<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 JUNE 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>
<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 28,956,407 shares of the Company's Common Stock, par value
$.00005, outstanding on July 30, 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 June 30, 1999
         and December 31, 1998.......................................      3

         Condensed Consolidated Statements of Income for the Three
         and Six Months Ended June 30, 1999 and June 30, 1998........      4

         Condensed Consolidated Statements of Cash Flows for the Six
         Months Ended June 30, 1999 and June 30, 1998................      5

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

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations...................................      9

Item 3.  Quantitative and Qualitative Disclosures About Market
         Risk........................................................     14

                          PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K............................     19

SIGNATURE............................................................     20
</TABLE>

                                        2
<PAGE>   3

                         PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                               REMEDY CORPORATION

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

                                     ASSETS

<TABLE>
<CAPTION>
                                                               JUNE 30,      DECEMBER 31,
                                                                 1999            1998
                                                              -----------    ------------
                                                              (UNAUDITED)        (1)
<S>                                                           <C>            <C>
Current assets:
  Cash and cash equivalents.................................   $ 45,126        $ 58,976
  Short-term investments....................................    100,117          77,661
  Accounts receivable, net..................................     41,312          42,278
  Prepaid expenses and other current assets.................      7,763           6,036
  Deferred tax assets.......................................      4,531           4,531
                                                               --------        --------
          Total current assets..............................    198,849         189,482
Property and equipment, net.................................     14,528          12,636
Other non-current assets....................................      2,000              --
Goodwill, net...............................................      9,507          11,382
                                                               --------        --------
                                                               $224,884        $213,500
                                                               ========        ========

                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable..........................................   $  3,498        $  1,852
  Accrued compensation and related liabilities..............      7,174           7,799
  Income taxes payable......................................      3,515           3,564
  Other accrued liabilities.................................      9,720           9,929
  Deferred revenue..........................................     29,918          28,955
  Current portion of obligations under capital leases.......        426             570
                                                               --------        --------
          Total current liabilities.........................     54,251          52,669
Noncurrent portion of obligations under capital leases......         66             127

Stockholders' equity:
  Common stock and additional paid-in capital...............    109,386          99,952
  Treasury Stock (1,609,000 and 1,117,500 shares,
     respectively)..........................................    (22,968)        (13,977)
  Notes receivable from stockholders........................        (46)            (45)
  Retained earnings.........................................     84,195          74,774
                                                               --------        --------
          Total stockholders' equity........................    170,567         160,704
                                                               --------        --------
                                                               $224,884        $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     SIX MONTHS ENDED
                                                           JUNE 30,              JUNE 30,
                                                      ------------------    ------------------
                                                       1999       1998       1999       1998
                                                      -------    -------    -------    -------
<S>                                                   <C>        <C>        <C>        <C>
Revenue:
  Products..........................................  $32,065    $23,215    $55,494    $41,833
  Maintenance and service...........................   20,971     13,398     39,942     25,379
                                                      -------    -------    -------    -------
          Total revenue.............................   53,036     36,613     95,436     67,212
Costs and expenses:
  Cost of product revenue...........................    1,663        784      2,541      1,978
  Cost of maintenance and service revenue...........    8,916      5,195     16,629     10,272
  Research and development..........................   10,204      8,018     19,418     15,746
  Sales and marketing...............................   20,184     13,742     38,192     25,998
  General and administrative........................    3,260      2,813      5,418      4,897
  Amortization of goodwill..........................      713         --      1,461         --
                                                      -------    -------    -------    -------
          Total costs and expenses..................   44,940     30,552     83,659     58,891
Income from operations..............................    8,096      6,061     11,777      8,321
Interest income and other, net......................    1,194      1,443      2,284      2,877
                                                      -------    -------    -------    -------
Income before provision for income taxes............    9,290      7,504     14,061     11,198
Provision for income taxes..........................    3,066      2,701      4,640      4,031
                                                      -------    -------    -------    -------
Net income..........................................  $ 6,224    $ 4,803    $ 9,421    $ 7,167
                                                      =======    =======    =======    =======
Net income per share:
     Basic..........................................  $  0.22    $  0.17    $  0.33    $  0.25
                                                      =======    =======    =======    =======
     Diluted........................................  $  0.21    $  0.16    $  0.31    $  0.24
                                                      =======    =======    =======    =======
Shares used in computing per share amounts:
     Basic..........................................   28,650     29,035     28,574     28,906
                                                      =======    =======    =======    =======
     Diluted........................................   30,252     30,598     30,150     30,415
                                                      =======    =======    =======    =======
</TABLE>

                            See accompanying notes.
                                        4
<PAGE>   5

                               REMEDY CORPORATION

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

<TABLE>
<CAPTION>
                                                              SIX MONTHS ENDED JUNE 30,
                                                              -------------------------
                                                                 1999           1998
                                                              -----------    ----------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................   $   9,421      $  7,167
  Adjustments to reconcile net income to net cash provided
     by operating activities:
       Depreciation.........................................       3,568         2,780
       Amortization of goodwill.............................       1,461            --
       Amortization of deferred compensation................          --            75
       Changes in assets and liabilities:
          Accounts receivable...............................       1,380         4,736
          Prepaid expenses and other current assets.........      (1,727)       (3,162)
          Deferred tax asset................................          --          (455)
          Accounts payable..................................       1,646           366
          Accrued compensation and related liabilities......        (625)       (1,529)
          Income taxes......................................       1,226         2,508
          Other accrued liabilities.........................        (209)        1,103
          Deferred revenue..................................         963           322
                                                               ---------      --------
Net cash provided by operating activities...................      17,104        13,911
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.........................    (174,626)      (98,606)
Maturities of short-term investments........................     152,170        87,049
Other non-current assets....................................      (2,000)           --
Capital expenditures........................................      (5,546)       (4,103)
                                                               ---------      --------
Net cash used in investing activities.......................     (30,002)      (15,660)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations..........        (119)         (221)
Proceeds from issuance of common stock......................       8,158         4,293
Purchase of treasury stock..................................      (8,991)           --
                                                               ---------      --------
Net cash (used in) provided by financing activities.........        (952)        4,072
                                                               ---------      --------
Net (decrease) increase in cash and cash equivalents........     (13,850)        2,323
Cash and cash equivalents at beginning of period............      58,976        70,568
                                                               ---------      --------
Cash and cash equivalents at end of period..................   $  45,126      $ 72,891
                                                               =========      ========
</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 June 30, 1999, and the
condensed consolidated statements of income for the three months and six months
ended June 30, 1999 and 1998, and the condensed consolidated statements of cash
flows for the six months ended June 30, 1999 and 1998, 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 June 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 six months ended June 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 for 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.

                                        6
<PAGE>   7
                               REMEDY CORPORATION

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

 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 outstanding during the
period. Dilutive common share equivalents consist of employee stock options
using the treasury and dilutive if-converted methods.

     The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED       SIX MONTHS ENDED
                                                                  JUNE 30,                JUNE 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..............................................   $ 6,224     $ 4,803     $ 9,421     $ 7,167
Denominator:
  Denominator for basic earnings per
     share-weighted-average shares........................    28,650      29,035      28,574      28,906
  Effect of dilutive securities:
  Employee stock options..................................     1,602       1,563       1,576       1,509
                                                             -------     -------     -------     -------
  Denominator for diluted earnings per share-adjusted
     weighted-average shares and assumed conversions......    30,252      30,598      30,150      30,415
                                                             =======     =======     =======     =======
  Basic earnings per share................................   $  0.22     $  0.17     $  0.33     $  0.25
                                                             =======     =======     =======     =======
  Diluted earnings per share..............................   $  0.21     $  0.16     $  0.31     $  0.24
                                                             =======     =======     =======     =======
</TABLE>

 4. RECENT PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activity" (SFAS 133),
which is required to be adopted in years beginning after June 15, 2000. The
Statement permits early adoption as of the beginning of any fiscal quarter. The
Company has yet to determine its date of adoption. The Statement will require
the Company to recognize all derivatives on the balance sheet at fair value.
There is currently no impact on the Company. However, if in the future the
Company engages in hedging activity or derivatives, there may be an impact.

     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. There is currently no impact on the Company's results of operations,
cash flows, financial position or prospects.

 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 next twelve months. The
Company has purchased the shares on the open market from time to time, depending
on market conditions. The repurchases have been funded from the Company's cash
and short-term investments. As of June 30, 1999, the Company had repurchased a
total of approximately 1.6 million shares of the Company's stock at an average
price of $14.27 for approximately $23.0 million dollars.

                                        7
<PAGE>   8
                               REMEDY CORPORATION

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

 6. SUBSEQUENT EVENT

     In July 1999, the Company entered into an agreement to purchase Pipestream
Technologies, Inc. (Pipestream), a privately held provider of state of the art
modular, customer relationship management software, including sales force
automation applications. Under the terms of the agreement, Remedy will pay
approximately $5.0 million cash in exchange for substantially all the assets of
Pipestream. The acquisition will be accounted for as a purchase for accounting
purposes, and no material one-time charges are expected.

                                        8
<PAGE>   9

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 14 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 7,600 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.

                                        9
<PAGE>   10

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     SIX MONTHS
                                                                 ENDED           ENDED
                                                                JUNE 30,        JUNE 30,
                                                              ------------    ------------
                                                              1999    1998    1999    1998
                                                              ----    ----    ----    ----
<S>                                                           <C>     <C>     <C>     <C>
Revenue:
  Products..................................................   60%     63%     58%     62%
  Maintenance and service...................................   40%     37%     42%     38%
                                                              ---     ---     ---     ---
          Total revenue.....................................  100%    100%    100%    100%
Costs and expenses:
  Cost of product revenue...................................    3%      2%      3%      3%
  Cost of maintenance and service revenue...................   17%     14%     17%     15%
  Research and development..................................   19%     22%     20%     23%
  Sales and marketing.......................................   38%     38%     40%     39%
  General and administrative................................    6%      8%      6%      7%
  Amortization of goodwill..................................    2%     --       2%     --
                                                              ---     ---     ---     ---
          Total costs and expenses..........................   85%     84%     88%     87%
Income from operations......................................   15%     16%     12%     13%
Interest income, net........................................    2%      4%      3%      4%
                                                              ---     ---     ---     ---
Income before provision for income taxes....................   17%     20%     15%     17%
Provision for income taxes..................................    5%      7%      5%      5%
                                                              ---     ---     ---     ---
Net income..................................................   12%     13%     10%     12%
                                                              ===     ===     ===     ===
</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 for 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.

                                       10
<PAGE>   11

     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 52% of the Company's total billings for the quarter ended June 30,
1999 and 43% for the comparable period in 1998 and approximately 49% for the six
months ended June 30, 1999 and 44% 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 38% to $32.1 million for the quarter ended June 30, 1999 from
$23.2 million in the comparable quarter in 1998. Product license fees increased
33% to $55.5 million for the six months ended June 30, 1999 from $41.8 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 34% and 37% of
the Company's total revenue for the quarters ended June 30, 1999 and June 30,
1998, respectively. International sales accounted for approximately 33% of the
Company's total revenue for the six months ended June 30, 1999 and 37% 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 57% to $21.0 million for the quarter ended June 30, 1999 from $13.4
million in the comparable quarter in 1998. Revenue from services increased by
57% to $39.9 million for the six months ended June 30, 1999 from $25.4 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 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 to $1.7 million for the quarter ended June 30,
1999 from $0.8 million for the comparable quarter in 1998, representing 5% and
3% of the related product revenue in such quarters, respectively. Cost of
product revenue increased to $2.5 million for the six months ended June 30, 1999
from $2.0 million in the comparable 1998 period, representing 5% of the related
product revenue in such periods. As of March 1999, the Company began outsourcing
the shipping of its products. As a result, the outside shipping vendor made a
one-time purchase of the Company's remaining shipping inventory, which had been
expensed previously. 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, as allowed by Financial
Accounting Standards Board Statement No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed" (SFAS 86).

     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 $8.9 million for the quarter ended
June 30, 1999 from $5.2 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 $16.6 million for
the six months ended June 30, 1999 from $10.3 million in the comparable 1998
                                       11
<PAGE>   12

period, representing 42% and 40%, respectively, of the related maintenance and
service revenue in such periods. Cost of maintenance and service revenue
increased significantly in absolute dollars from the quarter ended June 30, 1998
to the quarter ended June 30, 1999 as well as from the six month period ended
June 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 $8.0 million, or 19% and 22% of total revenue, for the quarters
ended June 30, 1999 and June 30, 1998, respectively. Research and development
expenses increased to $19.4 million for the six months ended June 30, 1999 from
$15.7 million in the comparable 1998 period, or 20% and 23% 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 $20.2 million and $13.7
million, for the quarters ended June 30, 1999 and June 30, 1998, respectively,
or 38% of total revenues. Sales and marketing expenses increased to $38.2
million for the six months ended June 30, 1999 from $26.0 million in the
comparable 1998 period, or 40% and 39% 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 $3.3
million and $2.8 million, or 6% and 8% of total revenue, for the quarters ended
June 30, 1999 and June 30, 1998, respectively. General and administrative
expenses increased to $5.4 million for the six months ended June 30, 1999 from
$4.9 million for the comparable 1998 period, or 6% 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 dollar amounts in the future as the Company expands
its staffing.

     AMORTIZATION OF GOODWILL. Amortization of goodwill relates to the purchase
of BayStone Software in October 1998. Goodwill is being amortized on a
straight-line basis over a period of four years from the date of acquisition.
Amortization expense totaled $0.7 million and $1.5 million for the quarter ended
and the six month period ended June 30, 1999, respectively.

     INTEREST INCOME AND OTHER, NET. Interest income and other, net was $1.2
million and $1.4 million for the quarters ended June 30, 1999 and June 30, 1998,
respectively. Interest income and other, net decreased to $2.3 million for the
six months ended June 30, 1999 from $2.9 million for the comparable 1998 period.
The decrease for the six month period ended June 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 six months ended June 30, 1999 and June 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.

LIQUIDITY AND CAPITAL RESOURCES

     During the six months ended June 30, 1999 and June 30, 1998, the Company's
cash provided by operating activities was $17.1 million and $13.9 million,
respectively. The Company's net cash provided by

                                       12
<PAGE>   13

operations for the six months ended June 30, 1999 was primarily attributable to
the income generated from the current period.

     During the six months ended June 30, 1999 and June 30, 1998, the Company's
investing activities consisted primarily of purchases of short-term investments
and property and equipment. Purchases of short-term investments exceeded
maturities by $22.5 million for the six months ended June 30, 1999. In addition,
during the six month period ended June 30, 1999, the Company made an investment
of $2.0 million in On-The-Go software, an independent software vendor. To date,
the Company has not invested in derivative securities or any other financial
instruments that involve a high level of complexity or risk.

     Cash used to purchase property and equipment, primarily for computer
workstations, capitalized internal use software and file servers for the
Company's growing employee base was $5.5 million and $4.1 million during the six
months ended June 30, 1999 and June 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 by financing activities during the six months ended June
30, 1999 was $1.0 million versus the $4.1 million provided by financing
activities during the six months ended June 30, 1998. This comparative decrease
of $5.1 million is primarily due to the repurchase of approximately 500,000
shares of common stock at a cost of $9.0 million netted with proceeds of $8.2
million from the issuance of common stock under the stock purchase and stock
option plans during the six month period ended June 30, 1999, compared with no
shares repurchased and proceeds of $4.3 million from the issuance of common
stock under the stock purchase and stock option plans during the six month
period ended June 30, 1998.

     At June 30, 1999, the Company had $45.1 million in cash and cash
equivalents, $100.1 million in short-term investments and $144.6 million of
working capital. The Company also has available a $15.0 million unsecured bank
line of credit that expires in September 1999. There were no borrowings
outstanding under this line of credit as of June 30, 1999.

     The Company believes that its current cash and short-term investments
balances, cash available under its line of credit 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 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. The
Company has purchased the shares on the open market from time to time, depending
on market conditions. The repurchases have been funded from the Company's cash
and short-term investments. As of June 30, 1999, the Company had repurchased a
total of approximately 1.6 million shares of the Company's stock at an average
price of $14.27 for approximately $23.0 million dollars.

     In July 1999, the Company entered into an agreement to purchase Pipestream
Technologies, Inc. (Pipestream), a privately held provider of state of the art
modular, customer relationship management software, including sales force
automation applications. Under the terms of the agreement, Remedy will pay
approximately $5.0 million cash in exchange for substantially all the assets of
Pipestream. The acquisition will be accounted for as a purchase for accounting
purposes, and no material one-time charges are expected.

                                       13
<PAGE>   14

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 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.

                                       14
<PAGE>   15

     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 212 in the six month
period ended June 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
                                       15
<PAGE>   16

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 quarter ended June 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, incurrence of severance
liabilities, the amortization of expenses related to goodwill and other
intangible assets and/or the incurrence 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, including 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.

     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.

                                       16
<PAGE>   17

     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 $0.4 million was incurred as of the
quarter ended June 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)
       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

                                       17
<PAGE>   18

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 has initiated an assessment of its internal IT
systems including third-party software and hardware technology and its non-IT
systems (such as its security system, building equipment and embedded
microcontrollers) and retained an outside contractor to provide assistance. As
of June 1999, the Company substantially completed this testing. 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.

                                 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 June 30, 1999, all of the business processes deemed
as critical to the proper functioning of the company are 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. The company's Y2K project team expects to complete
remediation efforts in areas that are not deemed mission critical by September
1999. 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 personnel and
external vendors/suppliers and (3) Auditing capability. The completion of this
program and associated processes is expected by September 1999.

     The Company has not developed a comprehensive contingency plan to address
situations that may result if the Company is unable to achieve Year 2000
readiness of its critical operations. The cost of developing and implementing
such a plan may itself be material.

     Finally, 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, International Operations; Currency
Fluctuations, 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.

                                       18
<PAGE>   19

                           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

                                       19
<PAGE>   20

                                   SIGNATURE

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

                                          REMEDY CORPORATION

                                                     /s/ Ron J. Fior

                                          --------------------------------------
                                                       Ron J. Fior
                                               Vice President, Finance and
                                                       Operations,
                                               and Chief Financial Officer
                                          (Duly Authorized Officer and Principal
                                                      Financial and
                                                   Accounting Officer)

Dated: August 4, 1999

                                       20
<PAGE>   21

                                 EXHIBIT INDEX

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