<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, 1997
                                       OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
   ACT OF 1934
 
              FOR THE TRANSITION PERIOD FROM ________ TO ________
 
                         COMMISSION FILE NUMBER 0-25494
 
                               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 28,170,411 shares of the Company's Common Stock, par value
$.00005, outstanding on October 30, 1997.
 
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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, 1997 and December
          31, 1996...................................................................     1
          Condensed Consolidated Statements of Income for the Three and Nine Months
          Ended September 30, 1997 and 1996..........................................     2
          Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
          September 30, 1997 and 1996................................................     3
          Notes to Condensed Consolidated Financial Statements.......................     4
Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of
          Operations.................................................................     6
 
PART II   OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K...........................................    12
 
SIGNATURE............................................................................    13
</TABLE>
 
                                        i
<PAGE>   3
 
PART I -- FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                               REMEDY CORPORATION
 
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                     SEPTEMBER 30,     DECEMBER 31,
                                                                         1997              1996
                                                                     -------------     ------------
                                                                      (UNAUDITED)
<S>                                                                  <C>               <C>
Current assets:
  Cash and cash equivalents........................................    $  58,276         $ 39,770
  Short-term investments...........................................       54,929           46,987
  Accounts receivable, net of allowance for doubtful accounts of
     $1,641 and $1,248 respectively................................       28,247           24,189
  Prepaid expenses and other current assets........................        1,983            1,161
  Deferred tax asset...............................................        2,180            2,035
                                                                        --------         --------
          Total current assets.....................................      145,615          114,142
Property and equipment, net........................................        8,830            5,292
                                                                        --------         --------
                                                                       $ 154,445         $119,434
                                                                        ========         ========
 
                               LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.................................................    $   1,213         $  1,639
  Accrued compensation and related liabilities.....................        5,080            6,636
  Income taxes payable.............................................          936            1,837
  Other accrued liabilities........................................        6,023            5,652
  Deferred revenue.................................................       14,393           10,430
  Current portion of obligations under capital leases..............          334              230
                                                                        --------         --------
          Total current liabilities................................       27,979           26,424
Noncurrent portion of obligations under capital leases.............          517              513
Stockholders' equity:
Common stock and additional paid-in capital........................       78,561           64,305
Notes receivable from stockholders.................................          (60)             (60)
Deferred compensation..............................................         (120)            (255)
Retained earnings..................................................       47,568           28,507
                                                                        --------         --------
          Total stockholders' equity...............................      125,949           92,497
                                                                        --------         --------
                                                                       $ 154,445         $119,434
                                                                        ========         ========
</TABLE>
 
                            See accompanying notes.
 
                                        1
<PAGE>   4
 
                               REMEDY CORPORATION
 
                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                              THREE MONTHS
                                                             ENDED SEPTEMBER    NINE MONTHS ENDED
                                                                   30,            SEPTEMBER 30,
                                                            -----------------   -----------------
                                                             1997      1996      1997      1996
                                                            -------   -------   -------   -------
<S>                                                         <C>       <C>       <C>       <C>
Revenue:
  Products................................................  $27,001   $15,729   $64,191   $37,661
  Maintenance and service.................................   10,065     5,284    26,178    13,365
                                                            -------   -------   -------   -------
          Total revenue...................................   37,066    21,013    90,369    51,026
Costs and expenses:
  Cost of product revenue.................................      849       666     2,478     1,868
  Cost of maintenance and service revenue.................    4,266     2,582    10,952     6,673
  Research and development................................    6,286     3,491    14,306     8,983
  Sales and marketing.....................................   11,728     6,250    29,945    14,992
  General and administrative..............................    2,282     1,802     5,861     4,623
                                                            -------   -------   -------   -------
  Total costs and expenses................................   25,411    14,791    63,542    37,139
Income from operations....................................   11,655     6,222    26,827    13,887
Interest income, net......................................    1,081       642     2,945     1,800
                                                            -------   -------   -------   -------
Income before provision for income taxes..................   12,736     6,864    29,772    15,687
Provision for income taxes................................    4,623     2,471    10,711     5,647
                                                            -------   -------   -------   -------
Net income................................................  $ 8,113   $ 4,393   $19,061   $10,040
                                                            =======   =======   =======   =======
Net income per common and common equivalent share.........  $  0.27   $  0.15   $  0.63   $  0.34
                                                            =======   =======   =======   =======
Shares used in computing per share amounts................   30,501    29,842    30,357    29,854
                                                            =======   =======   =======   =======
</TABLE>
 
                            See accompanying notes.
 
                                        2
<PAGE>   5
 
                               REMEDY CORPORATION
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                          NINE MONTHS ENDED
                                                                          SEPTEMBER 30, 1997
                                                                        ----------------------
                                                                          1997          1996
                                                                        ---------     --------
<S>                                                                     <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..........................................................    $  19,061     $ 10,040
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Depreciation and amortization..................................        2,304        1,226
     Amortization of deferred compensation..........................          135          134
     Changes in assets and liabilities:
       Accounts receivable..........................................       (4,058)      (2,973)
       Prepaid expenses and other current assets....................         (822)        (589)
       Deferred tax asset...........................................         (145)        (212)
       Accounts payable.............................................         (426)        (302)
       Accrued compensation and related liabilities.................       (1,556)         655
       Income taxes.................................................        7,186        7,307
       Other accrued liabilities....................................          371        3,019
       Deferred revenue.............................................        3,963        2,483
                                                                        ---------     --------
Net cash provided by operating activities...........................       26,013       20,788
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.................................     (115,658)     (73,166)
Maturities of short-term investments................................      107,716       64,213
Capital expenditures................................................       (5,639)      (3,048)
                                                                        ---------     --------
Net cash used in investing activities...............................      (13,581)     (12,001)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations..................          (95)         (91)
Proceeds from issuance of common stock..............................        6,169        1,901
                                                                        ---------     --------
Net cash provided by financing activities...........................        6,074        1,810
                                                                        ---------     --------
Net increase in cash and cash equivalents...........................       18,506       10,597
Cash and cash equivalents at beginning of period....................       39,770       31,452
                                                                        ---------     --------
Cash and cash equivalents at end of period..........................    $  58,276     $ 42,049
                                                                        =========     ========
</TABLE>
 
                            See accompanying notes.
 
                                        3
<PAGE>   6
 
                               REMEDY CORPORATION
 
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
1. BASIS OF PRESENTATION
 
     The condensed consolidated balance sheet as of September 30, 1997, and the
condensed consolidated statements of income for the three months and nine months
ended September 30, 1997 and 1996, and the condensed consolidated statements of
cash flows for the nine months ended September 30, 1997 and 1996, 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, 1997 and for all periods presented have been made. The condensed
consolidated balance sheet at December 31, 1996 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 1996 Annual Report on Form 10-K filed with the
Securities and Exchange Commission in March 1997.
 
     The results of operations for the three and nine months ended September 30,
1997 are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year.
 
2. STOCK SPLIT
 
     All shares and per-share amounts have been adjusted to reflect the
two-for-one stock dividend effected October 25, 1996.
 
3. EARNINGS PER SHARE
 
     Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of shares issuable upon the exercise
of stock options, using the treasury stock method.
 
     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact is expected to result in an
increase in primary earnings per share for the quarters ended September 30, 1997
and September 30, 1996 of $.02 per share. The impact is expected to result in an
increase in primary earnings per share for the nine months ended September 30,
1997 and September 30, 1996 of $.07 and $.04 per share, respectively. The impact
of Statement No. 128 on the calculation of fully diluted earnings per share for
these quarters is not expected to be material.
 
4. STOCKHOLDERS RIGHTS
 
     In July 1997, the Company's Board of Directors adopted a Stockholder Rights
Plan, effective July 25, 1997, and declared a dividend distribution of one
Preferred Share Purchase Right (a "right") on each outstanding share of Remedy's
common stock. The Rights will not become exercisable, and will continue to trade
with the common stock, unless a person or group acquires 20 percent or more of
Remedy's common stock or announces a tender offer, the consummation of which
would result in ownership by a person or group of 20 percent or more of the
Company's common stock. Each Right will entitle a stockholder to buy one one-
thousandth of a share of a newly created Series A Junior Participating Preferred
Stock of the Company at an exercise price of $230 per one one-thousandth of a
share. If a person or group acquires 20 percent or more of Remedy's outstanding
common stock or announces a tender offer, the consummation of which would result
in
 
                                        4
<PAGE>   7
 
                               REMEDY CORPORATION
 
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
ownership by a person or group of 20 percent or more of the Company's common
stock, each Right will entitle its holder (other than the acquiring person or
group) to purchase, at the Rights then current exercise price, a number of
Remedy's common stock shares having a market value of twice that price. In
addition, if Remedy is acquired in a merger or other business combination
transaction after a person has acquired 20 percent or more of Remedy's
outstanding common stock, each Right will entitle its holder to purchase, at the
Right's then current exercise price, a number of the acquiring Company's common
shares having a market value of twice that price.
 
     Following the acquisition by a person or group of 20 percent or more of
Remedy's common stock and prior to an acquisition of 50 percent or more of the
common stock, the Board of Directors may exchange the Rights (other than Rights
owned by such person or group), in whole or in part, for consideration per Right
consisting of one-half of the common stock that would be issuable upon exercise
of one Right. Alternatively, the Rights may be redeemed for 1/10th of a cent per
Right, at the option of the Board of Directors, prior to the acquisition by a
person or group of beneficial ownership of 20 percent or more of Remedy's common
stock or if a person or group announces a tender offer, the consummation of
which would result in ownership by a person or group of 20 percent or more of
the Company's common stock. The non-taxable dividend distribution was made on
August 29, 1997, payable to Stockholders of record on that date. The Rights will
expire on July 24, 2007.
 
                                        5
<PAGE>   8
 
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.
 
     The statements contained in this Report on Form 10Q that are not purely
historical are forward looking statements within the meaning of Section 21E of
the Securities and Exchange Act of 1934, including statements regarding the
Company's expectations, beliefs, hopes, intentions or strategies regarding the
future. Forward looking statements include statements regarding future sales,
market growth and competition. All forward looking statements included in this
document are based upon information available to the Company as of the date
hereof, and the Company assumes no obligation to update any such forward looking
statement. Actual results could differ materially from the Company's current
expectations. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the "Additional Factors That
May Affect Future Results" section on page 12 and other factors and risks
discussed in the Company's annual report on Form 10-K dated March 24, 1997 and
other reports filed from time to time with the Securities and Exchange
Commission.
 
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 virtually no 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. Due to any of the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market
 
                                        6
<PAGE>   9
 
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected.
 
     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,
                                                               -------------     -------------
                                                               1997     1996     1997     1996
                                                               ----     ----     ----     ----
    <S>                                                        <C>      <C>      <C>      <C>
    Revenue:
      Product................................................   73%      75%      71%      74% 
      Maintenance and service................................   27       25       29       26
                                                               ---      ---      ---      ---
              Total revenue..................................  100      100      100      100
                                                               ---      ---      ---      ---
    Costs and expenses:
      Cost of product revenue................................    2        3        3        4
      Cost of maintenance and service revenue................   12       12       12       13
      Research and development...............................   17       17       16       18
      Sales and marketing....................................   32       30       33       29
      General and administrative.............................    6        8        6        9
                                                               ---      ---      ---      ---
              Total costs and expenses.......................   69       70       70       73
                                                               ---      ---      ---      ---
    Income from operations...................................   31       30       30       27
    Interest income, net.....................................    3        3        3        4
                                                               ---      ---      ---      ---
    Income before provision for income taxes.................   34       33       33       31
    Provision for income taxes...............................   12       12       12       11
                                                               ---      ---      ---      ---
    Net income...............................................   22%      21%      21%      20% 
                                                               ===      ===      ===      ===
</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. 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 return 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) 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 43% for the nine months ended September 30, 1997.
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.
 
     Product Revenue. The Company currently derives substantially all of its
product revenue from licenses of the Action Request System. Revenue from product
licenses increased by 72% from $15.7 million for the quarter ended September 30,
1996 to $27.0 million in the comparable quarter in 1997. Product license fees
 
                                        7
<PAGE>   10
 
increased 70% from $37.7 million for the nine months ended September 30, 1996 to
$64.2 million in the comparable period in 1997. The growing acceptance of the
Company's software products in both U.S. and international markets is a major
factor in these increases. International sales accounted for approximately 31%
and 34% of the Company's total revenue for the quarters ended September 30, 1997
and 1996, respectively. International sales accounted for approximately 35% of
the Company's total revenue for the nine months ended September 30, 1997 and 36%
for the nine months ended September 30, 1996. Substantially all of the
period-to-period growth in product revenue was due to higher unit sales volumes.
The prices of the Company's products have remained relatively constant from 1992
through September 30, 1997. 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 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 91% from $5.3 million for the quarter ended September 30, 1996 to $10.1
million in the comparable quarter in 1997. Maintenance and service revenue
increased 96% from $13.4 million for the nine months ended September 30, 1996 to
$26.2 million in the comparable 1997 period. This growth is primarily due to
increased licensing activity, which has resulted in increases in revenue from
maintenance and support, training and consulting services. Renewal of
maintenance contracts after the initial one-year term also contributes 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 $666,000 for the quarter ended September
30, 1996 to $849,000 for the comparable quarter in 1997, representing 4% and 3%
of the related product revenue in such quarters, respectively. Cost of product
revenue increased from $1.9 million for nine months ended September 30, 1996 to
$2.5 million in the comparable 1997 period, representing 5% and 4% 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, 1997 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 personnelrelated costs incurred in providing
telephone support, consulting and training to customers. Cost of maintenance and
service revenue increased from $2.6 million for the quarter ended September 30,
1996 to $4.3 million in the comparable quarter in 1997, representing 49% and 42%
of the related maintenance and service revenue for the respective quarters. Cost
of maintenance and service revenue increased from $6.7 million for the nine
months ended September 30, 1996 to $11.0 million in the comparable 1997 period,
representing 50% and 42%, 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, 1996 to
the quarter ended September 30, 1997, 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 $3.5
million and $6.3 million, or 17% of total revenue, for the quarters ended
September 30, 1996 and September 30, 1997, respectively. Research and
development expenses increased from $9.0 million for the nine months ended
September 30, 1996 to $14.3 million in the comparable 1997 period, or 18% and
16% of total revenue, respectively. The increases in dollar amounts in research
and development expenses were primarily attributable to increased
 
                                        8
<PAGE>   11
 
staffing and associated support for software engineers required to expand and
enhance the Company's product line. The Company believes that research and
development expenses will continue to increase in dollar amounts 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 $6.3 million and $11.7
million, or 30% and 32% of total revenue, for the quarters ended September 30,
1996 and September 30, 1997, respectively. Sales and marketing expenses
increased from $15.0 million for the nine months ended September 30, 1996 to
$29.9 million in the comparable 1997 period, or 29% and 33% 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 such
expenses will 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 $1.8
million and $2.3 million, or 8% and 6% of total revenue, for the quarters ended
September 30, 1996 and September 30, 1997, respectively. General and
administrative expenses increased from $4.6 million for the nine months ended
September 30, 1996 to $5.9 million for the comparable 1997 period, or 9% and 6%
of total revenue, respectively. The increases in dollar amounts 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. Interest income, net was $642,000 and $1.1 million
for the quarters ended September 30, 1996 and September 30, 1997, respectively.
Interest income, net increased from $1.8 million for the nine months ended
September 30, 1996 to $2.9 million for the comparable 1997 period. The increase
in interest income, net for the quarter ended September 30, 1997 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, 1996, the
Company's cash provided by operating activities was $26.0 million and $20.8
million, respectively. The Company's net cash provided by operations for the
nine months ended September 30, 1997 was primarily attributable to the net
income generated in the nine-month period.
 
     During the nine months ended September 30, 1997 and September 30, 1996, the
Company's investing activities have consisted of purchases of short-term
investments and property and equipment. Purchases of short-term investments
exceeded maturities by $7.9 million for the nine months ended September 30,
1997, primarily due to investment of cash provided by operating activities
during the period. 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 $5.6 million and $3.0
million during the nine months ended September 30, 1997 and September 30, 1996,
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.
 
     At September 30, 1997, the Company had $58.3 million in cash and cash
equivalents, $54.9 million in short-term investments and $117.6 million of
working capital. The Company also has available a $15.0 million
 
                                        9
<PAGE>   12
 
unsecured bank line of credit that expires in June 1998. There were no
borrowings outstanding under this line of credit as of September 30, 1997.
 
     The Company believes that its current cash, cash equivalents and short-term
investments 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.
 
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
 
     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 these revenues 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. Due to all of 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.
 
     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
 
                                       10
<PAGE>   13
 
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 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. 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 the past year, the Company
released several new products, along with significant upgrades to existing
products. These new products, and upgrades to existing products, are subject to
significant technical risks. If the new products and upgrades 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 did not
begin shipping products until 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 the fourth quarter of 1997 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. In
the past, 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.
 
                                       11
<PAGE>   14
 
     Product Concentration. The Company currently derives substantially all of
its revenue from licenses of the Action Request System 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 Action Request System 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. A decline in
sales of the Action Request System could also have a material adverse effect on
sales of other Company products that may be sold to Action Request System
customers. 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 Action Request System and other products. There can be no
assurance that the Company will continue to be successful in marketing the
Action Request System or any new or enhanced products.
 
     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
1996 Report on form 10-K filed with the Securities and Exchange Commission in
March 1997.
 
PART II -- OTHER INFORMATION
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
        (a) List of Exhibits
 
<TABLE>
<CAPTION>
  NUMBER                      EXHIBIT DESCRIPTION
  ------   ----------------------------------------------------------
  <C>      <S>
  11.1     Computation of Net Income Per Common and Common Equivalent
           Share
  27.1     Financial Data Schedule (Filed Electronically)
</TABLE>
 
        (b) Reports on Form 8-K: None
 
                                       12
<PAGE>   15
 
                                   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.
 
Dated: October 31, 1997
 
                                          REMEDY CORPORATION
 
                                               /s/ GEORGE A. DE URIOSTE
                                          --------------------------------------
                                          George A. de Urioste
                                          Vice President, Finance and Chief
                                          Financial Officer
                                          (Duly Authorized Officer and Principal
                                          Financial and Accounting Officer)
 
                                       13
<PAGE>   16
 
                                 EXHIBIT INDEX
 
<TABLE>
  <S>        <C>
  11.1       Computation of Net Income Per Common and Common
             Equivalent Share
  27.1       Financial Data Schedule (Filed Electronically)
</TABLE>