<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, 1999

                                       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>
<CAPTION>
                        DELAWARE                                                 77-0265675
<S>                                                       <C>
    (STATE OR OTHER JURISDICTION OF INCORPORATION OR               (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
                       ORGANIZATION)
</TABLE>

<TABLE>
<CAPTION>
          1505 SALADO DRIVE, MOUNTAIN VIEW, CA                                      94043
<S>                                                       <C>
        (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 31,020,237 shares of the Company's Common Stock, par value
$.00005, outstanding on October 29, 1999.

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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,
         1999 and December 31, 1998..................................      3
         Condensed Consolidated Statements of Income for the Three
         and Nine Months Ended September 30, 1999 and September 30,
         1998........................................................      4
         Condensed Consolidated Statements of Cash Flows for the Nine
         Months Ended September 30, 1999 and September 30, 1998......      5
         Notes to Condensed Consolidated Financial Statements........      6
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations...................................     10
Item 3.  Quantitative and Qualitative Disclosures About Market
         Risk........................................................     16

                          PART II. OTHER INFORMATION
Item 6.  Exhibits and Reports on Form 8-K............................     22
SIGNATURE............................................................     23
</TABLE>

                                        2
<PAGE>   3

                         PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                               REMEDY CORPORATION

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                  1999           1998(1)
                                                              -------------    ------------
                                                               (UNAUDITED)
<S>                                                           <C>              <C>
Current assets:
  Cash and cash equivalents.................................    $ 37,459         $ 58,976
  Short-term investments....................................     101,096           77,661
  Accounts receivable, net..................................      50,056           42,278
  Prepaid expenses and other current assets.................       7,997            6,036
  Deferred tax assets.......................................       4,531            4,531
                                                                --------         --------
          Total current assets..............................     201,139          189,482
Property and equipment, net.................................      14,878           12,636
Other non-current assets....................................       2,593               --
Goodwill and other intangible assets, net...................      19,905           11,382
                                                                --------         --------
                                                                $238,515         $213,500
                                                                ========         ========

                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $  1,691         $  1,852
  Accrued compensation and related liabilities..............       8,800            7,799
  Income taxes payable......................................       3,621            3,564
  Other accrued liabilities.................................      12,693            9,929
  Deferred revenue..........................................      33,183           28,955
  Current portion of obligations under capital leases.......         259              570
                                                                --------         --------
          Total current liabilities.........................      60,247           52,669
Noncurrent portion of obligations under capital leases......          64              127
Stockholders' equity:
  Common stock and additional paid-in capital...............     116,632           99,952
  Treasury Stock (2,002,300 and 1,117,500 shares,
     respectively)..........................................     (31,267)         (13,977)
  Notes receivable from stockholders........................         (46)             (45)
  Cumulative translation adjustment.........................         115               --
  Other comprehensive income................................           2               --
  Retained earnings.........................................      92,768           74,774
                                                                --------         --------
          Total stockholders' equity........................     178,204          160,704
                                                                --------         --------
                                                                $238,515         $213,500
                                                                ========         ========
</TABLE>

---------------
(1) The balance sheet at December 31, 1998 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

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED       NINE MONTHS ENDED
                                                    SEPTEMBER 30,            SEPTEMBER 30,
                                                  ------------------      --------------------
                                                   1999       1998          1999        1998
                                                  -------    -------      --------    --------
<S>                                               <C>        <C>          <C>         <C>
Revenue:
  Products......................................  $38,291    $25,912      $ 93,785    $ 67,745
  Maintenance and service.......................   22,573     14,205        62,514      39,584
                                                  -------    -------      --------    --------
          Total revenue.........................   60,864     40,117       156,299     107,329
Costs and expenses:
  Cost of product revenue.......................    2,053      1,152         4,594       3,130
  Cost of maintenance and service revenue.......    9,718      5,487        26,347      15,759
  Research and development......................   10,221      8,417        29,640      24,163
  Sales and marketing...........................   23,024     14,347        61,216      40,345
  General and administrative....................    3,071      2,345         8,489       7,242
  Amortization of goodwill and other
     intangibles................................    1,149         --         2,609          --
                                                  -------    -------      --------    --------
          Total costs and expenses..............   49,236     31,748       132,895      90,639
Income from operations..........................   11,628      8,369        23,404      16,690
Interest income and other, net..................    1,169      1,356         3,453       4,233
                                                  -------    -------      --------    --------
Income before provision for income taxes........   12,797      9,725        26,857      20,923
Provision for income taxes......................    4,223      3,501         8,863       7,532
                                                  -------    -------      --------    --------
Net income......................................  $ 8,574    $ 6,224      $ 17,994    $ 13,391
                                                  =======    =======      ========    ========
Net income per share:
  Basic.........................................  $  0.30    $  0.22      $   0.63    $   0.46
                                                  =======    =======      ========    ========
  Diluted.......................................  $  0.27    $  0.21      $   0.59    $   0.45
                                                  =======    =======      ========    ========
Shares used in computing per share amounts:
  Basic.........................................   28,839     28,688        28,662      28,833
                                                  =======    =======      ========    ========
  Diluted.......................................   31,608     29,574        30,636      30,134
                                                  =======    =======      ========    ========
</TABLE>

                            See accompanying notes.
                                        4
<PAGE>   5

                               REMEDY CORPORATION

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                NINE MONTHS ENDED
                                                                  SEPTEMBER 30,
                                                              ----------------------
                                                                1999         1998
                                                              ---------    ---------
<S>                                                           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................  $  17,994    $  13,391
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation...........................................      5,612        4,328
     Amortization of goodwill and other intangibles.........      2,609           --
     Amortization of deferred compensation..................         --           76
     Changes in assets and liabilities:
       Accounts receivable..................................     (7,778)       1,027
       Prepaid expenses and other current assets............     (1,961)      (3,991)
       Deferred tax asset...................................         --         (461)
       Accounts payable.....................................       (161)       1,016
       Accrued compensation and related liabilities.........        957       (1,290)
       Income taxes payable.................................      2,827        2,602
       Other accrued liabilities............................      2,820        1,489
       Other non-current assets.............................       (593)          --
       Deferred revenue.....................................      4,228        3,536
                                                              ---------    ---------
Net cash provided by operating activities...................     26,554       21,723
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.........................   (238,559)    (141,065)
Maturities of short-term investments........................    215,124      142,957
Cash paid for businesses acquired, net......................    (11,028)          --
Other non-current assets....................................     (2,000)          --
Capital expenditures........................................     (7,768)      (6,375)
                                                              ---------    ---------
Net cash used in investing activities.......................    (44,231)      (4,483)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations..........       (460)        (382)
Proceeds from issuance of common stock......................     13,910        4,495
Purchase of treasury stock..................................    (17,290)     (13,977)
                                                              ---------    ---------
Net cash used in financing activities.......................     (3,840)      (9,864)
Net (decrease) increase in cash and cash equivalents........    (21,517)       7,376
Cash and cash equivalents at beginning of period............     58,976       70,568
                                                              ---------    ---------
Cash and cash equivalents at end of period..................  $  37,459    $  77,944
                                                              =========    =========
</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, 1999, and the
condensed consolidated statements of income for the three and nine months ended
September 30, 1999 and 1998, and the condensed consolidated statements of cash
flows for the nine months ended September 30, 1999 and 1998, have been prepared
by Remedy Corporation ("Remedy" or 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, 1999 and for all periods presented have been made.
The condensed consolidated balance sheet at December 31, 1998 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 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission in March 1999.

     The results of operations for the three and nine months ended September 30,
1999 are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year.

2. REVENUE RECOGNITION

     The Company recognizes revenue in accordance with Statement of Position
97-2 (SOP 97-2), "Software Revenue Recognition", as amended by Statement of
Position 98-4 (SOP 98-4), "Deferral of the Effective Date of Certain Provisions
of SOP 97-2, Software Revenue Recognition" and Statement of Position 98-9 (SOP
98-9), "Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions." The Company derives revenue from the sale of software
licenses, post-contract support ("support") and other services. Support includes
telephone technical support, bug fixes, and rights to upgrades on a when-and-if
available basis. Services range from installation, training, and basic
consulting to software modification to meet specific customer needs. In software
arrangements that include rights to multiple software products, specified
upgrades, support and/or other services, the Company allocates the total
arrangement fee among each deliverable based on the relative fair value of each
of the deliverables determined based on vendor-specific objective evidence.

     Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Company
obligations with regard to implementation remain, the fee is fixed or
determinable and collectibility is probable. If the fee due from the customer is
not fixed or determinable, revenue is recognized as payments become due from the
customer. If collectibility is not considered probable, revenue is recognized
when the fee is collected.

     Revenue allocable to support is recognized on a straight-line basis over
the periods in which the support is provided.

     Arrangements that include other software services are evaluated to
determine whether those services are essential to the functionality of other
elements of the arrangement. When services are considered essential, revenue
under the arrangement is recognized using contract accounting. When services are
not considered essential, the revenue allocable to the software services is
recognized as the services are performed.

3. EARNINGS PER SHARE

     Basic earnings per share is computed using the weighted-average number of
common shares outstanding. Diluted earnings per share is computed using the
weighted-average number of common share equivalents

                                        6
<PAGE>   7
                               REMEDY CORPORATION

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

outstanding during the period. Dilutive common share equivalents consist of
employee stock options and are calculated by using the treasury stock 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,
                                                      ----------------------    ----------------------
                                                        1999         1998         1999         1998
                                                      ---------    ---------    ---------    ---------
                                                      (IN THOUSANDS, EXCEPT     (IN THOUSANDS, EXCEPT
                                                        PER SHARE AMOUNTS)        PER SHARE AMOUNTS)
<S>                                                   <C>          <C>          <C>          <C>
Numerator:
Net Income..........................................   $ 8,574      $ 6,224      $17,994      $13,391
Denominator:
  Denominator for basic earnings per share-weighted-
     average shares.................................    28,839       28,688       28,662       28,833
  Effect of dilutive securities:
  Employee stock options............................     2,769          886        1,974        1,301
                                                       -------      -------      -------      -------
  Denominator for diluted earnings per
     share-weighted-average shares and dilutive
     securities.....................................    31,608       29,574       30,636       30,134
                                                       =======      =======      =======      =======
  Basic earnings per share..........................   $  0.30      $  0.22      $  0.63      $  0.46
                                                       =======      =======      =======      =======
  Diluted earnings per share........................   $  0.27      $  0.21      $  0.59      $  0.45
                                                       =======      =======      =======      =======
</TABLE>

4. RECENT PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activity",
which was subsequently amended by Statement No. 137 (SFAS 137), "Accounting for
Derivative Instruments and Hedging Activities: Deferral of Effective Date of
FASB 133" to require adoption of SFAS 133 in years beginning after June 15,
2000. The Statement requires the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be recorded at
fair value through earnings. If the derivative qualifies as a hedge, depending
on the nature of the exposure being hedged, changes in the fair value of
derivatives are either offset against the change in fair value of hedged assets,
liabilities, or firm commitments through earnings or are recognized in other
comprehensive income until the hedged cash flow is recognized in earnings. The
ineffective portion of a derivative's change in fair value is recognized in
earnings. The Statement permits early adoption as of the beginning of any fiscal
quarter. The Company adopted SFAS 133 during the quarter ended September 30,
1999 and subsequently implemented a hedging program related to multi-currency
invoicing. The adoption of SFAS 133 did not have a material effect on the
Company's financial statements as of September 30, 1999. (See Note 7 of Notes to
Condensed Consolidated Financial Statements)

     SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions" was issued in December 1998 and addresses
software revenue recognition as it applies to certain multiple-element
arrangements. SOP 98-9 also amends SOP 98-4, "Deferral of the Effective Date of
Certain Provisions of SOP 97-2, Software Revenue Recognition", to extend the
deferral of application of certain passages of SOP 97-2 through fiscal years
beginning on or before March 15, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after March
15, 1999.

5. 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

                                        7
<PAGE>   8
                               REMEDY CORPORATION

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

next twelve months. On August 5, 1999, the Board of Directors authorized the
Company to continue the share repurchase program for an additional six months
through February 2000. The Company has purchased the shares on the open market
from time to time, depending on market conditions. The repurchases have been
funded by the Company's cash and short-term investments. As of September 30,
1999, the Company had repurchased a total of approximately 2 million shares of
the Company's stock at an average price of $15.62 for approximately $31.3
million.

6. BUSINESS COMBINATIONS

     In July 1999, the Company acquired Pipestream Technologies, Inc.
(Pipestream), a privately held provider of state of the art modular, customer
relationship management software, including sales force automation applications.
The acquisition was accounted for under the purchase method and accordingly, the
operating results of Pipestream have been included in the Company's consolidated
financial statements since the date of acquisition. The purchase price for
Pipestream was approximately $4.6 million, which consisted of $4.5 million cash
and $0.1 million assumption of net liabilities. The entire purchase price of
$4.6 million was allocated to goodwill and other intangible assets and is being
amortized on a straight-line basis over a period of four years from the date of
acquisition. A total of $0.3 million has been amortized as of September 30,
1999. Pro forma results of operations have not been presented since the effect
of this acquisition was not material to the Company's consolidated financial
position or results of operations.

     In September 1999, the Company acquired Fortress Technologies, Inc.
(Fortress), a privately held enterprise asset management process consulting
firm. The acquisition was accounted for under the purchase method and
accordingly, the operating results of Fortress have been included in the
Company's consolidated financial statements since the date of acquisition. The
purchase price for Fortress was approximately $6.5 million cash. The entire
purchase price of $6.5 million was allocated to goodwill and other intangible
assets and is being amortized on a straight-line basis over a period of four
years from the date of acquisition. A total of $0.1 million has been amortized
as of September 30, 1999. Pro forma results of operations have not been
presented since the effect of this acquisition was not material to the Company's
consolidated financial position or results of operations.

7. DERIVATIVE FINANCIAL INSTRUMENTS

     The Company uses derivative financial instruments principally to minimize
the exposures to the United States Dollar (USD) value of foreign currency
denominated sales. The Company will begin pricing its products in multiple
currencies during the fourth quarter of 1999, and in preparation, foreign
exchange forward and simple purchase option contracts were entered during the
quarter ended September 30, 1999 to hedge the risk that the USD value of the
foreign currency denominated sales may be adversely affected by changes in
foreign currency exchange rates. As part of its overall strategy to manage the
level of exposure to the risk of foreign currency exchange rate fluctuations,
the Company hedges a portion of its foreign currency exposures anticipated over
the ensuing twelve-month period. At September 30, 1999, the Company had hedged
unrecognized transactions via Pound Sterling and Euro denominated cash flow
hedges, using forwards and simple purchase option contracts that generally have
maturities of three months or less.

     The Company records these foreign exchange contracts at fair value in its
consolidated balance sheet and the related gains or losses on these contracts
are reflected, net of the related tax effect in shareholders' equity (as a
component of other comprehensive income). These gains and losses are
reclassified into earnings in the period in which the sales being hedged are
recognized as revenue. However, to the extent that any of these contracts are
not considered to be perfectly effective in offsetting the change in the
forecasted cash flows relating to the sales being hedged, any changes in fair
value relating to the ineffective portion of these contracts are immediately
recognized in earnings.

                                        8
<PAGE>   9
                               REMEDY CORPORATION

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

     The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. The Company also formally
assesses, both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in
offsetting changes in cash flows of hedged items. Changes in the time value of
options contracts are excluded from this effectiveness assessment and recorded
directly in earnings.

     As of September 30, 1999, the Company included the fair value of simple
purchase option contracts of $11,000 and the fair value of forward contracts of
$2,000 in other current assets in its consolidated balance sheet.

     At September 30, 1999, the Company had $2,000 of Other Comprehensive Income
related to the quarterly net change in fair value associated with current period
hedging transactions and no amount had been reclassified into earnings during
the period. The entire Other Comprehensive Income balance as of September 30,
1999 is expected to be recognized into earnings within the next twelve months.
During the quarter ended September 30, 1999 a total charge of $4,000,
representing the change in option time values, was recorded in earnings.

                                        9
<PAGE>   10

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

     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. The Company's quarterly
operating results have in the past and may in the future vary significantly
depending on factors including, but not limited to, those discussed in the
"Additional factors that may affect future results: Risk Factors" section on
page 16 of this report and in the Company's 1998 Form 10-K filed with the
Securities and Exchange Commission in March 1999, 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. 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 and web-based 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, may 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. Due to all the
foregoing factors, it is likely that in some future quarter the Company's
operating results will 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.

     Remedy Corporation ("Remedy" or the "Company") develops, markets and
supports rapidly deployable, client/server and web-based application software
products and solutions that simplify employee-intensive business processes.
Unlike traditional enterprise applications, Remedy applications are designed to
deploy in weeks, not years and the applications adapt quickly to the needs and
changes in the customers' business, instead of requiring the customer and
solutions to adapt to the software. These applications help organizations
establish a market advantage by reacting to opportunities faster than their
competitors. Remedy offers adaptable applications for Information Technology
(IT) Service Management, Customer Relationship Management and Employee Workplace
Automation. Remedy is one of the largest providers of enterprise applications
with over 8,000 customer sites in over 70 countries, including over 60% of the
Fortune 100.

     The Company was incorporated on November 20, 1990 in Delaware. The Company
maintains its executive offices and principal facilities at 1505 Salado Drive,
Mountain View, California 94043. Its telephone number is (650) 903-5200.

                                       10
<PAGE>   11

RESULTS OF OPERATIONS

     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,
                                                              --------------    --------------
                                                              1999     1998     1999     1998
                                                              -----    -----    -----    -----
<S>                                                           <C>      <C>      <C>      <C>
Revenue:
  Products..................................................    63%      65%      60%      63%
  Maintenance and service...................................    37%      35%      40%      37%
                                                               ---      ---      ---      ---
          Total revenue.....................................   100%     100%     100%     100%
Costs and expenses:
  Cost of product revenue...................................     3%       3%       3%       3%
  Cost of maintenance and service revenue...................    16%      13%      17%      15%
  Research and development..................................    17%      21%      19%      22%
  Sales and marketing.......................................    38%      36%      39%      37%
  General and administrative................................     5%       6%       5%       7%
  Amortization of goodwill and other intangibles............     2%      --        2%      --
                                                               ---      ---      ---      ---
          Total costs and expenses..........................    81%      79%      85%      84%
                                                               ---      ---      ---      ---
Income from operations......................................    19%      21%      15%      16%
Interest income, net........................................     2%       3%       2%       4%
                                                               ---      ---      ---      ---
Income before provision for income taxes....................    21%      24%      17%      20%
Provision for income taxes..................................     7%       9%       6%       7%
                                                               ---      ---      ---      ---
Net income..................................................    14%      15%      11%      13%
                                                               ===      ===      ===      ===
</TABLE>

  REVENUE

     The Company recognizes revenue in accordance with Statement of Position
97-2 (SOP 97-2), "Software Revenue Recognition", as amended by Statement of
Position 98-4 (SOP 98-4), "Deferral of the Effective Date of Certain Provisions
of SOP 97-2, Software Revenue Recognition" and Statement of Position 98-9 (SOP
98-9), "Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions." The Company derives revenue from the sale of software
licenses, post-contract support ("support") and other services. Support includes
telephone technical support, bug fixes, and rights to upgrades on a when-and-if
available basis. Services range from installation, training, and basic
consulting to software modification to meet specific customer needs. In software
arrangements that include rights to multiple software products, specified
upgrades, support and/or other services, the Company allocates the total
arrangement fee among each deliverable based on the relative fair value of each
of the deliverables determined based on vendor-specific objective evidence.

     Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Company
obligations with regard to implementation remain, the fee is fixed or
determinable and collectibility is probable. If the fee due from the customer is
not fixed or determinable, revenue is recognized as payments become due from the
customer. If collectibility is not considered probable, revenue is recognized
when the fee is collected.

     Revenue allocable to support is recognized on a straight-line basis over
the periods in which the support is provided.

     Arrangements that include other software services are evaluated to
determine whether those services are essential to the functionality of other
elements of the arrangement. When services are considered essential, revenue
under the arrangement is recognized using contract accounting. When services are
not considered essential, the revenue allocable to the software services is
recognized as the services are performed.

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<PAGE>   12

     The Company distributes the majority of its products through its direct
sales organization which is complemented by indirect sales channels, including
value added resellers (VARs), system integrators (SIs) and independent software
vendors (ISVs). Billings derived through indirect channels accounted for
approximately 45% of the Company's total billings for the quarter ended
September 30, 1999 and 47% for the comparable period in 1998 and approximately
47% for the nine months ended September 30, 1999 and 46% in the comparable
period in 1998. The Company expects that billings derived through indirect
channels, while growing in absolute dollar amounts, will continue to fluctuate
as a percentage of total billings.

     PRODUCT REVENUE. The Company currently derives substantially all of its
product revenue from licenses of the Action Request System and Information
Technology Service Management adaptable applications. Revenue from product
licenses increased 48% to $38.3 million for the quarter ended September 30, 1999
from $25.9 million in the comparable quarter in 1998. Product license fees
increased 38% to $93.8 million for the nine months ended September 30, 1999 from
$67.7 million in the comparable period in 1998. The growing acceptance of the
Company's software products in both U.S. and international markets has been a
major factor in this increase. International sales accounted for approximately
35% and 36% of the Company's total revenue for the quarters ended September 30,
1999 and September 30, 1998, respectively. International sales accounted for
approximately 34% of the Company's total revenue for the nine months ended
September 30, 1999 and 36% in the comparable period in 1998. The growth of
revenue in absolute dollars is largely a result of the Company's sales and
marketing efforts and the increased acceptance of the Action Request System and
related Information Technology Service Management adaptable applications. The
Company intends to continue to enhance its current software products as well as
to develop new software products. As a result, the Company anticipates that
revenue from product licenses will continue to represent a majority of its
revenue in the foreseeable future.

     MAINTENANCE AND SERVICE REVENUE. Revenue from maintenance and services
increased by 59% to $22.6 million for the quarter ended September 30, 1999 from
$14.2 million in the comparable quarter in 1998. Revenue from services increased
by 58% to $62.5 million for the nine months ended September 30, 1999 from $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 and increased
licensing activity, which has resulted in increased revenue from maintenance and
support, training and consulting services. Although prior quarters' licensing
growth has resulted in increased revenue from maintenance and support, training
and consulting services, 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
costs related to product media and duplication, manuals, packaging materials,
personnel, shipping expenses and royalties paid to third-party vendors. Cost of
product revenue increased to $2.1 million for the quarter ended September 30,
1999 from $1.2 million for the comparable quarter in 1998, representing 5% and
4% of the related product revenue in such quarters, respectively. Cost of
product revenue increased to $4.6 million for the nine months ended September
30, 1999 from $3.1 million in the comparable 1998 period, representing 5% of the
related product revenue in such periods. Cost of product revenue does not
include amortization of capitalized software development costs as 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 MAINTENANCE AND SERVICE REVENUE. Cost of maintenance and service
revenue consists primarily of personnel-related costs incurred in providing
telephone support, consulting services and training to customers. Cost of
maintenance and service revenue increased to $9.7 million for the quarter ended
September 30, 1999 from $5.5 million in the comparable quarter in 1998,
representing 43% and 39% of the related maintenance and service revenue for the
respective quarters. Cost of maintenance and service revenue increased to $26.3
million for the nine months ended September 30, 1999 from $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 as a percentage of total revenue increased due to the higher cost
associated with supporting enterprise customers through maintenance, training
and
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<PAGE>   13

consulting. Cost of maintenance and service revenue in absolute dollars
increased significantly from the quarter ended September 30, 1998 to the quarter
ended September 30, 1999 as well as from the nine month period ended September
30, 1998 to the comparable period in 1999, primarily due to costs from increased
personnel and third-party implementation providers, including Remedy Approved
Consultants (RACs) as the Company continued to invest in its customer support
and consulting organizations. The Company believes that cost of maintenance and
service revenue will increase in absolute dollar amounts in the future.

     RESEARCH AND DEVELOPMENT. Research and development expenses were $10.2
million and $8.4 million, or 17% and 21% of total revenue, for the quarters
ended September 30, 1999 and September 30, 1998, respectively. Research and
development expenses increased to $29.6 million for the nine months ended
September 30, 1999 from $24.2 million in the comparable 1998 period, or 19% and
22% of total revenue, respectively. The increases in research and development in
absolute dollar amounts were primarily attributable to increased
personnel-related costs, in order to expand and enhance the Company's product
line. The Company believes that research and development expenses will continue
to increase in absolute dollar amounts in the future as the Company plans to
continue investing in its product line.

     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 $23.0 million and $14.3
million, for the quarters ended September 30, 1999 and September 30, 1998, or
38% and 36% of total revenues, respectively. Sales and marketing expenses
increased to $61.2 million for the nine months ended September 30, 1999 from
$40.3 million in the comparable 1998 period, or 39% and 37% of total revenue,
respectively. The increases in sales and marketing expenses in absolute dollar
amounts were primarily due to the Company increasing sales and marketing
resources and marketing activities, including trade shows and promotional
activities, to further promote the Company's new and existing products. The
Company believes that sales and marketing expenses will continue to increase in
absolute dollar amounts in the future as the Company plans to further promote
the sales of its expanding product line.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses were $3.1
million and $2.3 million, or 5% and 6% of total revenue, for the quarters ended
September 30, 1999 and September 30, 1998, respectively. General and
administrative expenses increased to $8.5 million for the nine months ended
September 30, 1999 from $7.2 million for the comparable 1998 period, or 5% and
7% of total revenue, respectively. The increase in dollar amounts was 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 absolute dollar amounts in the future
as the Company expands its staffing.

     AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles relates to the purchase of BayStone Software in October
1998, the purchase of Pipestream Technologies in July 1999 and the purchase of
Fortress Technologies in September 1999. Goodwill and other intangibles are
being amortized on a straight-line basis over a period of four years from the
date of acquisition. Amortization expense totaled $1.1 million and $2.6 million
for the quarter ended and the nine-month period ended September 30, 1999,
respectively. Amortization expense related to the three acquisitions is expected
to be approximately $4.1 million and $5.7 million, for the twelve months ended
December 31, 1999 and December 31, 2000, respectively.

     INTEREST INCOME AND OTHER, NET. Interest income and other, net, which
consists primarily of interest income earned on the Company's cash and short
term investments, was $1.2 million and $1.4 million for the quarters ended
September 30, 1999 and September 30, 1998, respectively. Interest income and
other, net decreased to $3.5 million for the nine months ended September 30,
1999 from $4.2 million for the comparable 1998 period. The decrease for the
nine-month period ended September 30, 1999 was primarily due to lower interest
rates on the renewal of maturing investments.

     PROVISION FOR INCOME TAXES. The effective tax rate for the quarters ended
and the nine months ended September 30, 1999 and September 30, 1998 was 33% and
36%, respectively. The effective tax rate differs from the federal statutory
rate due primarily to tax-exempt interest income, research and development tax
credits and reductions in foreign taxes payable, offset by state income taxes.

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<PAGE>   14

LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided by operating activities was $26.6 million and $21.7
million during the nine months ended September 30, 1999 and September 30, 1998,
respectively. The Company's net cash provided by operations for the nine months
ended September 30, 1999 was primarily attributable to the income generated from
the current period.

     During the quarter ended September 30, 1999, the Company began investing in
forwards and simple purchase option contracts to hedge the risk associated with
a newly implemented plan of multi-currency invoicing. Cash used in investing in
forwards and simple purchase options contracts was $15,000 for the quarter ended
September 30, 1999. The Company intends to continue to use forwards and simple
purchase options contracts to minimize the exposures to the United States Dollar
(USD) value of foreign currency denominated sales, and as international revenues
increase, the cash used to purchase these option contracts may increase. (See
Note 7 of Notes to Condensed Consolidated Financial Statements)

     Net cash used in investing activities was $44.2 million and $4.5 million
during the nine months ended September 30, 1999 and September 30, 1998,
respectively. The increase in the Company's net cash used in investing
activities for the nine months ended September 30, 1999 was primarily due to net
short-term investment purchases, businesses acquired and property and equipment
expenditures.

     Purchases of short-term investments exceeded maturities by $23.4 million
and $1.9 million for the nine months ended September 30, 1999 and September 30,
1998, respectively.

     In addition, during the nine month period ended September 30, 1999, the
Company paid $4.5 million to acquire Pipestream Technologies and $6.5 million to
acquire Fortress Technologies. The total costs related to the Pipestream
acquisition are expected to be approximately $5.6 million, which consists of the
purchase price of $4.6 million accounted for in the current quarter as well as
employee related costs of approximately $1.0 million expected to be incurred
within the next twelve months. The total costs related to the Fortress
acquisition are expected to be approximately $7.5 million, which consists of the
purchase price of $6.5 million accounted for in the current quarter as well as
employee related costs of approximately $1.0 million expected to be incurred
within the next twelve months.

     The Company also made an investment of $2.0 million in On-The-Go software,
an independent software vendor.

     Cash used to purchase property and equipment, primarily for computer
workstations, capitalized internal use software, leasehold improvements and file
servers for the Company's growing employee base was $7.8 million and $6.4
million during the nine months ended September 30, 1999 and September 30, 1998,
respectively. The Company expects that the rate of purchases of property and
equipment will continue to increase as the Company's employee base grows. The
Company's principal commitments consist primarily of leases on its facilities
and its telephone system.

     The net cash used in financing activities during the nine months ended
September 30, 1999 decreased to $3.8 million from $9.9 million during the nine
months ended September 30, 1998. This comparative decrease of $6.1 million is
primarily due to the repurchase of approximately 900,000 shares of common stock
at a cost of $17.3 million netted with proceeds of $13.9 million from the
issuance of common stock under the stock purchase and stock option plans during
the nine month period ended September 30, 1999, compared with approximately 1.1
million shares repurchased for $14.0 million netted with proceeds of $4.5
million from the issuance of common stock under the stock purchase and stock
option plans, during the nine month period ended September 30, 1998.

     At September 30, 1999, the Company had $37.5 million in cash and cash
equivalents, $101.1 million in short-term investments and $140.9 million of
working capital.

     The Company believes that its current cash and short-term investments
balances and cash flow from operations 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
                                       14
<PAGE>   15

cash. Consequently, significant future growth may require the Company to obtain
additional equity or debt financing.

     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. On
August 5, 1999, the Board of Directors authorized the Company to continue the
share repurchase program for an additional six months through February 2000. The
Company has purchased the shares on the open market from time to time, depending
on market conditions. The repurchases have been funded by the Company's cash and
short-term investments. As of September 30, 1999, the Company had repurchased a
total of approximately 2 million shares of the Company's stock at an average
price of $15.62 for approximately $31.3 million.

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<PAGE>   16

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 rate fluctuations and general
economic factors. 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 weeks 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 and web-based 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. 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. It is likely that in some
future quarter the Company's operating results will 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.

     GENERAL ECONOMIC AND MARKET CONDITIONS. During recent years, segments of
the personal computer industry have experienced significant economic downturns
characterized by decreased product demand, production over-capacity, price
erosion, work slowdowns and layoffs. The Company's operations may in the future
experience substantial fluctuations from period to period as a consequence of
such industry patterns, Y2K concerns and other general economic conditions
affecting the timing of orders from major customers, and other factors affecting
capital spending. There can be no assurance that such factors will not have a
material adverse effect on the Company's business, operating results or
financial condition.

     COMPETITION. The client/server and web-based application software markets
are intensely competitive and subject to rapid change. The Company expects the
number of competitors to continue to increase with the Company's expansion into
additional client/server and web-based applications. 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 or
outsourcers 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 and web-based application software market continues to develop and
expand. Increased competition may 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 could continue to
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.

                                       16
<PAGE>   17

     DEPENDENCE ON NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT
BUGS. The client/server and web-based application software market is
characterized by rapid technological change, frequent new product introductions
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. The Company continues to invest significant resources into the
research and development, sales and marketing of new client/server and web-based
applications. However, 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, evolving industry standards and customer
requirements, or 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.
If the new products currently being developed by the Company do not achieve
market acceptance or are not released when expected, 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 absolute dollar growth in revenue in recent years, there can be no
assurance that the prior growth rates are sustainable or indicative of future
operating results or 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 organization 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
may have lower gross margins than direct sales. In particular, the Company
intends to hire a significant number of additional sales personnel in 1999 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 organization from 100
to 157 in 1997, from 157 to 189 in 1998, and from 189 to 223 in the nine month
period ended September 30, 1999. In the past, the Company has experienced
difficulty in recruiting a sufficient number of qualified 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 may not sustain current operating margins
in the future.

     PRODUCT CONCENTRATION. The Company currently derives the majority of its
revenue from AR System licenses, Remedy applications which are built upon the AR
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
                                       17
<PAGE>   18

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, 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. In 1998 and the nine months ended September 30, 1999, the Company
invested significant resources into the research and development, sales and
marketing of new client/server and web-based applications. However, the Company
believes that its success in expanding its product line will depend largely on
new products achieving market acceptance and technological competitiveness.

     RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. From time to time the Company
may acquire or invest in companies, technologies or products that complement the
Company's business or its product offerings. Any such acquisitions may result in
the use of cash, potentially dilutive issuances of equity securities, the
write-off of software development costs or other assets, incurrance of severance
liabilities, the amortization of expenses related to goodwill and other
intangible assets and/or the incurrance of debt, any of which could have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations. Acquisitions involve numerous additional risks
including difficulties in the integration of operations, services, products and
personnel, the diversion of management's attention from other business concerns,
the disruption of the Company's business, and the entry into markets in which
the Company has little or no direct prior experience. In addition, potential
acquisition candidates targeted by the Company may not have audited financial
statements, detailed financial information or any degree of internal controls.
There can be no assurance that an audit subsequent to any successful completion
of an acquisition will not reveal matters of significance, with respect to
revenues, expenses, liabilities, contingent or otherwise, and intellectual
property. There can be no assurance that the Company would be successful in
overcoming these or any other significant risks encountered and the failure to
do so could have a material adverse effect upon the Company's business,
operating results and financial condition.

     RISKS ASSOCIATED WITH SELLING TO LARGE ENTERPRISE CUSTOMERS. The Company
has recently increased its efforts to sell its products to large enterprise
customers, and has devoted significant management and financial resources to
achieving this goal. If successful, large enterprise customers are expected to
deploy the Company's products in business critical operations which involve
significant capital and management commitments by such customers. Potential
large enterprise customers generally commit significant resources to an
evaluation of available enterprise software and require the Company to expend
substantial time, effort and money educating them about the value of the
Company's solutions. Sales of the Company's products to such customers require
an extensive sales effort throughout a customer's organization because decisions
to purchase such products generally involve the evaluation of the software by a
significant number of customer personnel in various functional and geographic
areas, each often having specific and conflicting requirements. A variety of
factors, including factors over which the Company has little or no control, may
cause potential large enterprise customers to favor a particular supplier or to
delay or forego a purchase. As a result of these or other factors, the sales
cycle for the Company's products is long, typically ranging between three and
nine months. As a result of the length of the sales cycle and the significant
selling expenses resulting from selling into the large enterprise, the Company's
ability to forecast the timing and amount of specific sales is limited, and the
delay or failure to complete one or more large transactions to which the Company
has devoted significant resources could have a material adverse effect on the
Company's business, operating results or financial condition and could cause
significant variations in the Company's operating results from quarter to
quarter.

     INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS. International sales
represented approximately 34% of the Company's revenue for the nine months ended
September 30, 1999. The Company currently has ten international wholly owned
subsidiaries, primarily sales offices, which are located in the United Kingdom,
France, Germany, Singapore, Australia, Japan, Canada, Holland, Spain and Sweden.
One of the Company's strategies is to continue to expand its existing
international operations and enter additional international markets, which will
require significant management attention and financial resources. Traditionally,
international operations are characterized by higher operating expenses and
lower operating margins. As a result, if

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<PAGE>   19

international revenues increase as a percentage of total revenue, operating
margins may be adversely affected. Costs associated with international expansion
include the establishment of additional foreign offices, the hiring of
additional personnel, the localization and marketing of its products for
particular foreign markets and the development of relationships with additional
international service providers. If international revenue is not adequate to
offset the expense of expanding foreign operations, the Company's business,
operating results or financial condition could be materially adversely affected.

     As of the quarter ended September 30, 1999, the Company's international
sales were primarily denominated in U.S. dollars. An increase in the value of
the U.S. dollar relative to foreign currencies could make the Company's products
more expensive and, therefore, potentially less competitive in those markets.
Beginning in October 1999, the Company will invoice in currencies other than
U.S. dollars, and as a result the Company has entered into hedging activities in
order to minimize the exposure of the United States Dollar (USD) value of
foreign currency denominated sales. As some revenues are denominated in
currencies other than U.S. dollars, the Company will be subject to the risks
associated with foreign exchange rate fluctuations.

     YEAR 2000 COMPLIANCE. The Company 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.

     In 1999, the Company expects total costs for its Year 2000 remediation to
be approximately $0.7 million which includes expenditures for consulting,
equipment, and internal personnel, of which $0.6 million was incurred as of the
quarter ended September 30, 1999. It is expected that the entire amount will be
expensed in 1999. Although the Company is not currently aware of any material
operational issues or costs associated with preparing its internal IT systems
and non-IT systems for the Year 2000, the Company may experience material
unanticipated problems caused by undetected errors in both technology utilized
for our IT systems and vendors with whom Remedy does business. 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.

     The Company is currently taking steps to address Year 2000 issues in the
following three areas:

          (1) Remedy 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) Third parties with whom we have business relationships

     The Company has 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 sponsorship, is
regularly reviewed by senior management and includes progress reports to
appropriate parties on a regular basis.

                                REMEDY 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 Windows, Apple Macintosh, UNIX and others).

     The Company believes 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:

     Action Request System(R) (Version 3.0 or newer, including localized
versions)
          Multi-Processing Server Option(TM)
                                       19
<PAGE>   20

          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)
     Remedy Customer Support(TM)
     Remedy Quality Management(TM)
     Remedy Leads Management(TM)
     Any other application and solution built on the AR System(TM) foundation
     3.0 or newer

     As 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

     The Company's internal systems include both its information technology (IT)
and non-IT systems. The Company 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. To
the extent the Company has been unable to test the technology provided by
third-party vendors, the Company is seeking assurances from such vendors that
their systems are Year 2000 compliant. As of September 30, 1999, the Company had
substantially completed all such testing and vendor inquiries.

                                 THIRD PARTIES

     The Company has completed researching the status of its vendors concerning
the Year 2000-compliance status. If the Company'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 software)
to address Year 2000 compliance problems, the Company's business, results of
operations, or financial condition could be materially adversely affected.

     As of the quarter ended September 30, 1999, all of the business processes
deemed as critical to the proper functioning of the Company are believed to be
Y2K compliant. This applies to the internal systems & software (IT and non-IT
systems) in addition to the third parties with whom the Company does business.
This is based on a combination of internal testing and responses to inquiries
from vendors who supply products or services in support of the identified
mission critical business processes. As of September 30, 1999, the Company's Y2K
project team completed remediation efforts in areas that were deemed non mission
critical. Additionally, the team will continually monitor suppliers of systems,
software and services for updates and changes to their Y2K status and subsequent
effects on the Company's internal business processes.

     The Company is in the process of putting in place a formal escalation
program for post January 1, 2000 issues. The goals of this program are: (1)
Initiation of a response, (2) Proper notification of both internal

                                       20
<PAGE>   21

personnel and external vendors/suppliers and (3) Auditing capability. The
completion of this program and associated processes is expected by October 1999.

     The Company has developed contingency plans to address certain key
situations that may result if certain critical operations of the Company are
ultimately found non-compliant in spite of the aforementioned reviews, inquiries
and statements by vendors.

     Finally, the Company 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.

     ADDITIONAL RISKS. 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, Dependence on Proprietary Technology;
Risks of Infringement and Product Liability which are set forth in the
"Quantitative and Qualitative Disclosure About Market Risk" section of the
Company's 1998 Report on Form 10-K filed with the Securities and Exchange
Commission in March 1999.

                                       21
<PAGE>   22

                           PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) List of Exhibits

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

     (b) Reports on Form 8-K

     None

                                       22
<PAGE>   23

                                   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 9, 1999

                                       23
<PAGE>   24

                                 EXHIBIT INDEX

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