-time charge of approximately $2.5 million
dollars in the fourth quarter in connection with the transaction, which is
expected to be non-dilutive to fiscal 1999 earnings per share. The acquisition
is expected to be completed in the Company's fourth quarter. The acquisition
will be accounted for as a purchase for accounting purposes.
 
                                        8
<PAGE>   9
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
     Remedy Corporation (the "Company") develops, markets and supports highly
adaptable, client/server applications software for support and business
processes. The Company was founded in November 1990 and made its initial product
shipments in December 1991. The Company has been profitable since the quarter
ended June 30, 1992. There can be no assurance, however, that the Company will
remain profitable on a quarterly or annual basis in the future.
 
     Although the Company has experienced significant percentage growth in
revenues and net income in recent years, the Company does not believe prior
growth rates are sustainable or indicative of future operating results. In
addition, the Company expects increased competition and intends to invest
significantly in its business. As a result, the Company does not expect to
sustain current operating margins in the future.
 
     The Company believes that its products are priced substantially below most
of its competitors' products. The market for the Company's products is highly
competitive, and the Company expects that it will face increasing pricing
pressures from its current competitors and new market entrants. Any material
reduction in the price of the Company's products would negatively affect gross
margins and could materially adversely affect the Company's business, operating
results and financial condition if the Company were unable to increase unit
sales.
 
     This Report on Form 10-Q contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in the
"Additional Factors That May Affect Future Results" section on page 16 and in
the "Risk Factors" section of the Company's 1997 Report on Form 10-K filed with
the Securities and Exchange Commission in March 1998.
 
RESULTS OF OPERATIONS
 
     The Company's quarterly operating results have in the past and may in the
future vary significantly depending on factors such as increased competition,
the timing of new product announcements and changes in pricing policies by the
Company and its competitors, market acceptance of new and enhanced versions of
the Company's products, the size and timing of significant orders, the mix of
direct and indirect sales, changes in operating expenses, changes in Company
strategy, personnel changes, foreign currency exchange rates and general
economic factors. The Company operates with no significant order backlog because
its software products typically are shipped shortly after orders are received.
Furthermore, the Company has often recognized a substantial portion of its
revenue in the last month of a quarter, with this revenue frequently
concentrated in the last week of a quarter. As a result, product revenue in any
quarter is substantially dependent on orders booked and shipped in that quarter,
and revenue for any future quarter is not predictable with any degree of
certainty. Product revenue is also difficult to forecast because the market for
client/server application software products is rapidly evolving, and the
Company's sales cycle, from initial trial to multiple copy purchases and the
provision of support services, varies substantially from customer to customer.
In addition, the Company expects that sales derived through indirect channels,
which are harder to predict and have lower margins than direct sales, will
increase as a percentage of total revenue. The Company's expense levels are
based, in part, on its expectations as to future revenues. If revenue levels are
below expectations, operating results are likely to be adversely affected. Net
income may be disproportionately affected by a reduction in revenue because a
proportionately smaller amount of the Company's expenses varies with its
revenue. As a result, the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. In the quarter ended December
31, 1997, the Company received significantly fewer orders than expected, which
had an immediately adverse effect on the Company's financial performance for the
quarter. The Company's operating results were below the expectations of public
market analysts and investors, and the Company's stock price declined
significantly. It is likely that in some future quarter the Company's operating
results will again be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.
 
                                        9
<PAGE>   10
 
     The following table sets forth, as a percentage of total revenue, statement
of income data for the periods indicated.
 
<TABLE>
<CAPTION>
                                                      THREE MONTHS        NINE MONTHS
                                                         ENDED               ENDED
                                                     SEPTEMBER 30,       SEPTEMBER 30,
                                                     --------------      --------------
                                                     1998      1997      1998      1997
                                                     ----      ----      ----      ----
<S>                                                  <C>       <C>       <C>       <C>
Revenue:
  Product..........................................   65%       73%       63%       71%
  Maintenance and Service..........................   35        27        37        29
                                                     ---       ---       ---       ---
          Total Revenue............................  100       100       100       100
Costs and expenses:
  Cost of product revenue..........................    3         2         3         3
  Cost of maintenance and service revenue..........   13        12        15        12
  Research and development.........................   21        17        22        16
  Sales and marketing..............................   36        32        37        33
  General and administrative.......................    6         6         7         6
                                                     ---       ---       ---       ---
          Total costs and expenses.................   79        69        84        70
                                                     ---       ---       ---       ---
Income from operations.............................   21        31        16        30
Interest income, net...............................    3         3         4         3
                                                     ---       ---       ---       ---
Income before provision for income taxes...........   24        34        20        33
Provision for income taxes.........................    9        12         7        12
                                                     ---       ---       ---       ---
Net income.........................................   15%       22%       13%       21%
                                                     ===       ===       ===       ===
</TABLE>
 
REVENUE
 
     The Company's revenue is derived from two sources: product licenses and
fees for services. License revenue is derived from product licensing fees, while
service revenue is derived from maintenance support services, training and
consulting. The Company recognizes revenue in accordance with the Statement of
Position on Software Revenue Recognition ("SOP 97-2"), issued by the American
Institute of Certified Public Accountants. The adoption of SOP 97-2 on January
1, 1998 did not have a material affect on the revenue or earning for the period.
Product revenue is recognized upon delivery only if no significant vendor
obligations remain and collection of the resulting receivable is deemed
probable. Delivery is defined in certain contracts as delivery of the product
master or first copy for noncancelable product licensing arrangements under
which the customer has certain software reproduction rights. Service revenue
from customer maintenance fees for ongoing customer support and product updates
is recognized ratably over the term of the maintenance contract, which is
typically twelve months. Service revenue from training and consulting is
recognized when the services are performed. Fees for such services are charged
separately from the Company's software products. The Company's license
agreements generally do not provide a right of return. However, reserves are
maintained for allowances and potential credit losses, which have not been
significant to date.
 
     The Company distributes the majority of its products through its
headquarters-based direct sales force, which is complemented by indirect sales
channels, including value-added resellers (VARs), system integrators (SIs),
independent software vendors (ISVs) and original equipment manufacturers (OEMs).
Sales derived through indirect channels accounted for approximately 39% of the
Company's total billings for the quarter ended September 30, 1997 and 47% for
the comparable period in 1998. Sales derived through indirect channels accounted
for approximately 43% for the nine months ended September 30, 1997 and 46% in
the comparable period in 1998. The Company expects that sales derived through
indirect channels, which have lower average selling prices and gross margins
than direct sales, will increase as a percentage of total revenue. As a result,
the Company expects that its gross margins on product sales may decline if sales
through indirect channels increase.
 
                                       10
<PAGE>   11
 
     Product Revenue. The Company currently derives substantially all of its
product revenue from licenses of the Action Request System. Revenue from product
licenses decreased by 4% from $27.0 million for the quarter ended September 30,
1997 to $25.9 million in the comparable quarter in 1998. Product license fees
increased 6% from $64.2 million for the nine months ended September 30, 1997 to
$67.7 million in the comparable period in 1998. The impact of anticipated
transactions being shifted out of the quarter, slower hiring of sales personnel
than planned, global uncertainties and upcoming new product launches contributed
to the decrease in the current quarter's product revenue. International sales
accounted for approximately 31% and 36% of the Company's total revenue for the
quarters ended September 30, 1997 and 1998, respectively. International sales
accounted for approximately 35% of the Company's total revenue for the nine
months ended September 30, 1997 and 36% in the comparable period in 1998. The
prices of the Company's products have remained relatively constant in the
periods presented. The Company intends to continue to enhance its current
software products as well as to develop new types of software products. As a
result, the Company anticipates that revenue from product licenses will continue
to represent a substantial majority of its revenue in the foreseeable future.
The Company expects that prior growth rates of the Company's product revenue may
not be sustainable in the future.
 
     Maintenance and Service Revenue. Maintenance and service revenue increased
by 41% from $10.1 million for the quarter ended September 30, 1997 to $14.2
million in the comparable quarter in 1998. Service revenue increased 51% from
$26.2 million for the nine months ended September 30, 1997 to $39.6 million in
the comparable 1998 period. This growth is primarily due to the renewal of
maintenance contracts after the initial one-year term. Increased licensing
activity, which has resulted in increased revenue from maintenance and support,
training and consulting services also contributed to the growth rate. The
Company expects that prior growth rates of the Company's installed base and,
consequently, in the Company's service revenue, may not be sustainable in the
future.
 
COSTS AND EXPENSES
 
     Cost of Product Revenue. Cost of product revenue consists primarily of the
costs of royalties paid to third-party vendors, product media and duplication,
manuals, packaging materials, personnel-related costs and shipping expenses.
Cost of product revenue increased from $849,000 for the quarter ended September
30, 1997 to $1.2 million for the comparable quarter in 1998, representing 3% and
4% of the related product revenue in such quarters, respectively. Cost of
product revenue increased from $2.5 million for nine months ended September 30,
1997 to $3.1 million in the comparable 1998 period, representing 4% and 5% of
related product revenue in such periods, respectively. The increase in the
dollar amounts of cost of product revenue for the quarter ended September 30,
1998 was primarily due to the higher volumes of product shipped during the
quarter. Because all development costs incurred in the research and development
of new software products and enhancements to existing software products have
been expensed as incurred, cost of product revenue includes no amortization of
capitalized software development costs.
 
     Cost of Maintenance and Service Revenue. Cost of maintenance and service
revenue consists primarily of personnel-related costs incurred in providing
telephone support, consulting and training to customers. Cost of maintenance and
service revenue increased from $4.3 million for the quarter ended September 30,
1997 to $5.5 million in the comparable quarter in 1998, representing 42% and 39%
of the related maintenance and service revenue for the respective quarters. Cost
of maintenance and service revenue increased from $11.0 million for the nine
months ended September 30, 1997 to $15.8 million in the comparable 1998 period,
representing 42% and 40%, respectively, of the related maintenance and service
revenue in such periods. Cost of maintenance and service revenue increased
significantly in absolute dollars from the quarter ended September 30, 1997 to
the quarter ended September 30, 1998, primarily due to increased
personnel-related costs as the Company continued to build its customer support
and training organizations. In addition, such costs increased from quarter to
quarter due to the Company's increased partnering with third-party service
providers to deliver consulting services to its customers. The Company believes
that cost of maintenance and service revenue will increase in dollar amounts in
the future.
 
     Research and Development. Research and development expenses were $6.3
million and $8.4 million, or 17% and 21% of total revenue, for the quarters
ended September 30, 1997 and September 30, 1998,
                                       11
<PAGE>   12
 
respectively. Research and development expenses increased from $14.3 million for
the nine months ended September 30, 1997 to $24.2 million in the comparable 1998
period, or 16% and 22% of total revenue, respectively. The increases in research
and development in both absolute dollar amounts and as a percentage of total
revenue were primarily attributable to an increase in staffing, outside
contractors and associated support for software engineers required to expand and
enhance the Company's product line as the Company continues to invest in
building new products lines. The Company believes that research and development
expenses will continue to increase in dollar amounts and may increase as a
percentage of total revenue in the future.
 
     Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses of sales and marketing personnel, as well as
promotional expenses. Sales and marketing expenses were $11.7 million and $14.3
million, or 32% and 36% of total revenue, for the quarters ended September 30,
1997 and September 30, 1998, respectively. Sales and marketing expenses
increased from $29.9 million for the nine months ended September 30, 1997 to
$40.3 million in the comparable 1998 period, or 33% and 37% of total revenue,
respectively. The increases in sales and marketing expenses in both absolute
dollar amounts and as a percentage of total revenue were primarily due to the
expansion of sales and marketing resources and increased marketing activities,
including trade shows and promotional activities. The Company believes that
sales and marketing expenses will continue to increase in dollar amounts and may
increase as a percentage of total revenue in the future as the Company expands
its sales and marketing staff.
 
     General and Administrative. General and administrative expenses were $2.3
million, or 6% of total revenue, for the quarters ended September 30, 1997 and
September 30, 1998. General and administrative expenses increased from $5.9
million for the nine months ended September 30, 1997 to $7.2 million for the
comparable 1998 period, or 6% and 7% of total revenue, respectively. The
increases in dollar amounts for the nine months ended September 30, 1998 were
primarily the result of increased staffing and associated expenses necessary to
manage and support the Company's growth. The Company believes that its general
and administrative expenses will increase in dollar amounts and may increase as
a percentage of total revenue in the future as the Company expands its staffing.
 
     Interest Income, net. Interest income, net was $1.1 million and $1.4
million for the quarters ended September 30, 1997 and September 30, 1998,
respectively. Interest income, net increased from $2.9 million for the nine
months ended September 30, 1997 to $4.2 million for the comparable 1998 period.
The increase in interest income, net for the nine months ended September 30,
1998 is primarily due to the investment of increased amounts of cash provided by
operating activities.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     During the nine months ended September 30, 1997 and September 30, 1998, the
Company's cash provided by operating activities was $26.0 million and $21.7
million, respectively. The Company's net cash provided by operations for the
nine months ended September 30, 1998 was primarily attributable to the net
income generated in the nine-month period.
 
     During the nine months ended September 30, 1997 and September 30, 1998, the
Company's investing activities have consisted of purchases of short-term
investments and property and equipment. Maturities of short-term investments
exceeded purchases by $1.9 million for the nine months ended September 30, 1998.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk.
Management expects that, in the future, cash in excess of current requirements
will continue to be invested in investment grade, interest-bearing securities.
 
     Cash used to purchase property and equipment was $6.4 million and $5.6
million during the nine months ended September 30, 1998 and September 30, 1997,
respectively, primarily for computer workstations and file servers for the
Company's growing employee base. The Company expects that the rate of purchases
of property and equipment will remain constant or increase as the Company's
employee base grows. The Company's principal commitments consist primarily of
leases on its headquarters and Pleasanton facilities and its telephone system.
 
                                       12
<PAGE>   13
 
     During the nine months ended September 30, 1998, the net cash used in
financing activities was $9.9 million in contrast to the net cash provided by
such activities of $6.1 million for the comparable period in 1997. This
comparative decrease is primarily due to the use of approximately $14.0 million
as part of the Company's initial purchase of 1,117,500 shares of the Company's
stock under the share repurchase program. The Board of Directors has authorized
management to repurchase up to 3 million shares through July 1999.
 
     At September 30, 1998, the Company had $77.9 million in cash and cash
equivalents, $61.4 million in short-term investments and $140 million of working
capital. The Company also has available a $15 million unsecured bank line of
credit that expires in June 1999. There were no borrowings outstanding under
this line of credit as of September 30, 1998.
 
     The Company believes that its current cash, cash equivalents and short-term
investment balances, cash available under its line of credit and cash flow from
operations, if any, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months. Although operating
activities may provide cash in certain periods, to the extent the Company
experiences growth in the future, the Company anticipates that its operating and
investing activities may use cash. Consequently, significant future growth may
require the Company to obtain additional equity or debt financing. There can be
no assurance that, in the event that additional financing is required, the
Company will be able to raise such additional financing on acceptable terms or
at all.
 
     In October 1998, the Company announced a definitive agreement to purchase
BayStone Software, a privately held provider of a suite of customer support,
quality assurance, and opportunity management and telesales automation
applications for rapidly growing businesses. Under the terms of the agreement,
Remedy will pay approximately $10 million cash with various performance
contingencies in exchange for all the assets and liabilities of BayStone
Software. The transaction is subject to approval by BayStone's shareholders and
certain closing conditions, including completion of due diligence. Remedy
anticipates it will recognize a one-time charge of approximately $2.5 million
dollars in the fourth quarter in connection with the transaction, which is
expected to be non-dilutive to fiscal 1999 earnings per share. The acquisition
is expected to be completed in the Company's fourth quarter. The acquisition
will be accounted for as a purchase for accounting purposes.
 
OTHER MATTERS
 
     YEAR 2000 COMPLIANCE. Remedy Corporation is aware of the issues associated
with the programming code in existing computer systems as the Year 2000
approaches. The "Year 2000 problem" is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the two-digit
year value to 00. The issue is whether computer systems will properly recognize
date sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. Management does not anticipate that the Company will incur
significant operating expenses or be required to invest heavily in computer
systems improvements to be Year 2000 compliant. However, significant uncertainty
exists concerning the potential costs and effects associated with any Year 2000
compliance. Any Year 2000 compliance problems of either the Company or its
vendors could materially adversely affect the Company's business, results of
operations, financial condition and prospects.
 
     We are currently taking steps to address Year 2000 issues in the following
three areas:
 
     (1) Our products;
 
     (2) Internal systems (including information technology such as financial
         and order entry systems and non-information technology systems such as
         phones and facilities);
 
     (3) Readiness of third parties with whom we have business relationships.
 
     We have assigned a dedicated Year 2000 project team to develop and
implement a comprehensive Year 2000 readiness plan for our world-wide operations
relating to all of these areas. This plan has executive
 
                                       13
<PAGE>   14
 
sponsorship, is regularly reviewed by senior management and includes progress
reports to appropriate parties on a regular basis.
 
  Our Products
 
     Remedy software currently supports any date value set by the operating
system. All date information, such as creation dates, modification dates, and
time/date stamps, is generated using the date value provided by the operating
system (Microsoft(R) Windows(R), Apple Macintosh(R), UNIX(R), and others).
 
     The functionality of the current or listed versions of the following Remedy
products will not be impaired by the change to the Year 2000. The current
versions of these products accurately represent date information within the
constraints of the operating systems on which they run:
 
        Remedy Action Request System(R) (Version 3.0 or newer, including
localized versions)
          Multi-Processing Server Option(TM)
           Distributed Server Option(TM)
           Full Text Search Option(TM)
       ARWeb(R) (Version 2.0 or newer)
        Flashboards(R) (Version 2.0 or newer)
        Remedy Help Desk(TM) (Version 2.0 or newer)
        Remedy Help Desk Express(TM)
        Remedy Service Level Agreements(TM)
        Remedy Change Management(TM)
        Remedy Asset Management(TM)
 
     Because Remedy software supports the date value set by the operating
system, it is important for customers to confirm that the operating systems in
use are, or will be, Year 2000 compliant.
 
     The software license agreement provided with the Remedy software includes a
Year 2000 certification. That provision states that the Remedy software, when
used in conjunction with the Remedy-compatible operating systems described in
the Remedy software documentation, will accurately process date data (including,
but not limited to, calculating, comparing, and sequencing) from, into, and
between the twentieth and twenty-first centuries -- including leap year
calculations. The provision also assumes that all products (hardware, software,
and firmware) used in combination with the Remedy software will properly
exchange date data with the Remedy software.
 
  Internal Systems
 
     Remedy Corporation's internal systems include both its information
technology ("IT") and non-IT systems. Remedy has initiated an assessment of its
internal IT systems including third-party software and hardware technology and
its non-IT systems (such as its security system, building equipment, and
embedded microcontrollers) and retained an outside contractor to provide
assistance. Remedy expects to complete that testing in Q2 of 1999. To the extent
that Remedy Corporation is not able to test the technology provided by
third-party vendors, Remedy is seeking assurances from such vendors that their
systems are Year 2000 compliant. Although Remedy is not currently aware of any
material operational issues or costs associated with preparing its internal IT
and non-IT systems for the Year 2000, Remedy may experience material
unanticipated problems and costs caused by undetected errors or defects in the
technology used in its internal IT and non-IT systems.
 
  Third Parties
 
     Remedy Corporation does not currently have any information concerning the
Year 2000-compliance status of its vendors. If Remedy Corporation's current or
future vendors fail to achieve Year 2000 compliance or if they divert technology
expenditures (especially technology expenditures that were reserved for
enterprise
 
                                       14
<PAGE>   15
 
software) to address Year 2000 compliance problems, Remedy Corporation's
business, results of operations, or financial condition could be materially
adversely affected.
 
     Remedy Corporation has not yet fully developed a comprehensive contingency
plan to address situations that may result if Remedy is unable to achieve Year
2000 readiness of its critical operations. The cost of developing and
implementing such a plan may itself be material. Finally, Remedy is also subject
to external forces that might generally affect industry and commerce, such as
utility or transportation companies Year 2000 compliance failures and related
service interruptions.
 
                                       15
<PAGE>   16
 
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS: RISK FACTORS
 
     Potential Fluctuations in Quarterly Results; Seasonality. The Company's
quarterly operating results have in the past and may in the future vary
significantly depending on factors such as increased competition, the timing of
new product announcements and changes in pricing policies by the Company and its
competitors, market acceptance of new and enhanced versions of the Company's
products, the size and timing of significant orders, the mix of direct and
indirect sales, changes in operating expenses, changes in Company strategy,
personnel changes, foreign currency exchange rates fluctuations and general
economic factors. The Company operates with no significant order backlog because
its software products typically are shipped shortly after orders are received.
Furthermore, the Company has often recognized a substantial portion of its
revenue in the last month of a quarter, with this revenue frequently
concentrated in the last week of a quarter. As a result, product revenue in any
quarter is substantially dependent on orders booked and shipped in that quarter
and revenue for any future quarter is not predictable with any significant
degree of certainty. Product revenue is also difficult to forecast because the
market for client/server application software products is rapidly evolving, and
the Company's sales cycle, from initial trial to multiple copy purchases and the
provision of support services, varies substantially from customer to customer.
In addition, the Company expects that sales derived through indirect channels,
which are harder to predict and have lower margins than direct sales, will
increase as a percentage of total revenue. The Company's expense levels are
based, in part, on its expectations as to future revenue. If revenue levels are
below expectations, operating results are likely to be adversely affected. Net
income may be disproportionately affected by a reduction in revenue because a
proportionately smaller amount of the Company's expenses varies with its
revenue. As a result, the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. In the quarter ended December
31, 1997, the Company received significantly fewer orders than expected, which
had an immediately adverse effect on the Company's financial performance for the
quarter. The Company's operating results were below the expectations of public
market analysts and investors, and the Company's stock price declined
significantly. It is likely that in some future quarter the Company's operating
results will again be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.
 
     Competition. The client/server application software market is intensely
competitive and subject to rapid change. Competitors vary in size and in the
scope and breadth of the products and services offered. The Company encounters
competition from a number of sources, including: (i) other software companies,
(ii) third-party professional services organizations that develop custom
software, and (iii) management information systems departments of potential
customers that develop custom software. In addition, because there are
relatively low barriers to entry in the software market, the Company expects
additional competition from other established and emerging companies as the
client/server application software market continues to develop and expand.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, operating results and financial condition. Some of the
Company's current, and many of the Company's potential, competitors have
significantly greater financial, technical, marketing and other resources than
the Company. As a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than the
Company can. The Company also expects that competition will increase as a result
of software industry consolidations. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, operating results and financial
condition.
 
     Dependence on New Products and Rapid Technological Change; Risk of Product
Bugs. The client/server application software market is characterized by rapid
technological change, frequent new product introduc-
 
                                       16
<PAGE>   17
 
tions and evolving industry standards. The introduction of products embodying
new technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. The life cycles of the Company's products
are difficult to estimate. The Company's future success will depend upon its
ability to enhance its current products and to develop and introduce new
products on a timely basis that keep pace with technological developments and
emerging industry standards and address the increasingly sophisticated needs of
its customers. There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that respond to
technological change or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products, or that its new products and
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance. If the Company is unable, for technological or
other reasons, to develop and introduce new products or enhancements of existing
products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition will be materially adversely affected. During 1997 and the nine months
ended September 30, 1998, the Company released several new products, along with
significant upgrades to existing products. These products are subject to
significant technical risks. If the new products do not achieve market
acceptance, the Company's business, operating results and financial condition
will be materially adversely affected. Software products as complex as those
offered by the Company may contain undetected errors or failures when first
introduced or when new versions are released. The Company has in the past
discovered software errors in certain of its new products and enhancements after
their introduction and has experienced delays or lost revenue during the period
required to correct these errors. Although the Company has not experienced
material adverse effects resulting from any such errors to date, there can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, which could have a material adverse effect upon the Company's
business, operating results and financial condition.
 
     Limited Operating History; Future Operating Results Uncertain; Need to
Increase Sales Force. The Company was incorporated in November 1990 and began
shipping products in December 1991. Although the Company has experienced
significant percentage growth in revenue and net income in recent years, the
Company does not believe prior growth rates are sustainable or indicative of
future operating results. There can be no assurance that the Company will remain
profitable on a quarterly or annual basis. In addition, the Company's limited
operating history makes the prediction of future operating results difficult or
impossible. Future operating results will depend on many factors, including the
demand for the Company's products, the level of product and price competition,
the Company's success in expanding its direct sales force and indirect
distribution channels, the ability of the Company to develop and market new
products and control costs, and the percentage of the Company's revenue derived
from indirect channels, which have lower margins than direct sales. In
particular, the Company intends to hire a significant number of additional sales
personnel in 1998 and beyond, which is required if the Company is to achieve
significant revenue growth in the future. Competition for such personnel is
intense, and there can be no assurance that the Company can retain its existing
sales personnel or that it can attract, assimilate or retain additional highly
qualified sales persons in the future. The Company increased the size of its
sales force from 42 to 100 in 1996, from 100 to 157 in 1997 and remains the same
at 157 in the nine months ended September 30, 1998. The Company has experienced
difficulty in recruiting a sufficient number of sales persons. If the Company is
unable to hire such personnel on a timely basis, the Company's business,
operating results and financial condition could be adversely affected. The
Company expects increased competition and intends to invest significantly in its
business. As a result, the Company does not expect to sustain current operating
margins in the future.
 
     Product Concentration. The Company currently derives substantially all of
its revenue from licenses of the AR System, the applications Remedy provides,
which are built upon the Action Request System foundation, and related services.
Broad market acceptance of the Company's products is critical to the Company's
future success. As a result, a decline in demand for or failure to achieve broad
market acceptance of the AR System foundation and applications as a result of
competition, technological change or otherwise, would have a material adverse
effect on the business, operating results and financial condition of the
Company. The Company's future financial performance will depend in part on the
successful development,
                                       17
<PAGE>   18
 
introduction and customer acceptance of new and enhanced versions of the AR
System foundation and other applications. There can be no assurance that the
Company will continue to be successful in marketing the AR System or any new or
enhanced products or applications.
 
     The Company's business entails a variety of additional risks not mentioned
above, such as Management of Growth; Dependence Upon Key Personnel, Expansion of
Indirect Channels, International Operations, Dependence on Growth in the
Client/Server Computing Market; General Economic and Market Conditions,
Dependence on Proprietary Technology; Risks of Infringement, and Product
Liability, which are set forth in the "Risk Factors" section of the Company's
1997 Report on form 10-K filed with the Securities and Exchange Commission in
March 1998.
 
                                       18
<PAGE>   19
 
PART II OTHER INFORMATION
 
ITEM 5. STOCKHOLDER PROPOSALS
 
     Proposals of stockholders intended to be presented at the Company's 1999
annual meeting of stockholders must be received at the Company's principal
executive offices not later than December 24, 1998 in order to be included in
the Company's proxy statement and form of proxy related to the 1999 annual
meeting. Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange
Act of 1934, as amended, if a stockholder who intends to present a proposal at
the 1999 annual meeting of stockholders does not notify the Company of such
proposal on or prior to March 9, 1999, then management proxies would be allowed
to use their discretionary voting authority to vote on the proposal when the
proposal is raised at the annual meeting, even though there is no discussion of
the proposal in the 1999 proxy statement. The Company currently believes that
the 1999 annual meeting of stockholders will be held during the last week of May
1999.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) List of Exhibits
 
<TABLE>
<CAPTION>
        NUMBER                        EXHIBIT DESCRIPTION
        ------                        -------------------
        <S>       <C>
         27.1     Financial Data Schedule (Filed Electronically)
</TABLE>
 
     (b) Reports on Form 8-K: None
 
                                       19
<PAGE>   20
 
                                   SIGNATURE
 
     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.
 
                                          REMEDY CORPORATION
 
                                                   /s/ RON J. FIOR
 
                                          --------------------------------------
                                                       Ron J. Fior
                                               Vice President, Finance and
                                                       Operations,
                                               and Chief Financial Officer
                                          (Duly Authorized Officer and Principal
                                                        Financial
                                                 and Accounting Officer)
 
Dated: November 4, 1998
 
                                       20
<PAGE>   21


                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
        NUMBER                        EXHIBIT DESCRIPTION
        ------                        -------------------
        <S>       <C>
         27.1     Financial Data Schedule (Filed Electronically)
</TABLE>