<PAGE>   1
 
================================================================================
 
                                 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 MARCH 31, 1998
 
                                       OR
 
      [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934
 
                         FOR THE TRANSITION PERIOD FROM
                               --------------- TO
                               --------------- .
 
                         COMMISSION FILE NUMBER 0-25494
 
                               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 29,048,822 shares of the Company's Common Stock, par value
$.00005, outstanding on April 30, 1998.
 
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<PAGE>   2
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
                  PART I. FINANCIAL INFORMATION
Item 1 -- Financial Statements..............................    3
Condensed Consolidated Balance Sheets as of March 31, 1998
  and December 31, 1997.....................................    3
Condensed Consolidated Statements of Income for the Three
  Months Ended March 31, 1998 and March 31, 1997............    4
Condensed Consolidated Statements of Cash Flows for the
  Three Months Ended March 31, 1998 and March 31, 1997......    5
Notes to Condensed Consolidated Financial Statements........    6
Item 2 -- Management's Discussion and Analysis of Financial
  Condition and Results of Operations.......................    8
 
                    PART II. OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K..................   14
SIGNATURE...................................................   15
</TABLE>
 
                                        2
<PAGE>   3
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                               REMEDY CORPORATION
 
                            CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                               MARCH 31,     DECEMBER 31,
                                                                 1998            1997
                                                              -----------    ------------
                                                              (UNAUDITED)        (1)
<S>                                                           <C>            <C>
Current assets:
  Cash and cash equivalents.................................    $ 67,846       $ 70,568
  Short-term investments....................................      78,956         63,265
  Accounts receivable, net of allowance for doubtful
     accounts of $1,921 and $1,974, respectively............      20,084         31,528
  Prepaid expenses and other current assets.................       5,265          2,682
  Deferred tax assets.......................................       3,556          3,101
                                                                --------       --------
          Total current assets..............................     175,707        171,144
Property and equipment, net.................................      11,945         10,472
                                                                --------       --------
                                                                $187,652       $181,616
                                                                ========       ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $  2,142       $  1,230
  Accrued compensation and related liabilities..............       3,682          5,519
  Income taxes payable......................................       2,439            806
  Other accrued liabilities.................................       7,922          6,141
  Deferred revenue..........................................      19,144         18,986
  Current portion of obligations under capital leases.......         476            360
                                                                --------       --------
          Total current liabilities.........................      35,805         33,042
Noncurrent portion of obligations under capital leases......         507            502
Stockholders' equity:
  Common stock and additional paid-in capital...............      93,257         92,397
  Notes receivable from stockholders........................         (47)           (47)
  Deferred compensation.....................................         (31)           (75)
  Retained earnings.........................................      58,161         55,797
                                                                --------       --------
          Total stockholders' equity........................     151,340        148,072
                                                                --------       --------
                                                                $187,652       $181,616
                                                                ========       ========
</TABLE>
 
---------------
(1) The balance sheet at December 31, 1997 has been derived from the audited
    financial statements at that date, but does note 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 STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                  MARCH 31,
                                                              ------------------
                                                               1998       1997
                                                              -------    -------
<S>                                                           <C>        <C>
Revenue:
  Products..................................................  $18,618    $16,064
  Maintenance and service...................................   11,981      7,237
                                                              -------    -------
          Total revenue.....................................   30,599     23,301
Costs and expenses:
  Cost of product revenue...................................    1,194        935
  Cost of maintenance and service revenue...................    5,077      3,121
  Research and development..................................    7,728      3,715
  Sales and marketing.......................................   12,256      7,548
  General and administrative................................    2,084      1,493
                                                              -------    -------
          Total costs and expenses..........................   28,339     16,812
Income from operations......................................    2,260      6,489
Interest income, net........................................    1,434        872
                                                              -------    -------
Income before provision for income taxes....................    3,694      7,361
Provision for income taxes..................................    1,330      2,576
                                                              -------    -------
Net income..................................................  $ 2,364    $ 4,785
                                                              =======    =======
Net income per share:
  Basic.....................................................  $  0.08    $  0.18
  Diluted...................................................  $  0.08    $  0.16
                                                              =======    =======
Shares used in computing per share amounts:
  Basic.....................................................   28,776     26,973
  Diluted...................................................   30,231     30,426
                                                              =======    =======
</TABLE>
 
                            See accompanying notes.
                                        4
<PAGE>   5
 
                               REMEDY CORPORATION
 
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              --------------------
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................  $  2,364    $  4,785
  Adjustments to reconcile net income to net cash provided
     by operating activities:
       Depreciation and amortization........................     1,327         655
       Amortization of deferred compensation................        44          45
       Changes in assets and liabilities:
          Accounts receivable...............................    11,444       6,296
          Prepaid expenses and other current assets.........    (2,583)       (620)
          Deferred tax asset................................      (455)       (138)
          Accounts payable..................................       912        (678)
          Accrued compensation and related liabilities......    (1,837)     (4,227)
          Income taxes......................................     1,744       1,739
          Other accrued liabilities.........................     1,781         421
          Deferred revenue..................................       158         540
                                                              --------    --------
Net cash provided by operating activities...................    14,899       8,818
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments.........................   (61,993)    (39,527)
Maturities of short-term investments........................    46,302      36,968
Capital expenditures........................................    (2,552)     (1,383)
                                                              --------    --------
Net cash used in investing activities.......................   (18,243)     (3,942)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations..........      (127)        (59)
Proceeds from issuance of common stock......................       749         578
                                                              --------    --------
Net cash provided by financing activities...................       622         519
                                                              --------    --------
Net increase (decrease) in cash and cash equivalents........    (2,722)      5,395
Cash and cash equivalents at beginning of period............    70,568      39,770
                                                              --------    --------
Cash and cash equivalents at end of period..................  $ 67,846    $ 45,165
                                                              ========    ========
</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 March 31, 1998, and the
condensed consolidated statements of income and cash flows for the three months
ended March 31, 1998 and 1997, have been prepared by the Company, without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position at
March 31, 1998, and the results of operations and cash flows for all periods
presented have been made. The condensed consolidated balance sheet at December
31, 1997 has been derived from the audited financial statements at that date.
 
     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations. These condensed financial statements should
be read in conjunction with the audited financial statements and notes thereto
included in the Company's 1997 Annual Report on Form 10-K filed with the
Securities and Exchange Commission in March 1998.
 
     The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of results that may be expected for any other interim
period or for the full fiscal year.
 
 2. EARNINGS PER SHARE
 
     In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share.
 
     Basic earnings per share is computed using the weighted average number of
common shares. 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
method and dilutive convertible securities using the if-converted method.
 
     The following table sets forth the computation of basic and diluted
earnings per share:
 
<TABLE>
<CAPTION>
                                                                  QUARTER ENDED
                                                                    MARCH 31,
                                                              ----------------------
                                                                1998         1997
                                                              ---------    ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                PER SHARE AMOUNTS)
<S>                                                           <C>          <C>
Numerator:
  Net Income................................................   $ 2,364      $ 4,785
                                                               =======      =======
Denominator:
  Denominator for basic earning per
     share-weighted-average-shares..........................    28,776       26,973
  Effective of dilutive securities:
  Employee stock options....................................     1,455        3,453
                                                               -------      -------
  Dilutive potential common shares..........................     1,455        3,453
  Denominator for diluted earnings per share-adjusted
     weighted average shares and assumed conversions........    30,231       30,426
                                                               =======      =======
  Basic earnings per share..................................   $  0.08      $  0.18
  Diluted earnings per share................................   $  0.08      $  0.16
</TABLE>
 
                                        6
<PAGE>   7
                               REMEDY CORPORATION
 
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)
 
 3. REVENUE RECOGNITION
 
     As of January 1, 1998, the Company adopted AICPA SOP 97-2, Software Revenue
Recognition, as amended by EITF 98-4 which was effective for transactions that
the Company entered into in 1998. Prior years were not restated. The adoption of
SOP 97-2 did not have a material adverse affect on the revenues or earnings for
the period.
 
 4. COMPREHENSIVE INCOME
 
     As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components, accordingly, the adoption of
this statement had no impact on the Company's net income or stockholders'
equity. Comprehensive income is the same as net income as there are no necessary
adjustments reported in Stockholders' equity.
 
 5. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
 
     Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (Statement
131). Statement 131 superseded FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise. Statement 131 established standards for the
way that public business enterprises report information about operation segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports.
Statement 131 also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The adoption of Statement
131 did not affect the results of operations or financial position, but may
affect the disclosure of the segment information that will be disclosed in the
annual report on Form 10K.
 
 6. STOCK OPTION EXCHANGE
 
     On February 4, 1998, the Compensation Committee of the Board of Directors
approved the exchange of certain outstanding stock options under the Company's
1995 Stock Option/Stock Issuance Plan with exercise prices ranging from $17.92
to $53.75. Each employee who elected prior to February 2, 1998 to participate in
the exchange program received a new option with an exercise price of $16.75 per
share (the fair market value on February 4, 1998). Each new option that replaces
an option outstanding for at least 12 months shall vest in equal monthly
installments over the period remaining under the original option plus and
additional 12 months, not to exceed 48 months (4 years). Each new option that
replaces an option outstanding for less than 12 months shall vest 25% at the end
of 12 months from the grant date of February 4, 1998 and 1/48th per month
thereafter. Approximately, 3,200,000 stock options were exchanged pursuant to
this program.
 
                                        7
<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 remained profitable beginning with
the quarter ended June 30, 1992. There can be no assurance, however, that the
Company will remain profitable on a quarterly or annual basis in the future.
 
     Although the Company has experienced significant percentage growth in
revenues and net income in recent years, the Company does not believe prior
growth rates are sustainable or indicative of future operating results. In
addition, the Company expects increased competition and intends to invest
significantly in its business. As a result, the Company does not expect to
sustain current operating margins in the future.
 
     The Company believes that its products are priced substantially below most
of its competitors' products. The market for the Company's products is highly
competitive, and the Company expects that it will face increasing pricing
pressures from its current competitors and new market entrants. Any material
reduction in the price of the Company's products would negatively affect gross
margins and could materially adversely affect the Company's business, operating
results and financial condition if the Company were unable to increase unit
sales.
 
     This Report on Form 10-Q contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in the
"Additional factors that may affect future results: Risk Factors" section on
page 11.
 
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 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.
 
                                        8
<PAGE>   9
 
     The following table sets forth, as a percentage of total revenue, statement
of income data for the periods indicated.
 
<TABLE>
<CAPTION>
                                                              THREE MONTHS
                                                              ENDED MARCH
                                                                  31,
                                                              ------------
                                                              1998    1997
                                                              ----    ----
<S>                                                           <C>     <C>
Revenue:
  Products..................................................   61%     69%
  Maintenance and service...................................   39%     31%
                                                              ---     ---
          Total revenue.....................................  100%    100%
Costs and expenses:
  Cost of product revenue...................................    4%      4%
  Cost of maintenance and service revenue...................   17%     13%
  Research and development..................................   25%     16%
  Sales and marketing.......................................   40%     32%
  General and administrative................................    7%      7%
                                                              ---     ---
          Total costs and expenses..........................   93%     72%
Income from operations......................................    7%     28%
Interest income, net........................................    5%      4%
                                                              ---     ---
Income before provision for income taxes....................   12%     32%
Provision for income taxes..................................    4%     11%
                                                              ---     ---
Net income..................................................    8%     21%
                                                              ===     ===
</TABLE>
 
  Revenue
 
     The Company's revenue is derived from two sources: product licenses and
fees for services. License revenue is derived from product licensing fees, while
service revenue is derived from maintenance support services, training and
consulting. The Company recognizes revenue in accordance with the Statement of
Position on Software Revenue Recognition ("SOP 97-2"), issued by the American
Institute of Certified Public Accountants. The adoption of SOP 97-2 had no
impact on the Company's results of operations. 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),
independent software vendors (ISVs) and original equipment manufacturers (OEMs).
Sales derived through indirect channels accounted for approximately 45% and 43%
of the Company's total billings for the three months ended March 31, 1998 and
March 31, 1997, respectively. 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 16% from $16.1 million for the quarter ended March 31,
1997 to $18.6 million in the comparable quarter in 1998. The growing acceptance
of the Company's software products in both U.S. and international markets has a
major factor in this increase.
 
                                        9
<PAGE>   10
 
International sales accounted for approximately 35% and 38% of the Company's
total revenue for the quarters ended March 31, 1998 and March 31, 1997,
respectively. 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 since 1992. 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. Revenue from services increased by 66%
from $7.2 million for the quarter ended March 31, 1997 to $12.0 million in the
comparable quarter in 1998. This growth is primarily due to increased licensing
activity, which has resulted in increases in revenue from services related to
maintenance and support, training and consulting. 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 $935,000 for the quarter ended March 31,
1997 to $1.2 million for the comparable quarter in 1998, representing 6% of the
related product revenue in both quarters. The increase in the dollar amounts of
cost of product revenue for the quarter ended March 31, 1998 was primarily due
to the higher volume of product shipped during the quarter. Because all
development costs incurred in the research and development of new software
products and enhancements to existing software products have been expensed as
incurred, cost of product revenue includes no amortization of capitalized
software development costs.
 
     Cost of Maintenance and Service Revenue. Cost of maintenance and service
revenue consists primarily of personnel-related costs incurred in providing
telephone support, consulting and training to customers. Cost of maintenance and
service revenue increased from $3.1 million for the quarter ended March 31, 1997
to $5.1 million in the comparable quarter in 1998, representing 43% and 42% of
the related maintenance and service revenue for the respective quarters. Cost of
maintenance and service revenue increased significantly in absolute dollars from
the quarter ended March 31, 1997 to the quarter ended March 31, 1998 primarily
due to increased personnel-related costs as the Company continued to build its
customer support and training organizations. In addition, such costs increased
from quarter to quarter due to the Company's increased partnering with
third-party service providers to deliver consulting services to its customers.
The Company believes that cost of maintenance and service revenue will increase
in dollar amounts in the future.
 
     Research and Development. Research and development expenses were $7.7
million and $3.7 million, or 25% and 16% of total revenue, for the quarters
ended March 31, 1998 and March 31, 1997, respectively. The increase in dollar
amounts in research and development expenses was primarily attributable to
increased 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 $12.3 million and $7.5
million, or 40% and 32%, of total revenue, for the quarters ended March 31, 1998
and March 31, 1997, respectively. The increase in sales and marketing expenses
in both absolute dollar amounts and as a percentage of total revenue was
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 $2.1
million and $1.5 million, or 7% of total revenue, for the quarters ended March
31, 1998 and March 31, 1997, respectively. The increase in
                                       10
<PAGE>   11
 
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 and may increase as a percentage of total revenue in the future as the
Company expands its staffing.
 
  Interest Income, net
 
     Interest income, net was $1.4 million and $872,000 for the quarters ended
March 31, 1998 and March 31, 1997, respectively. The increase in interest
income, net for the quarter ended March 31, 1998 was primarily due to the
investment of increased amounts of cash provided by operating activities.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     During the three months ended March 31, 1998 and March 31, 1997, the
Company's cash provided by operating activities was $14.9 million and $8.8
million, respectively. The Company's net cash provided by operations for the
three months ended March 31, 1998 was primarily attributable to the decrease in
accounts receivable.
 
     During the three months ended March 31, 1998 and March 31, 1997, 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 $15.7 million for the three months ended March 31, 1998,
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 $2.6 million and $1.4
million during the three months ended March 31, 1998 and March 31, 1997,
respectively, primarily for computer workstations and file servers for the
Company's growing employee base. The Company expects that the rate of purchases
of property and equipment will remain constant or increase as the Company's
employee base grows. The Company's principal commitments consist primarily of
leases on its facilities and its telephone system.
 
     At March 31, 1998, the Company had $67.8 million in cash and cash
equivalents, $79.0 million in short-term investments and $139.9 million of
working capital. The Company also has available a $15.0 million unsecured bank
line of credit that expires in June 1998. There were no borrowings outstanding
under this line of credit as of March 31, 1998.
 
     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 will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months. Thereafter, the
Company may be required 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: RISK FACTORS
 
     Potential Fluctuations in Quarterly Results; Seasonality. The Company's
quarterly operating results have in the past and may in the future vary
significantly depending on factors such as increased competition, the timing of
new product announcements and changes in pricing policies by the Company and its
competitors, market acceptance of new and enhanced versions of the Company's
products, the size and timing of significant orders, the mix of direct and
indirect sales, changes in operating expenses, changes in Company strategy,
personnel changes, foreign currency exchange rates fluctuations and general
economic factors. The Company operates with no significant order backlog because
its software products typically are shipped shortly after orders are received.
Furthermore, the Company has often recognized a substantial portion of its
revenue in the last month of a quarter, with this revenue frequently
concentrated in the last week of a quarter. As a result, product revenue in any
quarter is substantially dependent on orders booked and shipped in that quarter
and revenue for any future quarter is not predictable with any significant
degree of certainty. Product revenue
 
                                       11
<PAGE>   12
 
is also difficult to forecast because the market for client/server application
software products is rapidly evolving, and the Company's sales cycle, from
initial trial to multiple copy purchases and the provision of support services,
varies substantially from customer to customer. In addition, the Company expects
that sales derived through indirect channels, which are harder to predict and
have lower margins than direct sales, will increase as a percentage of total
revenue. The Company's expense levels are based, in part, on its expectations as
to future revenue. If revenue levels are below expectations, operating results
are likely to be adversely affected. Net income may be disproportionately
affected by a reduction in revenue because a proportionately smaller amount of
the Company's expenses varies with its revenue. As a result, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. In the quarter ended December 31, 1997, the Company received
significantly fewer orders than expected, which had an immediately adverse
effect on the Company's financial performance for the quarter. The Company's
operating results were below the expectations of public market analysts and
investors, and the Company's stock price declined significantly. It is likely
that in some future quarter the Company's operating results will again be below
the expectations of public market analysts and investors. In such event, the
price of the Company's Common Stock would likely be materially adversely
affected.
 
     Competition. The client/server application software market is intensely
competitive and subject to rapid change. Competitors vary in size and in the
scope and breadth of the products and services offered. The Company encounters
competition from a number of sources, including: (i) other software companies,
(ii) third-party professional services organizations that develop custom
software, and (iii) management information systems departments of potential
customers that develop custom software. In addition, because there are
relatively low barriers to entry in the software market, the Company expects
additional competition from other established and emerging companies as the
client/server application software market continues to develop and expand.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, operating results and financial condition. Some of the
Company's current, and many of the Company's potential, competitors have
significantly greater financial, technical, marketing and other resources than
the Company. As a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than the
Company can. The Company also expects that competition will increase as a result
of software industry consolidations. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, operating results and financial
condition.
 
     Dependence on New Products and Rapid Technological Change; Risk of Product
Bugs. The client/server application software market is characterized by rapid
technological change, frequent new product 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
                                       12
<PAGE>   13
 
affected. During 1997 and the quarter ended March 31, 1998, the Company released
several new products, along with significant upgrades to existing products.
These products are subject to significant technical risks. If the new products
do not achieve market acceptance, the Company's business, operating results and
financial condition will be materially adversely affected. Software products as
complex as those offered by the Company may contain undetected errors or
failures when first introduced or when new versions are released. The Company
has in the past discovered software errors in certain of its new products and
enhancements after their introduction and has experienced delays or lost revenue
during the period required to correct these errors. Although the Company has not
experienced material adverse effects resulting from any such errors to date,
there can be no assurance that, despite testing by the Company and by current
and potential customers, errors will not be found in new products or releases
after commencement of commercial shipments, resulting in loss of or delay in
market acceptance, which could have a material adverse effect upon the Company's
business, operating results and financial condition.
 
     Limited Operating History; Future Operating Results Uncertain; Need to
Increase Sales Force. The Company was incorporated in November 1990 and began
shipping products in December 1991. Although the Company has experienced
significant percentage growth in revenue and net income in recent years, the
Company does not believe prior growth rates are sustainable or indicative of
future operating results. There can be no assurance that the Company will remain
profitable on a quarterly or annual basis. In addition, the Company's limited
operating history makes the prediction of future operating results difficult or
impossible. Future operating results will depend on many factors, including the
demand for the Company's products, the level of product and price competition,
the Company's success in expanding its direct sales force and indirect
distribution channels, the ability of the Company to develop and market new
products and control costs, and the percentage of the Company's revenue derived
from indirect channels, which have lower margins than direct sales. In
particular, the Company intends to hire a significant number of additional sales
personnel in 1998 and beyond, which is required if the Company is to achieve
significant revenue growth in the future. Competition for such personnel is
intense, and there can be no assurance that the Company can retain its existing
sales personnel or that it can attract, assimilate or retain additional highly
qualified sales persons in the future. The Company increased the size of its
headquarters-based direct sales force from 42 to 100 in 1996, from 100 to 157 in
1997 and decreased from 157 to 154 in the quarter ended March 31, 1998. 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.
 
     Product Concentration. The Company currently derives substantially all of
its revenue from licenses of the AR System, the applications Remedy provides,
which are built upon the Action Request System foundation, and related services.
Broad market acceptance of the Company's products is critical to the Company's
future success. As a result, a decline in demand for or failure to achieve broad
market acceptance of the AR System foundation and applications as a result of
competition, technological change or otherwise, would have a material adverse
effect on the business, operating results and financial condition of the
Company. The Company's future financial performance will depend in part on the
successful development, introduction and customer acceptance of new and enhanced
versions of the AR System foundation and other applications. There can be no
assurance that the Company will continue to be successful in marketing the AR
System or any new or enhanced products or applications.
 
     The Company's business entails a variety of additional risks not mentioned
above, such as Management of Growth; Dependence Upon Key Personnel, Expansion of
Indirect Channels, International Operations, Dependence on Growth in the
Client/Server Computing Market; General Economic and Market Conditions,
Dependence on Proprietary Technology; Risks of Infringement, Product Liability,
and Year 2000 Compliance which are set forth in the "Risk Factors" section of
the Company's 1997 Report on form 10-K filed with the Securities and Exchange
Commission in March 1998.
 
                                       13
<PAGE>   14
 
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
 
                                       14
<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.
 
                                          REMEDY CORPORATION
 
                                               /s/ GEORGE A. DE URIOSTE
 
                                          --------------------------------------
                                          George A. de Urioste
                                          Vice President, Finance and
                                          Operations, Chief Financial Officer
                                          (Duly Authorized Officer and Principal
                                          Financial and Accounting Officer)
 
Dated: May 8, 1998
 
                                       15
<PAGE>   16
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
                                                                                     SEQUENTIALLY
       EXHIBIT                                                                         NUMBERED
        NUMBER                                 EXHIBIT                                   PAGE
       -------                                 -------                               ------------
    <C>              <S>                                                             <C>
         27.1        Financial Data Schedule.....................................
</TABLE>
 
                                       16