<PAGE>   1
 
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-Q
 
(MARK ONE)
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 
      FOR THE QUARTERLY PERIOD ENDED: DECEMBER 31, 1997
 
                                       OR
 
[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
 
            FOR THE TRANSITION PERIOD FROM __________ TO __________
 
                        COMMISSION FILE NUMBER: 0-20735
 
                                 RESTRAC, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                DELAWARE                                   04-2935271
    (STATE OR OTHER JURISDICTION OF            (IRS EMPLOYER IDENTIFICATION NO.)
     INCORPORATION OR ORGANIZATION)

           91 HARTWELL AVENUE
             LEXINGTON, MA                                   02173
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                   (ZIP CODE)
 
                                 (781) 869-5000
                        (REGISTRANT'S TELEPHONE NUMBER)
 
     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 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  [ ]
 
     Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
 
                              TITLE OF EACH CLASS
Common stock, $.01 par value, shares outstanding at February 5, 1998: 8,265,771
                                     shares
 


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<PAGE>   2
                                 RESTRAC, INC.
 
                                     INDEX
 
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
PART I -- FINANCIAL INFORMATION
Item 1.  Consolidated Financial Statements
  Consolidated Balance Sheets at December 31, 1997 and September 30, 1997.............   2
  Consolidated Statements of Operations for the three months ended: December 31, 1997
     and December 31, 1996............................................................   3
  Consolidated Statements of Cash Flows for the three months ended: December 31, 1997
     and December 31, 1996............................................................   4
  Notes to Consolidated Financial Statements..........................................   5
Item 2.  Management's Discussion and Analysis of Financial Condition and
            Results of Operations.....................................................   7
 
PART II -- OTHER INFORMATION
Item 1.  Legal Proceedings............................................................   15
Item 2.  Changes in Securities........................................................   15
Item 3.  Defaults upon Senior Securities..............................................   15
Item 4.  Submission of Matters to a Vote of Security Holders..........................   15
Item 5.  Other Information............................................................   15
Item 6.  Exhibits and Reports on Form 8-K.............................................   15
 
PART III -- SIGNATURES................................................................   16
Exhibit #11...........................................................................   17
Exhibit #27...........................................................................   18
</TABLE>
 
                                        1
<PAGE>   3
 
                                 RESTRAC, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                     DECEMBER 31,     SEPTEMBER 30,
                                                                         1997             1997
                                                                     ------------     -------------
                                                                     (UNAUDITED)
<S>                                                                  <C>              <C>
                                     ASSETS
Current Assets:
  Cash and cash equivalents......................................       $ 4,053          $ 5,745
  Short-term investments.........................................         9,141            9,410
  Accounts receivable, less allowance for doubtful accounts of
     $320 at December 31, 1997 and September 30, 1997............         5,017            5,130
  Other current assets...........................................           909              780
  Refundable income taxes........................................           957              948
  Deferred income taxes..........................................           881              881
                                                                        -------          -------
          Total Current Assets...................................        20,958           22,894
                                                                        -------          -------
  Property and equipment, net....................................         3,250            3,383
  Long-term investments..........................................         2,010               --
  Other assets...................................................           781              776
                                                                        -------          -------
          Total Assets...........................................       $26,999          $27,053
                                                                        =======          =======
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Current portion of capital lease obligations...................       $   110          $   144
  Accounts payable...............................................           873            1,459
  Accrued expenses...............................................         2,461            2,523
  Deferred revenue...............................................         4,397            4,084
  Accrued income taxes...........................................            68               --
                                                                        -------          -------
          Total current liabilities..............................         7,909            8,210
                                                                        -------          -------
  Deferred rent..................................................           178              172
                                                                        -------          -------
  Capital lease obligations......................................           131              131
                                                                        -------          -------
Stockholders' Equity:
  Preferred stock, $.01 par value. Authorized -- 5,000,000
     shares, Issued and outstanding -- none......................            --               --
  Common stock, $.01 par value. Authorized -- 30,000,000 shares,
     Issued -- 8,906,531 shares at December 31, 1997 and
     8,852,303 shares at September 30, 1997......................            89               89
  Additional paid-in capital.....................................        19,205           19,067
  Treasury stock, at cost........................................          (831)            (831)
  Retained earnings..............................................           318              215
                                                                        -------          -------
          Total stockholders' equity.............................        18,781           18,540
                                                                        -------          -------
          Total Liabilities and Stockholders' Equity.............       $26,999          $27,053
                                                                        =======          =======
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                        2
<PAGE>   4
 
                                  RESTRAC, INC
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
                                                                            DECEMBER 31,
                                                                      -------------------------
                                                                         1997           1996
                                                                      ----------     ----------
<S>                                                                   <C>            <C>
Revenue:
  Product revenue.................................................    $    4,022     $    2,133
  Services revenue................................................         2,974          2,648
                                                                       ---------      ---------
          Total revenue...........................................         6,996          4,781
                                                                       ---------      ---------
Cost of revenue:
  Product revenue.................................................           124            222
  Services revenue................................................         2,071          1,414
                                                                       ---------      ---------
          Total cost of revenue...................................         2,195          1,636
                                                                       ---------      ---------
          Gross margin............................................         4,801          3,145
                                                                       ---------      ---------
Operating expenses:
  Research and development........................................         1,265          1,160
  Sales and marketing.............................................         2,566          1,946
  General and administrative......................................           942            724
                                                                       ---------      ---------
          Total operating expenses................................         4,773          3,830
                                                                       ---------      ---------
Income (loss) from operations.....................................            28           (685)
Other income, net.................................................           143            204
                                                                       ---------      ---------
Income (loss) before provision (benefit) for income taxes.........           171           (481)
Provision (benefit) for income taxes..............................            68           (173)
                                                                       ---------      ---------
Net income (loss).................................................    $      103     $     (308)
                                                                       =========      =========
Net income (loss) per common and common equivalent share..........    $     0.01     $    (0.04)
                                                                       =========      =========
Weighted average number of common and common equivalent shares
  outstanding.....................................................     8,557,667      7,895,053
                                                                       =========      =========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                        3
<PAGE>   5
 
                                 RESTRAC, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                                                              DECEMBER 31,
                                                                           -------------------
                                                                            1997        1996
                                                                           -------     -------
<S>                                                                        <C>         <C>
Cash Flows from Operating Activities:
  Net income (loss)......................................................  $   103     $  (308)
  Adjustments to reconcile net income (loss) to net cash provided by
     (used in) operating activities:
     Depreciation and amortization.......................................      425         244
     Compensation expense on stock options...............................       --         123
     Compensation expense on warrant grants..............................       --          69
     Changes in assets and liabilities:
       Accounts receivable...............................................      113         106
       Other current assets..............................................     (129)       (298)
       Refundable income taxes...........................................       (9)         --
       Accounts payable..................................................     (586)        340
       Accrued expenses..................................................      (62)       (669)
       Deferred revenue..................................................      313         289
       Deferred rent.....................................................        6          --
       Accrued income taxes..............................................       68        (281)
                                                                           -------     -------
          Net cash provided by (used in) operating activities............      242        (385)
                                                                           -------     -------
Cash Flows from Investing Activities:
  Maturities and purchases of short-term investments, net................      269      (6,290)
  Purchases of long-term investments, net................................   (2,010)         --
  Purchases of property and equipment....................................     (292)       (905)
  Increase in other assets...............................................       (5)       (933)
                                                                           -------     -------
          Net cash used in investing activities..........................   (2,038)     (8,128)
                                                                           -------     -------
Cash Flows from Financing Activities:
  Payments of capital lease obligations..................................      (34)         (2)
  Proceeds from exercise of common stock options.........................       63           4
  Proceeds from employee stock purchase plan stock issuance..............       75          50
  Payment of accumulated dividends.......................................       --        (569)
                                                                           -------     -------
          Net cash provided by (used in) financing activities............      104        (517)
                                                                           -------     -------
Net decrease in cash and cash equivalents................................   (1,692)     (9,030)
Cash and cash equivalents, beginning of period...........................    5,745      20,368
                                                                           -------     -------
Cash and cash equivalents, end of period.................................  $ 4,053     $11,338
                                                                           =======     =======
Supplemental disclosure of cash flow information
  Cash used for interest.................................................  $     6     $    --
                                                                           =======     =======
  Cash used for income taxes.............................................  $     9     $   374
                                                                           =======     =======
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                        4
<PAGE>   6
 
                                 RESTRAC, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997
 
(1) BASIS OF PRESENTATION
 
     The accompanying consolidated financial statements include the accounts of
Restrac, Inc. and its wholly-owned subsidiary, Restrac Securities Corporation,
collectively referred to in these Notes to Consolidated Financial Statements as
"the Company". All intercompany accounts and transactions have been eliminated
in consolidation.
 
     The consolidated financial statements of the Company presented herein,
without audit except for balance sheet information at September 30, 1997, have
been prepared pursuant to the rules of the Securities and Exchange Commission
for quarterly reports on Form 10-Q and do not include all of the information and
footnote disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended September 30, 1997 ("Fiscal
1997") included in the Company's Form 10-K filed with the Securities and
Exchange Commission on December 22, 1997.
 
     The consolidated balance sheet as of December 31, 1997, the consolidated
statements of operations for the three month periods ended December 31, 1997 and
1996, and the consolidated statements of cash flows for the three month periods
ended December 31, 1997 and 1996, are unaudited but, in the opinion of
management, include all adjustments (consisting solely of normal, recurring
adjustments) necessary for a fair presentation of results for these interim
periods.
 
     The consolidated results of operations for the three month period ended
December 31, 1997 are not necessarily indicative of the results to be expected
for the fiscal year ending September 30, 1998 ("Fiscal 1998").
 
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     The accompanying consolidated financial statements reflect the application
of certain significant accounting policies described below and elsewhere in the
notes to the Fiscal 1997 consolidated financial statements referenced above.
 
  (a) Revenue Recognition
 
     Product revenue includes software license fees. Services revenue includes
customer maintenance fees and fees for training, installation, consulting and
scanning. The Company recognizes product and services revenue in accordance with
the provisions of Statement of Position No. 97-2, Software Revenue Recognition.
 
     Product revenue from software license fees is recognized upon delivery
provided there are no significant Company obligations remaining and
collectibility of the revenue is probable. If an acceptance period is allowed,
revenue is recognized upon the earlier of the customer acceptance or the
expiration of the acceptance period, as defined in the applicable software
license agreement.
 
     Services revenue from customer maintenance fees for postcontract support is
recognized ratably over the maintenance term, which is typically 12 months. When
customer maintenance fees are included in an initial software license fee, the
Company allocates approximately 15% of the software license fee to the first
year's maintenance. The amount allocated to customer maintenance fees for the
first year is comparable to customer maintenance fees charged separately by the
Company. Services revenue from training, installation, consulting and resume
scanning is recognized as the related services are performed. Services revenue
from Restrac WebHire is recognized ratably over the service term.
 
     Deferred revenue represents payments received by the Company in advance of
product delivery or service performance.
 
                                        5
<PAGE>   7
 
                                 RESTRAC, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  (b) Net Income (Loss) per Common and Common Equivalent Share
 
     The Company has implemented Statement of Financial Accounting Standards No.
128, Earnings Per Share. This pronouncement is effective for fiscal periods
ending after December 15, 1997. Prior period amounts have been restated to
conform to current year presentation. One of the more significant changes is the
replacement of primary earnings per share with "basic" earnings per share. Basic
earnings per share is computed by dividing reported earnings available to common
stockholders by weighted average shares outstanding, with no consideration given
for any potentially dilutive securities. Fully diluted earnings per share, now
called "diluted" earnings per share, includes the effect of dilutive securities.
 
     For the three month period ended December 31, 1997, net income per share
was based on the weighted average number of common and common equivalent shares
outstanding. As a net loss was presented for the period ended December 31, 1996,
the loss per share was based only on the weighted average number of common
shares outstanding. Common equivalent shares outstanding during the 1996 period
were not used as their inclusion would have been anti-dilutive.
 
  (c) Reclassifications
 
     Certain reclassifications have been made to the Fiscal 1997 consolidated
financial statements to conform to the Fiscal 1998 presentation. Such
reclassifications have no effect on previously reported income.
 
  (d) Cash and Cash Equivalents
 
     Cash equivalents are recorded at amortized costs and consist of highly
liquid investments with original maturities of three months or less.
 
  (e) Short and Long Term Investments
 
     Short-term investments consist of investments with an original maturity
greater than three months that will mature within twelve months from the balance
sheet date. Long-term investments consists of investments that will mature
greater than twelve months from the balance sheet date. The Company classifies
these short-and long-term investments as held-to-maturity, and accordingly, they
are carried at amortized cost, which approximates market. These investments
consist of municipal debt securities.
 
                                        6
<PAGE>   8
 
                                 RESTRAC, INC.
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
               FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
 
CONSOLIDATED RESULTS OF OPERATIONS
(IN THOUSANDS)
 
  Revenue
 
     Total revenue for the three month period ended December 31, 1997 was $6,996
compared to $4,781 for the three month period ended December 31, 1996,
representing an increase of 46%.
 
     Product Revenue.  Product revenue was $4,022 for the three months ended
December 31, 1997 compared to $2,133 for the three months ended December 31,
1996, an increase of 89%. The increase in product revenue for the first quarter
of Fiscal 1998 resulted largely from an increase in the number of seats
associated with shipments to both new and existing customers.
 
     Services Revenue.  Services revenue of $2,974 for the three months ended
December 31, 1997 increased 12% from $2,648 for the three months ended December
31, 1996. The increase was attributable primarily to a 27% increase in
maintenance revenue for the first quarter of Fiscal 1998 compared to the first
quarter of Fiscal 1997, due to the continued growth in the Restrac Hire and
Resume Reader for PeopleSoft installed base and to the growth in scanning
revenue. These increases were partially offset by a decrease in services revenue
related to training, installation and consulting, which were affected by the
availability of billable personnel.
 
  Cost of Revenue
 
     Cost of Product Revenue.  Cost of product revenue of $124 for the three
months ended December 31, 1997 decreased 44% from $222 for the three months
ended December 31, 1996. Cost of product revenue decreased as a percentage of
product revenue to 3% for the first quarter of Fiscal 1998 compared to 10% for
the first quarter of Fiscal 1997. The decrease in absolute dollars and the
decrease as a percentage of product revenue is due primarily to favorable rate
revisions in the royalties due under third party licensing arrangements.
 
     Cost of Services Revenue.  Cost of services revenue increased 46% to $2,071
for the three months ended December 31, 1997 from $1,414 for the three months
ended December 31, 1996. Cost of services revenue increased as a percentage of
services revenue to 70% for the first quarter of Fiscal 1998 from 53% for the
first quarter of Fiscal 1997. The increase in absolute dollars and the increase
as a percentage of services revenue is principally attributable to costs
associated with the introduction of Restrac WebHire, increased training and
travel costs associated with the hiring of new personnel and an increase in the
use of third party service providers.
 
     The slight increase in gross margin during the three month period ended
December 31, 1997 to 69% from 66% for the three month period ended December 31,
1996, resulted from the higher mix of product revenue in the first quarter of
Fiscal 1998 as compared to the first quarter of Fiscal 1997, partially offset by
the reduction in margin on services revenue for the comparable periods.
 
  Operating Expenses
 
     Research and Development.  Research and development expenses were $1,265 or
18% of total revenue for the three month period ended December 31, 1997, as
compared to $1,160 or 24% of total revenue for the three month period ended
December 31, 1996. This increase in absolute dollars is primarily due to
increases in both personnel and consulting expenses in support of the Company's
new and existing product development initiatives and its quality assurance
programs. The Company considers investment in research and development to be
integral to its future success. However, research and development spending is
expected to continue to decline as a percentage of total revenue for the
remainder of Fiscal 1998 as compared to Fiscal 1997. All of the Company's
research and development costs have been expensed as incurred.
 

                                        7
<PAGE>   9
 
                                 RESTRAC, INC.
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997 -- (CONTINUED)
 
     Sales and Marketing.  Sales and marketing expenses were $2,566 or 37% of
total revenue for the three month period ended December 31, 1997 as compared to
$1,946 or 41% of total revenue for the three month period ended December 31,
1996. The increase in absolute dollars is due primarily to the effect of the
expansion of the Company's West Coast and Central U.S. facilities during the
second quarter of Fiscal 1997. The Company expects that sales and marketing
expenses may vary from quarter to quarter as a percentage of total revenue.
 
     General and Administrative.  General and administrative expenses were $942
or 13% of total revenue for the three month period ended December 31, 1997
compared to $724 or 15% of total revenue for the three month period ended
December 31, 1996. The increase in absolute dollars is largely the result of
personnel increases and investments in internal systems.
 
     During Fiscal 1997 the Company increased the size of its operating
facilities by over 100% and entered into new leases for its corporate
headquarters, its Chicago office and its West Coast office. The direct increase
in facilities costs associated with these leases for the first quarter of Fiscal
1998 compared to the first quarter of Fiscal 1997 approximated $350. Facilities
costs are allocated among income statement expense categories based principally
on functional headcount.
 
  Other Income, Net
 
     Other income decreased to $143 for the three month period ended December
31, 1997 from $204 for the comparable Fiscal 1997 period. The decrease was due
to lower combined cash and cash equivalents and short-and long-term investment
balances during the first quarter of Fiscal 1998 as compared to the first
quarter of Fiscal 1997. The Company expects to continue to yield investment
income on its average balance of combined cash and cash equivalents and short-
and long-term investments at an average rate consistent with that experienced
for the first quarter of Fiscal 1998.
 
  Provision (Benefit) for Income Taxes
 
     The Company's effective tax rate for the three month period ended December
31, 1997 was 40% as compared to (36%) for the three month period ended December
31, 1996. The effective tax rate represents the Company's estimate of the rate
expected to be applicable for the full fiscal year. The increase in the
effective rate for the first quarter of Fiscal 1998 was due primarily to the
taxable income as compared to the net loss generated for the first quarter of
Fiscal 1997.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At December 31, 1997, the Company had cash and cash equivalents and short-
and long-term investments of $15,204, an increase of $49 from $15,155 at
September 30, 1997. Working capital was $13,049 at December 31, 1997 as compared
to $14,684 at September 30, 1997, a decrease of $1,635. Long-term investments
increased to $2,010 at December 31, 1997 as compared to $0 at September 30,
1997.
 
     Cash provided by operating activities was $242 during the three month
period ended December 31, 1997. Cash provided by operating activities consisted
mainly of the net income for the three month period of $103, the effect of
depreciation and amortization of $425, growth in deferred revenue of $313 and
the timing of receipts and disbursements, resulting in prepayment of certain
expenses, decreases in accounts receivable and fluctuations in certain
liabilities.
 
     The Company used $2,038 in investing activities during the first three
months of Fiscal 1998, principally for the net purchase of long-term investments
of $2,010. Net cash provided by financing activities for the three month period
ended December 31, 1997 was $104.
 
                                        8
<PAGE>   10
                                 RESTRAC, INC.
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997 -- (Continued)
 
     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 has
been, and the Company contemplates that it will continue to be, invested in
interest-bearing, investment grade securities.
 
     From time to time, the Company may evaluate potential acquisitions of
products, businesses and technologies that may complement or expand the
Company's business. The Company currently does not have any understandings,
commitments or agreements with respect to any such acquisitions. Any such
transactions consummated may use a portion of the Company's working capital or
require the issuance of equity or debt.
 
     The Company believes that its current cash and cash equivalent and
investment balances and cash provided by future operations will be sufficient to
meet its working capital expenditure requirements for at least the next twelve
months. Although operating activities may provide cash in certain periods,
operating and investing activities may use cash in other periods. Consequently,
any future growth may require the Company to obtain additional equity or debt
financing.
 
FACTORS AFFECTING FUTURE OPERATING RESULTS
 
     This report contains forward looking statements that involve risks and
uncertainties. The statements contained in this report that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended. Forward looking statements include, without
limitation, statements containing the words "Anticipates", "Believes",
"Expects", "Intends", "Future", and words of similar import which express
management's belief, expectations or intentions regarding the Company's future
performance. All forward looking statements included in this report are based on
information available to the Company on the date hereof, and the Company has no
obligation to update any such forward looking statements. The Company's actual
results could differ materially from its historical operating results and from
those anticipated in these forward looking statements as a result of certain
factors, including, without limitation, those set forth below.
 
     The Company operates in a dynamic and rapidly changing environment that
involves risks and uncertainties. The following section lists some, but not all,
of these risks and uncertainties which may have a material adverse effect on the
Company's business, financial condition or results of operations. This section
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto, and Management's Discussions and Analysis of Financial Condition
and Results of Operations for the years ended September 30, 1997, 1996 and 1995
and for the quarters ended December 31, 1997 and 1996.
 
  Potential Fluctuations in Quarterly Operating Results
 
     The Company's results of operations have been, and may in the future be,
subject to significant quarterly fluctuations, due to a variety of factors,
including the relatively lengthy sales cycle for the Company's products, the
relatively large size of a typical product sale, the timing of contracts, the
introduction of new products by the Company or its competitors, capital spending
patterns of customers, the Company's sales incentive strategy (which is based in
part on annual sales targets), the number of experienced sales personnel
employed by the Company and general economic conditions. Historically, revenue
in each of the first two fiscal quarters has been lower than in the preceding
fourth fiscal quarter (which typically has the highest revenue and net income),
due largely to sales incentive programs. A substantial portion of the Company's
sales often occurs during the last few weeks of each quarter; therefore, any
delays in orders or shipments are more likely to result in revenue not being
recognized until the following quarter. The Company's current expense levels are
based in part on its expectations of future revenue and, as a result, net income
for a given period could be disproportionately affected by any reduction in
revenue. There can be no assurance that the Company will be able to achieve
significant revenue, that the level of revenue in the future will not decrease
from past levels or
 
                                        9
<PAGE>   11
 
                                 RESTRAC, INC.
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997 -- (CONTINUED)
 
that in some future quarter the Company's revenue or operating results will not
be below the expectations of stock market securities analysts and investors. In
such event, the Company's profitability and price of its Common Stock would
likely be materially and adversely affected.
 
  Emerging Markets
 
     The Company's future success is substantially dependent on broader
recognition of the potential benefits afforded by automated staffing software
and services and the growth in demand for such solutions. Because the market for
such software is developing, it is difficult to assess the size of the market,
the customer demands that will evolve, and the competition that may emerge.
There can be no assurance that the market for automated staffing software and
services will continue to grow or that the introduction of new technologies or
services will not render the Company's existing software and services obsolete
or unmarketable.
 
     The market for automated staffing solutions is undergoing rapid changes
including continuing advances in technology and changes in customer requirements
and preferences. These market dynamics have been amplified by the emergence of
the Internet as a communications medium for staffing solutions. The Company's
future success will depend in significant part on its ability to continually
improve the performance, features and reliability of its software and services
in response to the evolving demands of the marketplace and competitive product
offerings, and there can be no assurance that the Company will be successful in
doing so. In addition, an element of the Company's business strategy is the
introduction of new products, functionalities and other staffing solutions that
capitalize on the increasing use of the Internet and corporate intranets. There
can be no assurance that the Company will be successful in developing and
marketing products that will keep pace with technological changes in the market
or new technologies introduced by competitors or that it will satisfy evolving
consumer preferences. Development of Internet and intranet-based products,
functionalities and other staffing solutions will also depend on increased
acceptance of the Internet for staffing solutions and the development of the
necessary infrastructure to facilitate commercial applications on the Internet.
There can be no assurance of such acceptance or infrastructure development.
Failure to develop and introduce new products, functionalities and other
staffing solutions in a timely fashion could have a material adverse effect on
the Company's business, financial condition and results of operations.
 
  Dependence on Principal Product
 
     The Company currently derives most of its revenue from its Restrac Hire
product. As a result, any factor adversely affecting sales of this product would
have a material adverse effect on the Company. The future success of the Company
also depends, in part, on achieving broader market acceptance of Restrac Hire,
as well as the ability to continue to enhance Restrac Hire to meet the evolving
needs of its customers. Moreover, the Company anticipates that its existing and
new competitors will introduce additional competitive products. This competition
may reduce future market acceptance of Restrac Hire. The market acceptance of
the Company's software is difficult to estimate due in large measure to the
effect of new products, applications or product enhancements, technological
changes in the marketplace for staffing solutions and future competition. There
can be no assurance that the Company will maintain and expand acceptance of
Restrac Hire. The failure of the Company to maintain and expand its market
acceptance as a result of competition, technological change or other factors
would have a material adverse effect on the Company's business, financial
condition and results of operations.
 
  Management of Change
 
     The evolution of the Company's business and expansion of the Company's
customer base has resulted in substantial growth in the number of its employees,
the scope of its operation and financial systems and the
 
                                       10
<PAGE>   12
 
                                 RESTRAC, INC.
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997 -- (CONTINUED)
 
geographic area of its operations, resulting in increased responsibility for
management personnel. The Company's future results of operations will depend on
the ability of its officers and other key employees to continue to implement its
operational, customer support, and financial control systems and to expand,
train, and manage its employee base. Although the Company currently has no
agreements, commitments, or understandings relating to any acquisitions, the
Company may undertake acquisitions in the future. Any such transactions would
place additional strains upon the Company's management resources. There can be
no assurance that the Company will be able to manage any future expansion
successfully, and any inability to do so would have a material adverse effect on
the Company's business, financial condition and results of operations.
 
  Competition
 
     The marketplace for staffing solutions is intensely competitive and is
rapidly changing. The Company encounters direct competition from a number of
companies providing staffing solutions, including (i) other human resource
staffing software companies, (ii) providers of general human resource
information systems, (iii) agencies providing or sourcing full-time, contract
and temporary labor, (iv) information systems departments of potential prospects
that develop custom software, and (v) providers of other client/server
application software or document management systems.
 
  Dependence on Key Personnel
 
     The Company's future success depends to a significant extent on its senior
management and other key employees. The Company also believes that its future
success will depend in large part on its ability to attract and retain
additional key employees. Competition for such personnel in the computer
software industry is intense, and there can be no assurance that the Company
will be successful in attracting and training such personnel. Furthermore,
although the Company is a party to non-competition agreements with each of its
senior executives, the laws governing such agreements are in continual flux and
the enforceability of such agreements in each jurisdiction in which enforcement
might be sought is uncertain. The Company's inability to attract and retain
additional key employees or the loss of one or more of its current key employees
could materially adversely affect the Company's business, financial condition
and results of operations.
 
  Dependence on Third Parties
 
     A key element of the Company's business strategy is to develop
relationships with leading industry organizations in order to increase the
Company's market presence, expand distribution channels and broaden the
Company's product line. The Company believes that its continued success depends
in large part on its ability to maintain such relationships and cultivate
additional relationships. There can be no assurance that the Company's existing
strategic partners such as PeopleSoft or future strategic partners will not
develop and market products in direct competition with the Company or otherwise
discontinue their relationships with the Company, or that the Company will be
able to successfully develop additional strategic relationships.
 
     In addition, certain technology incorporated in the Company's software is
licensed from third parties on a nonexclusive basis. The termination of any of
such licenses, or the failure of the third party licensers to adequately
maintain or update their products, could result in delay in the Company's
ability to ship certain of its products while it seeks to implement technology
offered by alternative sources. In addition, any required replacement licenses
could prove more costly than the Company's current license relationships and
might not provide technology as powerful and functional as the third-party
technology currently licensed by the Company. Also, any such delay, to the
extent it becomes extended or occurs at or near the end of a fiscal quarter,
could have a material adverse effect on the Company's results of operations for
that quarter. While it
 
                                       11
<PAGE>   13
 
                                 RESTRAC, INC.
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997 -- (CONTINUED)
 
may be necessary or desirable in the future to obtain other licenses relating to
one or more of the Company's products or relating to current or future
technologies, there can be no assurance that the Company will be able to do so
on commercially reasonable terms or at all.
 
  Reliance on Single Client Interface and Single Server Platform
 
     At the present time, the Company supports client (workstation) platforms
utilizing Microsoft's Windows family of software products, including Windows
3.1, Windows NT and Windows 95. If Microsoft were to fundamentally change the
architecture of its software product such that users of the Company's software
applications experienced significant performance degradation or were rendered
incompatible with future versions of Microsoft's Windows Operating System, the
Company's business, financial condition and results of operations could be
materially adversely affected. If a new client platform or other interface were
to gain broad acceptance in the marketplace, there can be no assurance that the
Company's architecture would be compatible with such an interface.
 
     Certain of the Company's products and products planned for release in
fiscal 1998 operate exclusively on Microsoft's NT Server and Internet
Information Server (IIS) platforms. If Microsoft were to fundamentally change
the architecture of its server product such that users of the Company's software
applications experienced significant performance degradation or were rendered
incompatible with future versions of Microsoft's NT Server or IIS, the Company's
business, financial condition and results of operations could be materially
adversely affected. If a new type of server were to gain broad acceptance in the
marketplace, there can be no assurance that the Company's architecture would be
compatible with such a server.
 
  Risk of New Product Introductions; Risk of Product Defects
 
     As the marketplace for staffing solutions continues to evolve, the Company
plans to develop and introduce new products and services to enable it to
effectively address the changing needs of that market. There is no guarantee
that the Company will be able to develop new products or services or that such
solutions will achieve market acceptance or, if market acceptance is achieved,
that the Company will be able to maintain such acceptance for a significant
period of time. Any inability of the Company to quickly develop products and
services that address changes in technology or customer demands may require the
Company to substantially increase development expenditures or result in loss of
market share to a competitor.
 
     Products as complex as those offered by the Company may contain undetected
errors when first introduced or when new versions are released. The Company has
in the past discovered software errors in certain of its product offerings after
their introduction. There can be no assurance that, despite testing by the
Company, errors will not occur in new products or releases after commencement of
commercial shipments, resulting in adverse publicity, in loss of or delay in
market acceptance, or in claims by the customer against the Company, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
  Risk of International Expansion
 
     Although international sales have not been significant to date, an element
of the Company's business strategy is the expansion of its existing
international operations and entry into additional international markets, which
will require significant management attention and financial resources. To the
extent that the Company is unable to make the investments required to expand in
a timely manner, the Company's growth, if any, in international sales will be
limited, and the Company's business, financial condition and results of
operations could be materially adversely affected. In addition, there can be no
assurance that the Company will be able to maintain or increase international
market demand for its products. Additional risks inherent in the Company's
 
                                       12
<PAGE>   14
 
                                 RESTRAC, INC.
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997 -- (CONTINUED)
 
international business activities generally include currency fluctuations,
unexpected changes in regulatory requirements, tariffs and other trade barriers,
costs and difficulties associated with localizing products for foreign
countries, lack of acceptance of localized products in foreign countries, longer
accounts receivable payment cycles, difficulties in managing international
operations, potentially adverse tax consequences, restrictions on the
repatriation of earnings, the burdens of complying with a wide variety of
foreign laws and political and economic instability. There can be no assurance
that such factors will not have a material adverse effect on the Company's
future international sales or the Company's overall business, financial
condition and results of operations.
 
  Limited Protection of Intellectual Property and Dependence on Proprietary
Rights; Risk of Litigation
 
     The Company relies on a combination of copyright and trade secret laws,
employee and third party non-disclosure agreements and other methods to protect
its proprietary rights. There can be no assurance that the measures taken by the
Company to protect its proprietary rights will be adequate to prevent
misappropriation of its technology or independent development by others of
similar technology. In addition, the Company may be subject to additional risk
as it enters into transactions in countries where intellectual property laws are
not well developed or are poorly enforced. The Company's inability to protect
its proprietary rights would have a material adverse effect on the Company's
business, financial condition and results of operations.
 
     As the number of human resource application software products and services
in the industry increases and the functionality of these solutions further
overlaps, software developers and publishers may increasingly become subject to
infringement claims. There can be no assurance that third parties will not
assert infringement claims against the Company in the future with respect to
current or future products. Although the Company is not currently the subject of
any intellectual property litigation, there has been substantial litigation
regarding copyright, patent and other intellectual property rights involving
computer software companies. Any claims or litigation, with or without merit,
could be costly and could result in a diversion of management's attention, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determinations in such claims or
litigation may require the Company to obtain a license and/or pay damages, which
could also have a material adverse effect on the Company's business, financial
condition and results of operations.
 
  Volatility of Stock Price
 
     As is frequently the case with stock of high technology companies, the
market price of the Company's stock has been and may continue to be quite
volatile. Factors such as quarterly fluctuations in results of operations,
announcements of technological innovations by the Company or its competitors or
the introduction of new products by the Company or its competitors, and
macroeconomic conditions in the computer software industries generally, may have
a significant impact on the market price of the stock of the Company. If revenue
or earnings in a quarter fail to meet expectations (published or otherwise) of
the investment community, there could be an immediate impact on the Company's
stock price. Furthermore, the stock market has from time to time experienced
extreme price and volume fluctuations which have particularly affected the
market price for many high technology companies and which, on occasion, have
been unrelated to the operating performance of those companies. These broad
market fluctuations may materially adversely affect the market price of the
stock of the Company.
 
  Product Liability
 
     Although the Company has not experienced any product liability claims to
date, the sale and support of products by the Company and the incorporation of
products from other companies may entail the risk of
 
                                       13
<PAGE>   15
 
                                 RESTRAC, INC.
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997 -- (CONTINUED)
 
product liability claims. The Company's license agreements with its customers
typically contain provisions intended to limit the Company's exposure to such
claims, but such provisions may not be effective in limiting the Company's
exposure. A successful product liability action brought against the Company
could adversely affect the Company's business, financial condition and results
of operations.
 
                                       14
<PAGE>   16
 
                                 RESTRAC, INC.
 
                                     FORM 1
                               DECEMBER 31, 1997
 
PART II -- OTHER INFORMATION:
 
Item 1.  Legal Proceedings
 
     The Company is not involved in any pending legal proceedings other than
those arising in the ordinary course of the Company's business. Management
believes that the resolution of these matters will not materially affect the
Company's business or the financial condition of the Company.
 
Item 2.  Changes in Securities
 
     None
 
Item 3.  Defaults upon Senior Securities
 
     None
 
Item 4.  Submission of Matters to a Vote of Security Holders
 
     None
 
Item 5.  Other Information
 
     None
 
Item 6.  Exhibits and Reports on Form 8-K
 
     (a) Exhibits furnished as Exhibits hereto:
 
        Exhibit 11 -- Statement Regarding: Computation of Earnings per Share
 
        Exhibit 27 -- Financial Data Schedule Pursuant to Regulation S-X 
                      Article 5
 
     (b) No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1997.
 
                                       15
<PAGE>   17
 
                                 RESTRAC, INC.
 
                                   FORM 10-Q
                               DECEMBER 31, 1997
 
PART III -- SIGNATURES
 
     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.
 
                                          RESTRAC, INC.
 

Date: February 12, 1998                   /s/ LARS D. PERKINS
-----------------------                   --------------------------------------
                                          Lars D. Perkins
                                          Chief Executive Officer
 
                                          /s/ CYNTHIA G. EADES
                                          --------------------------------------
                                          Cynthia G. Eades
                                          Chief Financial Officer
 
                                       16