<PAGE>

                                 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 September 30, 2000

                                      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: 0-27207

                            VITRIA TECHNOLOGY, INC.
            (Exact Name of Registrant as Specified in Its Charter)

               Delaware                                 77-0386311

       (State or Other Jurisdiction of                    (I.R.S. Employer
      Incorporation or Organization)                     Identification No.)

                               945 Stewart Drive
                          Sunnyvale, California 94086
                                (408) 212-2700
   (Address, including Zip Code, of Registrant's Principal Executive Offices
            and 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 [_]

  The number of shares of Vitria's common stock, $.001 par value, outstanding as
of October 31, 2000 was 128,279,403 shares.

                                       1
<PAGE>

VITRIA TECHNOLOGY, INC.

Index
<TABLE>
<CAPTION>
<S>      <C>
                                                                                                     Page
PART I:   FINANCIAL INFORMATION
Item 1.   Condensed Consolidated Financial Statements and Notes

          Condensed Consolidated Balance Sheets at September 30, 2000 and December 31, 1999              3

          Condensed Consolidated Statements of Operations for the three and nine months ended
              September 30, 2000 and 1999                                                                4

          Condensed Consolidated Statements of Cash Flows for the nine months ended
              September 30, 2000 and 1999                                                                5

          Notes to the Condensed Consolidated Financial Statements                                       6

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

Item 3:   Quantitative and Qualitative Disclosures About Market Risk                                    15

Business Risks                                                                                          15

PART II:  Other Information

Item 1:   Legal Proceedings                                                                             26

Item 2:   Changes in Securities and Uses of Proceeds                                                    26

Item 3:   Defaults Upon Senior Securities                                                               26

Item 4:   Submission of Matters to a Vote of Security Holders                                           26

Item 5:   Other Information                                                                             27

Item 6:   Exhibits and Reports on Form 8-K                                                              27

Signatures                                                                                              28
</TABLE>

                                       2
<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  Financial Statements

                            Vitria Technology, Inc.
                     Condensed Consolidated Balance Sheets
                                (in thousands)

<TABLE>
<CAPTION>
<S>                                                                  <C>                  <C>
                                                                     September 30,        December 31,
                                                                         2000                1999
                                                                     -------------        -------------
                                                                      (unaudited)
                            Assets
Current Assets:
    Cash and cash equivalents                                        $     156,753        $      52,218
    Short-term investments                                                  71,620               13,231
    Accounts receivable, net                                                43,932               11,443
    Other current assets                                                    14,650                4,389
                                                                     -------------        -------------
             Total current assets                                          286,955               81,281

Restricted investments                                                      18,427                    -
Property and equipment, net                                                 13,173                4,452
Other assets                                                                 6,070                  761
                                                                     -------------        -------------
             Total Assets                                            $     324,625        $      86,494
                                                                     =============        =============

                     Liabilities and Stockholders' Equity
Current Liabilities:
    Accounts payable                                                 $       1,129        $         401
    Accrued payroll and related                                             21,385                5,266
    Other accrued liabilities                                               11,630                5,750
    Deferred revenue                                                        55,978               15,627
                                                                     -------------        -------------
             Total current liabilities                                      90,122               27,044

Stockholders' Equity:
    Common Stock                                                               128                  124
    Additional paid-in capital                                             264,630               91,228
    Accumulated other comprehensive loss                                      (143)                 (54)
    Unearned stock-based compensation                                       (4,383)              (7,223)
    Notes receivable from stockholders                                        (291)                (291)
    Accumulated deficit                                                    (25,438)             (24,334)
                                                                     -------------        -------------
             Total stockholders' equity                                    234,503               59,450
                                                                     -------------        -------------

             Total liabilities and stockholders' equity              $     324,625        $      86,494
                                                                     =============        =============
</TABLE>

             The accompanying notes are an integral part of these
                 condensed consolidated financial statements.

                                       3
<PAGE>

                            Vitria Technology, Inc.
                Condensed Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                  (unaudited)
<TABLE>
<CAPTION>
                                Three Months Ended          Nine Months Ended
                                  September 30,              September 30,
<S>                           <C>             <C>        <C>             <C>
                                2000       1999            2000        1999
                              --------    -------        --------    --------
Revenues:
   License                    $ 32,676    $ 5,209        $ 74,267    $ 12,387
   Service & Other               8,935      2,626          19,632       6,956
                              --------    -------        --------    --------
Total revenues                  41,611      7,835          93,899      19,343

Cost of revenues:
   License                         114        101             802         285
   Service & Other               6,977      1,861          15,240       5,215
                              --------    -------        --------    --------
Total cost of revenues           7,091      1,962          16,042       5,500
                              --------    -------        --------    --------
Gross profit                    34,520      5,873          77,857      13,843

Operating expenses:
   Sales and marketing          23,521      5,089          55,042      11,868
   Research and development      8,647      2,981          20,144       6,864
   General and administrative    4,609        981          10,025       2,582
   Amortization of
    stock-based compensation       733      1,411           2,773       3,363
                              --------    -------        --------    --------
Total operating expenses        37,510     10,462          87,984      24,677
                              --------    -------        --------    --------

Loss from operations            (2,990)    (4,589)        (10,127)    (10,834)
Other income, net                3,769        331           9,176         565
                              --------    -------        --------    --------
Net income (loss) before
 income taxes                      779     (4,258)           (951)    (10,269)

Provision for income taxes          86          -             153           -
                              --------    -------        --------    --------

Net income (loss)                  693     (4,258)         (1,104)    (10,269)

Deemed preferred stock
 dividend                            -          -               -      (1,908)
                              --------    -------        --------    --------

Net income (loss) available
 to common stockholders       $    693    $(4,258)       $ (1,104)   $(12,177)
                              ========    =======        ========    ========

Basic net income (loss) per
 share                        $   0.01    $ (0.07)       $  (0.01)   $  (0.22)
                              ========    =======        ========    ========

Diluted income (loss) per
 share                        $   0.00    $ (0.07)       $  (0.01)   $  (0.22)
                              ========    =======        ========    ========

Weighted average shares used
 in computing basic net
 income (loss) per share       123,361     64,700         121,713      56,448
                              ========    =======        ========    ========

Weighted average shares in
 computing diluted net
 income (loss) per share       139,431     64,700         121,713      56,448
                              ========    =======        ========    ========
</TABLE>
         The accompanying notes are an integral part of these
           condensed consolidated financial statements.


                                       4

<PAGE>

                            Vitria Technology, Inc.
                Condensed Consolidated Statements of Cash Flows
                                 (in thousands)
                                  (unaudited)
<TABLE>
<CAPTION>
                                         Nine months ended   Nine months ended
                                           September 30,       September 30,
<S>                                             <C>                 <C>
                                               2000                1999
                                             ---------            --------
Operating activities:
 Net loss                                    $  (1,104)           $(10,269)
 Adjustments to reconcile net loss
  to net cash provided by operating
  activities:
    Gain on sale of fixed assets                     -                (114)
    Depreciation                                 2,045                 766
    Amortization of deferred
      stock-based compensation                   2,773               3,363
    Changes in assets & liabilities:
      Accounts receivable                      (32,489)             (1,518)
      Other current assets                     (10,261)             (1,611)
      Other assets                                (209)               (426)
      Accounts payable                             728                (241)
      Accrued liabilities                       21,999               4,380
      Deferred revenue                          40,351               6,909
                                             ---------            --------
        Net cash provided by operating
          activities                            23,833               1,239
                                             ---------            --------
Investing activities:
 Purchases of property and equipment           (10,766)             (3,990)
 Sales of property and equipment                     -                 114
 Purchases of investments                     (189,938)                  -
 Proceeds from maturities of
 investments                                   113,106                   -
 Purchases of equity investments                (5,100)                  -
                                             ---------            --------
        Net cash used in investing
          activities                           (92,698)             (3,876)
                                             ---------            --------
Financing activities:
 Issuance of convertible preferred
  stock, net                                         -             (21,521)
 Issuance of common stock, net                 173,473              77,297
                                             ---------            --------
        Net cash provided by financing
          activities                           173,473              55,776
                                             ---------            --------

Effect of exchange rates                           (73)                 (2)

Net increase in cash and cash
 equivalents                                   104,535              53,137

Cash and cash equivalents at
 beginning of period                            52,218              12,792
                                             ---------            --------
Cash and cash equivalents at end of
  period                                     $ 156,753            $ 65,929
                                             =========            ========
</TABLE>
             The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                       5

<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1)   Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim consolidated financial information and with the instructions for
Form 10-Q and Article 10 of Regulation S-X. In the opinion of the management of
Vitria Technology, Inc., these unaudited condensed consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, which we consider necessary to fairly state Vitria's financial
position and the results of its operations and its cash flows. The balance sheet
at December 31, 1999 has been derived from the audited consolidated financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in Vitria's Annual Report on Form 10-K for the year ended
December 31, 1999. The results of Vitria's operations for any interim period are
not necessarily indicative of the results of Vitria's operations for any other
interim period or for a full fiscal year.

     Certain prior period amounts have been reclassified to conform to the
current period presentation.

2)   Net Income (Loss) Per Share

     Vitria computes net income (loss) per share in accordance with SFAS No.
128, "Earnings Per Share", and Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Basic earnings per share is calculated by dividing
net income (loss) available to common stockholders by the weighted-average
number of shares of common stock outstanding. Basic earnings per share does not
include shares subject to Vitria's right of repurchase, which lapses ratably
over the related vesting term. Diluted earnings per share is calculated by
dividing net income (loss) available to common stockholders by the weighted-
average number of shares of common stock outstanding plus potential common
stock. Potential common stock is composed of common stock subject to Vitria's
right of repurchase and common stock issuable upon the exercise of stock options
(using the treasury stock method). The calculation of diluted net loss per share
excludes potential common shares if the effect is anti-dilutive.

     The following table sets forth the computation of basic and diluted net
income (loss) per share for the periods indicated (in thousands, except per
share amounts):

                                       6
<PAGE>

<TABLE>
<CAPTION>


                                                                   Three months ended             Nine months ended
                                                              September 30,  September 30,   September 30,   September 30,
<S>                                                             <C>          <C>                 <C>             <C>
                                                                2000           1999            2000           1999
                                                              --------        -------        --------       --------
Numerator for basic and diluted net income (loss) per
 share:
     Net income (loss)                                        $    693        $(4,258)        $(1,104)      $(10,269)
     Deemed preferred stock dividends                                -              -               -         (1,908)
                                                              --------        -------        --------       --------
Numerator for basic and diluted net income (loss) per         $    693        $(4,258)        $(1,104)      $(12,177)
 share                                                        ========        =======        ========       ========

Denominator for basic net income (loss) per share:
  Weighted average shares available to common stock            127,805         73,456         126,893         66,740
    Less shares subject to repurchase                           (4,444)        (8,756)         (5,180)       (10,292)
                                                              --------        -------        --------       --------

Denominator for basic net income (loss) per share              123,361         64,700         121,713         56,448
    Dilutive potential common shares                            16,070              -               -              -
                                                              --------        -------        --------       --------
Denominator for diluted net income (loss) per share            139,431         64,700         121,713         56,448
                                                              ========        =======        ========       ========


Basic net income (loss) per share                             $   0.01       $ (0.07)       $  (0.01)       $  (0.22)
                                                              ========       =======        ========        ========
Diluted net income (loss) per share                           $   0.00       $ (0.07)       $  (0.01)       $  (0.22)
                                                              ========       =======        ========        ========
</TABLE>

Shares for diluted net income (loss) per share excludes the weighted average
potential shares of common stock that would have been anti-dilutive. Shares that
would have been anti-dilutive for the three and nine months ended September 30,
2000, were 1,276,467 and 828,737, respectively and reflect shares under employee
stock options.

3)   Comprehensive Income (Loss)

     Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive earnings such as foreign currency translation gain (loss) and
unrealized gains or losses on available-for-sale marketable securities. Vitria's
total comprehensive income (loss) was as follows (in thousands):
<TABLE>
<CAPTION>

                                                    Three months ended              Nine months ended
                                               September 30,   September 30,   September 30,   September 30,
<S>                                                 <C>            <C>             <C>             <C>
                                                    2000           1999            2000            1999
                                                    -----         -------         -------        --------
Net income (loss)                                   $ 693         $(4,258)        $(1,104)       $(12,177)

Other comprehensive income (loss):
  Foreign currency translation adjustment             (91)             (2)            (73)             (2)
  Unrealized loss on securities                       (79)              -             (16)              -
                                                    -----         -------         -------        --------
Comprehensive income (loss)                         $ 523         $(4,260)        $(1,193)       $(12,179)
                                                    =====         =======         =======        ========
</TABLE>

4)   Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and Hedging Activities" ("SFAS 133"), which provides a comprehensive
and consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133, as amended, is required to be adopted by Vitria
effective January 1, 2001 and is not anticipated to have a material impact on
our results of operations, financial position or cash flows when adopted, as we
currently hold no derivative financial instruments and do not currently engage
in hedging activities.

                                       7
<PAGE>

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101, as subsequently amended, is required to be adopted by Vitria in the
fourth quarter of 2000 and is not anticipated to have a material impact on our
results of operations, financial position or cash flows when adopted.

     In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN 44"), which contains rules designed to clarify the
application of APB 25. FIN 44 was effective July 1, 2000 and did not have a
material impact on Vitria's results of operations, financial position or cash
flows.

     In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 140, "Accounting for Transfer
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
140"), which replaces Statement of Financial Accounting Standards No. 125,
"Accounting for Transfer and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS 125"). SFAS 140 provides (a) standards for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001, and (b) for recognition and reclassification of collateral and
for disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. Vitria has not fully evaluated the
impact of SFAS 140, but as SFAS 125 did not significantly affect Vitria, we do
not anticipate these requirements will have a material impact on Vitria's
results of operations, financial position or cash flows.

5)   Restricted investments

     Certain of Vitria's investments are restricted from use in operations for
the purpose of securing standby letters of credit issued in conjunction with
certain leased facilities whose leases extend, with varying expiration dates,
through June 2013 and for which the corresponding letters of credit extend
through June 2013. These investments consist of commercial paper and
certificates of deposit with maturities of less than one year, which will be
reinvested as they mature in amounts then needed to support the letters of
credit.

6)   Changes in Capital Structure

     In February 2000, Vitria completed a follow-on public offering of 3,000,000
shares of common stock and realized proceeds, net of underwriting discounts,
commissions and issuance costs, of $171.2 million.

     In March 2000, Vitria's Board of Directors approved a two-for-one stock
split. The stock split was effected in the form of a stock dividend to all
holders of Vitria's common stock as of March 22, 2000 and was distributed in
April 2000. All share and per share amounts have been restated for all periods
presented to reflect the stock split.

     In July 2000, our stockholders approved an amendment to Vitria's amended
and restated certificate of incorporation to increase Vitria's authorized number
of shares of common stock from 250,000,000 to 600,000,000.

                                       8
<PAGE>

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

  The information in this discussion contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology including "anticipates," "believes," "continue,"
"could," "estimates," "expects," "intends," "may," "plans," "potential,"
"predicts," "should" or "will" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks outlined
under "Business Risks," that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.

  Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.

OVERVIEW

  We are a leading provider of eBusiness infrastructure software. Our product,
BusinessWare(TM), provides the infrastructure that enables incompatible
information technology systems to exchange information over corporate networks
and the Internet. BusinessWare enables this exchange to take place
automatically, without human intervention. This eliminates manual entry of
information into multiple IT systems and eliminates the need to manually
exchange information with customers and business partners.

  Our revenues are derived primarily from license fees and services. Our product
is typically licensed directly to customers, with pricing based on the number of
systems or applications managed. We record license revenues when a license
agreement has been signed by both parties, the fee is fixed or determinable,
collection of the fee is probable, and delivery of our product has occurred. For
electronic transmissions, we consider our product to have been delivered when
the access code to download the software from the Internet has been provided to
the customer. Payments received in advance of revenue recognition are recorded
as deferred revenue.

  Service revenues include product maintenance, consulting and training.
Customers who license BusinessWare normally purchase maintenance contracts.
These contracts provide certain software upgrades and technical support over a
specified term, typically twelve months. Maintenance contracts are usually paid
in advance, and revenues from these contracts are recognized ratably over the
term of the contract.

  We market our product through our direct sales force, and augment our sales
efforts through relationships with system integrators, value-added resellers and
technology vendors. We opened an office in the United Kingdom in June 1999,
offices in Japan, Germany, France, Italy, Canada and Australia in the first nine
months of 2000, and plan additional international expansion, primarily in the
Asia-Pacific region, through the rest of this calendar year.

  In calendar year 1999, sales to our ten largest customers accounted for 49% of
total revenues. Sales to our ten largest customers accounted for 27% of total
revenues in the nine months ended September 30, 2000 and 35% of total revenues
in the three months ended September 30, 2000. However, no one single customer
accounted for more than 10% of total revenues in the three and nine

                                       9

<PAGE>

months ended September 30, 2000. We expect that revenues from a limited number
of customers will continue to account for a significant percentage of total
revenues in future quarters.

  We have a limited operating history which makes it difficult to accurately
predict future operating results. We believe our success requires expanding our
customer base and continuing to enhance our BusinessWare products. Our ability
to attract new customers will depend on a variety of factors, including the
reliability, security, scalability, breadth, depth and cost-effectiveness of our
products. We intend to continue investing significantly in sales, marketing and
research in order to reach these goals. Our operating expenses are based on
anticipated revenue trends; a delay in the recognition of revenue from one or
more license transactions could cause significant variations in operating
results from quarter to quarter and could result in unforeseen losses. Fees from
contracts that do not meet our revenue recognition policy requirements are
recorded as deferred revenues. While a portion of our revenues each quarter is
derived from deferred revenue, our quarterly performance will depend primarily
upon entering into new contracts to generate revenues for that quarter. New
contracts may not result in revenue during the quarter in which the contract was
signed, and we may not be able to predict accurately when revenues from these
contracts will be recognized. Our future operating results will depend on many
factors, including the following:

 .  size and timing of customer orders and product and service delivery;

 .  level of demand for our professional services;

 .  changes in the mix of our products and services;

 .  actions taken by our competitors, including new product introductions and
pricing changes;

 .  costs of maintaining and expanding our operations;

 .  timing of our development and release of new and enhanced products;

 .  costs and availability of hiring qualified personnel;

 .  success in maintaining and enhancing existing relationships and developing
new relationships with system integrators;

 .  technological changes in our markets, including changes in standards for
computer and networking software and hardware;

 .  deferrals of customer orders in anticipation of product enhancements or new
products;

 .  delays in our ability to recognize revenue as a result of the decision by our
customers to postpone software delivery;

 .  customer budget cycles and changes in these budget cycles; and

 .  costs related to acquisition of technologies or businesses.

For a more comprehensive discussion of risks, see "Business Risks" immediately
following Item 3 in Part I hereof.

                                       10

<PAGE>

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED sEPTEMBER 30, 2000 AND
1999

  The following table sets forth the results of operations for the three and
nine months ended September 30, 2000 and September 30, 1999 expressed as a
percentage of total revenues.

<TABLE>
<CAPTION>


                                                   Three months ended    Nine months ended
                                                     September 30,         September 30,
<S>                                                <C>          <C>      <C>         <C>
                                                      2000      1999        2000       1999
                                                      ----      ----        ----       ----
Revenues:
 License                                               79%        66%         79%        64%
 Service & Other                                       21%        34%         21%        36%
                                                      ----       ----        ----       ----
Total revenues                                        100%       100%        100%       100%

Cost of revenues:
 License                                                0%         1%          1%         1%
 Service & Other                                       17%        24%         16%        27%
                                                      ----       ----        ----       ----
Total cost of revenues                                 17%        25%         17%        28%
                                                      ----       ----        ----       ----

Gross profit                                           83%       75%         83%        72%

Operating expenses:
 Sales and marketing                                   56%        65%         59%        61%
 Research and development                              21%        38%         21%        36%
 General and administrative                            11%        12%         11%        13%
 Amortization of stock-based
  compensation                                          2%        18%          3%        18%
                                                      ----       ----        ----       ----
Total operating expenses                               90%       133%         94%       128%
                                                      ----       ----        ----       ----

Loss from operations                                   (7%)      (58%)       (11%)      (56%)
Other income, net                                       9%         4%         10%         3%
                                                      ----       ----        ----       ----

Net income (loss) before income taxes                   2%       (54%)        (1%)      (53%)
Provision for income taxes                              0%         0%          0%         0%
                                                      ----       ----        ----       ----

Net income (loss)                                       2%       (54%)        (1%)      (53%)
                                                      ====       ====        ====       ====

</TABLE>

Revenues

  LICENSE. License revenues increased 527% to $32.7 million in the three months
ended September 30, 2000 from $5.2 million in the three months ended September
30, 1999. License revenues increased to $74.3 million in the nine months ended
September 30, 2000 from $12.4 million in the nine months ended September 30,
1999, an increase of 500%. This increase was the result of the growth in the
number of licenses to new customers and to a higher average transaction size.

  SERVICE & OTHER. Service and other revenues increased 240% to $8.9 million in
the three months ended September 30, 2000 from $2.6 million in the three months
ended September 30, 1999. Service and other revenues for the nine months ended
September 30, 2000 were $19.6 million, as compared to $7.0 million for the nine
months ended September 30, 1999, an increase of 182%. This increase is primarily
due to the growth of maintenance, support and consulting revenues associated
with license agreements signed in earlier periods. We expect these service
revenues to continue to increase as we support new deployments of our products.
Service and other revenues include government grant contract revenues, which
ended in April 2000. We do not expect to recognize future government grant
revenues except to the extent to which we have recorded in deferred revenue.

                                       11

<PAGE>

Cost of Revenues

  LICENSE. Cost of license revenues consists of royalty payments to third
parties for technology incorporated into our product, which we began selling in
fiscal 1999. Cost of license revenues increased 13% for the three months ended
September 30, 2000 to $114,000, as compared to $101,000 for the same three
months in the prior fiscal year. Cost of license revenues increased 181% for the
nine months ended September 30, 2000 to $802,000, as compared to $285,000 for
the same nine-month period in the prior fiscal year. The increase in cost of
license revenues was attributable to increased licenses of products that
incorporate third-party technology. While we expect royalty costs to vary in
future quarters as license volume for products which incorporate third-party
technology fluctuates, cost of license revenues has been three percent or less
of total license revenue in all periods in fiscal 1999 and fiscal 2000.

  SERVICE & OTHER. Cost of service and other revenues consists primarily of
salaries, facility costs, and payments to third-party consultants incurred in
providing customer support, training and implementation services. Cost of
service and other revenues were $7.0 million in the three months ended September
30, 2000, an increase of 275% over cost of service and other revenues of $1.9
million for the three months ended September 30, 1999. Cost of service and other
revenues for the nine months ended September 30, 2000 increased 192% to $15.2
million, compared to $5.2 million for the nine months ended September 30, 1999.
Service and other gross margins declined from 29% in the three months ended
September 30, 1999 to 22% in the three months ended September 30, 2000. For the
nine months ended September 30, 2000, service and other gross margins declined
from 25% to 22% from the same period in the prior year. The decrease in the
gross margins was attributable to the hiring of additional service personnel in
anticipation of supporting a larger customer base in future periods. In order to
provide a high level of service to our rapidly growing customer base, we plan to
continue to make significant investments in the services and support
organizations. As a result, we expect service and other gross margins to vary by
several percentage points, depending on our mix of revenues and the rate of
investment in the services organization. Cost of service and other revenues
includes costs associated with government grants exactly equal to the grant
revenues recognized.

Operating Expenses

  SALES AND MARKETING EXPENSES.  Sales and marketing expenses consist of
salaries, commission, field office expenses, travel and entertainment and
promotional activities. During the three months ended September 30, 2000, sales
and marketing expenses were $23.5 million, an increase of 362% over sales and
marketing expenses of $5.1 million for the three months ended September 30,
1999. Sales and marketing expenses increased 364% for the nine months ended
September 30, 2000 to $55.0 million compared to $11.9 million for the nine
months ended September 30, 1999. The increase was attributable to the expansion
of our direct sales force, increased commission expenses as a result of
increased revenues and business referral fees paid to systems integrators and
other consultants. We expect that sales and marketing expenses will continue to
increase as we continue to expand our sales and marketing efforts, establish
additional U.S. and international sales offices and increase promotional
activities.

  RESEARCH AND DEVELOPMENT.  Research and development expenses include costs
associated with the development of new products, enhancements to existing
products, and quality assurance activities. To date, all software development
costs have been expensed in the period incurred. During the three months ended
September 30, 2000, research and development expenses were $8.6 million, an
increase of 190% over research and development expenses of $3.0 million for the
three months ended September 30, 1999. Research and development expenses
increased 193% to $20.1 million for the

                                       12

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nine months ended September 30, 2000 compared to $6.9 million for the nine
months ended September 30, 1999. The increase was attributable to an increase in
the number of research and development personnel and the increased use of
independent contractors and consultants. We anticipate that we will continue to
devote substantial resources to research and development and that these expenses
will continue to increase.

  GENERAL AND ADMINISTRATIVE.  General and administrative expenses consist of
salaries for administrative, executive and finance personnel, information
systems costs, professional service fees and allowances for doubtful accounts.
During the three months ended September 30, 2000, general and administrative
expenses were $4.6 million, an increase of 370% over general and administrative
expenses of $981,000 for the three months ended September 30, 1999. General and
administrative expenses increased 288% to $10.0 million for the nine months
ended September 30, 2000 compared to $2.6 million for the nine months ended
September 30, 1999. The increase was attributable to increases in personnel
expense, outside professional services engaged to support our expanding
operations, and increases in allowances for doubtful accounts. We believe that
our general and administrative expenses will continue to increase as a result of
our growing operations and the expenses associated with operating as a public
company.

  AMORTIZATION OF STOCK-BASED COMPENSATION. Deferred stock-based compensation
primarily represents the difference between the exercise price and the deemed
fair value of our common stock on the date certain stock options were granted.
This difference is amortized using the multiple option approach over a five-year
period starting on the date the options were granted. Unearned compensation
expense will be reduced for future periods to the extent that options are
terminated prior to full vesting. During the three months ended September 30,
2000, amortization of stock-based compensation expenses was $733,000, a decrease
of 48% over amortization of stock-based compensation expenses of $1.4 million
for the three months ended September 30, 1999. For the nine months ended
September 30, 2000, amortization of stock-based compensation decreased 18% to
$2.8 million compared to $3.4 million for the same nine-month period of the
prior fiscal year. The decrease of this expense is due to the timing of the
option grants, the use of the multiple option approach and employee
terminations. This expense, which started to decrease in the three-month period
ended June 30, 2000, is scheduled to decrease in future periods.

  OTHER INCOME, NET.  Other income, net consists primarily of interest income.
Other income, net increased by 1039% to $3.8 million in the three months ended
September 30, 2000 from $331,000 in the three months ended September 30, 1999.
For the nine months ended September 30, 2000, other income, net increased to
$9.2 million from $565,000 in the same nine-month period of the prior year, an
increase of 1524%. The increase was due to increased interest income on the
proceeds from our initial public offering in September 1999, and our follow-on
offering in February 2000.

Provision for Income Taxes

We recorded income tax provisions of $86,000 and $153,000, respectively, for the
three-month and nine-month periods ended September 30, 2000. The provisions
relate to income taxes currently payable on income generated in non-U.S. tax
jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

  As of September 30, 2000, we had $156.8 million in cash and cash equivalents,
$71.6 million in short-term investments, and $196.8 million in working capital
with no outstanding long-term debt.

                                       13

<PAGE>

  Net cash generated from operating activities was $23.8 million for the nine
months ended September 30, 2000. Net cash generated from operating activities
was $1.2 million for the nine months ended September 30, 1999. Compared with the
same period a year ago, improved net cash flows generated by operating
activities in 2000 primarily reflects a decrease in net loss and increases in
deferred revenue and accrued liabilities, partially offset by increases in
accounts receivable and deferred commission expense, included within other
current assets.

  Net cash used in investing activities was $92.7 million in the nine months
ended September 30, 2000 and $3.9 million in the nine months ended September 30,
1999. Of this $88.8 million increase, $76.8 million was from net cash used in
purchasing investments. Cash used in purchasing investments was $189.9 million
while proceeds from investment maturities totaled $113.1 million. Net cash used
in purchasing investments was provided primarily by the cash received from our
initial and follow-on public offerings. Of the amount used for purchasing
investments, $18.4 million is restricted from use in operations to secure
standby letters of credit on building leases, whose leases extend over the next
thirteen years. During the nine months ended September 30, 2000, capital
expenditures were $10.8 million, while for the nine months ended September 30,
1999 capital expenditures were $4.0 million. The increase in capital
expenditures reflects our growth. We expect that capital expenditures will
continue to increase to the extent we continue to increase the number of people
we employ and expand our operations. Also in the nine months ended September 30,
2000, Vitria made equity investments, for the first time, in three private
companies totaling $5.1 million.

  Net cash generated from financing activities was $173.5 million in the nine
months ended September 30, 2000 from the issuance of common stock, primarily
from Vitria's follow-on offering in February 2000. Net cash provided by
financing activities was $55.8 million in the nine months ended September 30,
1999, primarily from net proceeds from our September 1999 initial public
offering.

  We expect to experience a significant growth in our operating expenses in the
foreseeable future in order to execute our business plan. As a result, we
anticipate that operating expenses and planned capital expenditures will
constitute a material use of our cash resources. In addition, we may utilize
cash resources to fund acquisitions or investments in other businesses,
technologies or product lines. We believe that available cash, cash equivalents
and marketable securities will be sufficient to meet our working capital and
operating expense requirements for at least the next twelve months. Thereafter,
we may require additional funds to support our working capital and operating
expense requirements, or for other purposes and may seek to raise these
additional funds through public or private debt or equity financings. There can
be no assurance that this additional financing will be available, or if
available, will be on reasonable terms and not dilutive to our stockholders.

                                       14

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  In the normal course of business, the financial position of Vitria is
routinely subjected to a variety of risks, including market risk associated with
interest rate movements and collectibility of accounts receivable. We regularly
assess these risks and have established policies and business practices to
protect against the adverse effects of these and other potential exposures. As a
result, we do not anticipate material losses in these areas. As we expand our
operations internationally, we will also become subject to risks associated with
currency rate movements on non-U.S. dollar denominated assets and liabilities.

  We are exposed to interest rate risk on our investments of cash, cash
equivalents and marketable securities. The primary objective of our investment
activities is to preserve principal while at the same time maximizing yields
without significantly increasing risk. To achieve this objective, we invest in
highly liquid and high quality debt securities. To minimize the exposure due to
adverse shifts in interest rates, we invest in short-term securities with
maturities of less than one year. If a one percentage point change in interest
rates were to have occurred on September 30, 2000 or September 30, 1999, such a
change would not have had a material effect on the fair value of our investment
portfolio as of that date. Due to the nature of our short-term investments, we
have concluded that we do not have a material financial market risk exposure.


BUSINESS RISKS

SINCE OUR SHORT OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR PROSPECTS,
OUR FUTURE FINANCIAL PERFORMANCE MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS
AND RESULT IN A DECLINE IN OUR STOCK PRICE.

  We were incorporated in October 1994. Until November 1997, we were engaged
primarily in research and development of our initial product. We licensed our
first product in November 1997. Because of our limited operating history, we
have limited insight into trends that may emerge in our market and affect our
business. The revenue and income potential of our market are unproven. As a
result of our limited operating history, we have limited financial data that you
can use to evaluate our business. You must consider our prospects in light of
the risks, expenses and challenges we might encounter because we are at an early
stage of development in a new and rapidly evolving market.

ALTHOUGH WE REPORTED NET INCOME AVAILABLE TO STOCKHOLDERS, WE CANNOT GUARANTEE
WE WILL DO SO IN THE FUTURE.

  Although we reported net income available to stockholders for the quarter
ended September 30, 2000, we continue to report losses from operations. We have
incurred substantial losses since inception as we funded the development of our
products and the growth of our organization. We intend to continue investing
heavily in sales, marketing and research and development. As a result, we are
likely to report future operating losses and cannot guarantee we will report net
income in the future.


                                       15

<PAGE>

OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND AN UNANTICIPATED DECLINE IN
REVENUE MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A DECLINE
IN OUR STOCK PRICE.

  Although we have had significant revenue growth in recent quarters, our growth
rates may not be sustainable and prospective investors should not use these past
results to predict future operating margins or results. Our quarterly operating
results have fluctuated significantly in the past and may vary significantly in
the future. If our operating results are below the expectations of securities
analysts or investors, our stock price is likely to decline. We believe that
period-to-period comparisons of our historical results of operations are not a
good predictor of our future performance.

  Our revenues and operating results depend upon the volume and timing of
customer orders and payments and the date of product delivery. Historically, a
substantial portion of revenues in a given quarter have been recorded in the
third month of that quarter, with a concentration of these revenues in the last
two weeks of the third month. We expect this trend to continue and, therefore,
any failure or delay in the closing of orders would have a material adverse
effect on our quarterly operating results. Since our operating expenses are
based on anticipated revenues and because a high percentage of these expenses
are relatively fixed, a delay in the recognition of revenue from one or more
license transactions could cause significant variations in operating results
from quarter to quarter and cause unexpected results.

  Our quarterly results will depend primarily upon entering into new or follow-
on contracts to generate revenues for that quarter. New contracts may not result
in revenue in the quarter in which the contract was signed, and we may not be
able to predict accurately when revenues from these contracts will be
recognized.

OUR PRODUCT MAY NOT ACHIEVE MARKET ACCEPTANCE, WHICH COULD CAUSE OUR REVENUES TO
DECLINE.

  Deployment of our product requires interoperability with a variety of software
applications and systems and, in some cases, the ability to process a high
number of transactions per second. If our product fails to satisfy these
demanding technological objectives, our customers will be dissatisfied and we
may be unable to generate future sales. Failure to establish a significant base
of customer references will significantly reduce our ability to license our
product to additional customers.

OUR REVENUES WILL LIKELY DECLINE IF WE DO NOT DEVELOP AND MAINTAIN SUCCESSFUL
RELATIONSHIPS WITH SYSTEM INTEGRATORS.

  System integrators install and deploy our products and those of our
competitors, and perform custom integration of systems and applications. Some
system integrators engage in joint marketing and sales efforts with us. If these
relationships fail, we will have to devote substantially more resources to the
sales and marketing, and implementation and support of our product than we would
otherwise, and our efforts may not be as effective as those of the system
integrators. In many cases, these parties have extensive relationships with our
existing and potential customers and influence the decisions of these customers.
We rely upon these firms for recommendations of our product during the
evaluation stage of the purchasing process, as well as for implementation and
customer support services. A number of our competitors have stronger
relationships with these system integrators and, as a result, these system
integrators may be more likely to recommend competitors' products and services.
In addition, a number of our competitors have relationships with a greater
number of these system integrators and, therefore, have access to a broader base
of enterprise customers. Our failure

                                       16
<PAGE>

to establish or maintain these relationships would significantly harm our
ability to license and successfully implement our software product. In addition,
we rely on the industry expertise and reach of these firms. Therefore, this
failure would also harm our ability to develop industry-specific products. We
are currently investing, and plan to continue to invest, significant resources
to develop these relationships. Our operating results could be adversely
affected if these efforts do not generate license and service revenues necessary
to offset this investment.

WE MAY SUFFER PRODUCT DEPLOYMENT DELAYS, A LOWER QUALITY OF CUSTOMER SERVICE AND
INCREASED EXPENSES IF SUFFICIENT SYSTEM INTEGRATOR IMPLEMENTATION TEAMS ARE NOT
AVAILABLE.

  System integrators help our customers install and deploy our product. These
system integrators are not contractually required to implement our product, and
competition for these resources may preclude us from obtaining sufficient
resources to provide the necessary implementation services to support our needs.
If the number of installations of our product exceeds our access to the
resources provided by these system integrators, we will be required to provide
these services internally, which would significantly limit our ability to meet
our customers' implementation needs and increase our expenses. In addition, we
cannot control the level and quality of service provided by our current and
future implementation partners.

BECAUSE A SMALL NUMBER OF CUSTOMERS HAVE ACCOUNTED FOR A SUBSTANTIAL PORTION OF
OUR REVENUES, OUR REVENUES COULD DECLINE DUE TO THE LOSS OR DELAY OF A SINGLE
CUSTOMER ORDER.

  In calendar year 1999, sales to our ten largest customers accounted for 49% of
total revenues. Sales to our ten largest customers accounted for 27% of total
revenues in the nine months ended September 30, 2000 and 35% of total revenues
in the three months ended September 30, 2000. However, no one single customer
accounted for more than 10% of total revenues in the three and nine months ended
September 30, 2000

  Our license agreements do not generally provide for ongoing license payments.
Therefore, we expect that revenues from a limited number of customers will
continue to account for a significant percentage of total revenues in future
quarters. Our ability to attract new customers will depend on a variety of
factors, including the reliability, security, scalability, breadth and depth of
our products, and cost-effectiveness of our products. The loss or delay of
individual orders could have a significant impact on revenues and operating
results. Our failure to add new customers that make significant purchases of our
product and services would reduce our future revenues.

OUR MARKETS ARE HIGHLY COMPETITIVE AND, IF WE DO NOT COMPETE EFFECTIVELY, WE MAY
SUFFER PRICE REDUCTIONS, REDUCED GROSS MARGINS AND LOSS OF MARKET SHARE.

  The market for our product is intensely competitive, evolving and subject to
rapid technological change. The intensity of competition is expected to increase
in the future. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any one of which could
significantly reduce our future revenues. Our current competitors include:

  B2Bi and EAI VENDORS. We face competition from vendors offering Business to
Business Integration ("B2Bi") and Enterprise Application Integration ("EAI"), as
well as other aspects of our products. These vendors include BEA Systems, Inc.,
CrossWorlds Software, Inc., Extricity, IBM

                                       17
<PAGE>

Corporation, New Era of Networks, Inc., also known as NEON, STC Software, Inc.,
Tibco Software, Inc., and webMethods, Inc. In the future, some of these
companies may expand their products to enhance existing, or to provide, process
automation and real-time analysis functionality.  Additionally, in this fast-
growing market, these or other competitors may merge to attempt the creation of
a more competitive entity, or one that offers a broader solution than we
provide.

  INTERNAL IT DEPARTMENTS. "In house" information technology departments of
potential customers have developed or may develop systems that provide for some
or all of the functionality of our BusinessWare product. We expect that
internally developed application integration and process automation efforts will
continue to be a principal source of competition for the foreseeable future. In
particular, it can be difficult to sell our product to a potential customer
whose internal development group has already made large investments in and
progress towards completion of systems that our product is intended to replace.

  OTHER SOFTWARE VENDORS. We may in the future also encounter competition from
major enterprise software developers including Oracle Corporation, PeopleSoft,
Inc., and SAP AG. In addition, Microsoft Corporation has announced its intention
to introduce products that could compete with some aspects of our product. Other
companies that target the enterprise software market may also try to expand into
the integration market.

  Many of our competitors have more resources and broader customer relationships
than we do. In addition, many of these competitors have extensive knowledge of
our industry. Current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
offer a single solution and increase the ability of their products to address
customer needs.

  Although we believe that our solutions generally compete favorably with
respect to these factors, our market is relatively new and is evolving rapidly.
We may not be able to maintain our competitive position against current and
potential competitors, especially those with significantly greater resources.

WE EXPERIENCE LONG AND VARIABLE SALES CYCLES, WHICH COULD HAVE A NEGATIVE IMPACT
ON OUR RESULTS OF OPERATIONS FOR ANY GIVEN QUARTER.

  Our product is often used by our customers to deploy mission-critical
solutions used throughout their organization. Customers generally consider a
wide range of issues before committing to purchase our product, including
product benefits, ability to operate with existing and future computer systems,
ability to accommodate increased transaction volume and product reliability.
Many customers will be addressing these issues for the first time. As a result,
we or other parties, including system integrators, must educate potential
customers on the use and benefits of our product and services. In addition, the
purchase of our product generally involves a significant commitment of capital
and other resources by a customer. This commitment often requires significant
technical review, assessment of competitive products, and approval at a number
of management levels within the customer's organization. Because of these
issues, our sales cycle has ranged from two to nine months and is difficult to
predict for any particular license transaction.

                                       18
<PAGE>

THE COST AND DIFFICULTIES OF IMPLEMENTING OUR PRODUCT COULD SIGNIFICANTLY HARM
OUR REPUTATION WITH CUSTOMERS, DIMINISHING OUR ABILITY TO LICENSE ADDITIONAL
PRODUCTS TO OUR CUSTOMERS.

  Our product is often purchased as part of large projects undertaken by our
customers. These projects are complex, time consuming and expensive. Failure by
customers to successfully deploy our product, or the failure by us or third-
party consultants to ensure customer satisfaction, could damage our reputation
with existing and future customers and reduce future revenues. In many cases,
our customers must interact with, modify, or replace significant elements of
their existing computer systems. The costs of our product and services represent
only a portion of the related hardware, software, development, training and
consulting costs. The significant involvement of third parties, including system
integrators, reduces the control we have over the implementation of our product
and the quality of customer service provided to organizations which license our
software.

OUR SALES ARE CONCENTRATED IN THE TELECOMMUNICATIONS, SUPPLY CHAIN AND FINANCIAL
SERVICES INDUSTRIES AND IF OUR CUSTOMERS IN THESE MARKETS DECREASE THEIR
INFORMATION TECHNOLOGY SPENDING, OR WE FAIL TO PENETRATE OTHER INDUSTRIES, OUR
REVENUES MAY DECLINE.

  We expect to continue to direct our sales and marketing efforts toward
companies in the telecommunications, supply chain and financial services
industries. Given the high degree of competition and the rapidly changing
environment in these industries, there is no assurance that we will be able to
continue sales in these industries at current levels. In addition, we intend to
market our product in new vertical markets. Customers in these new vertical
markets are likely to have different requirements and may require us to change
our product design or features, sales methods, support capabilities or pricing
policies. If we fail to successfully address these new vertical markets we may
experience decreased sales in future periods.

IF WE ARE NOT SUCCESSFUL IN DEVELOPING PACKAGED VERSIONS OF OUR PRODUCT, OUR
ABILITY TO INCREASE FUTURE REVENUES COULD BE HARMED.

  We intend to develop packaged versions of our product which incorporate
business processes of specific industries, including telecommunications, supply
chain and financial services. This presents technical challenges and will
require collaboration with system integrators and the commitment of significant
resources. If we are not successful in developing these targeted products or
these products do not achieve market acceptance, our ability to increase future
revenues could be harmed.

OUR OPERATING RESULTS ARE SUBSTANTIALLY DEPENDENT ON LICENSE REVENUES FROM ONE
PRODUCT AND OUR BUSINESS COULD BE MATERIALLY HARMED BY FACTORS THAT ADVERSELY
AFFECT THE PRICING AND DEMAND FOR OUR PRODUCT.

  Since 1998 a majority of our total revenues has been, and is expected to be,
derived from the license of our BusinessWare product. Accordingly, our future
operating results will depend on the demand for BusinessWare by future
customers, including new and enhanced releases that are subsequently introduced.
If our competitors release new products that are superior to BusinessWare in
performance or price, or we fail to enhance BusinessWare and introduce new
products in a timely manner, demand for our product may decline. A decline in
demand for BusinessWare as a result of competition, technological change or
other factors would significantly reduce our revenues.


                                       19
<PAGE>

IF OUR PRODUCT DOES NOT OPERATE WITH THE MANY HARDWARE AND SOFTWARE PLATFORMS
USED BY OUR CUSTOMERS, OUR BUSINESS MAY FAIL.

  We currently serve a customer base with a wide variety of constantly changing
hardware, packaged software applications and networking platforms. If our
product fails to gain broad market acceptance, due to its inability to support a
variety of these platforms, our operating results may suffer. Our business
depends, among others, on the following factors:

 . our ability to integrate our product with multiple platforms and existing, or
legacy, systems and to modify our product as new versions of packaged
applications are introduced;

 . the portability of our product, particularly the number of operating systems
and databases that our product can source or target;

 . our ability to anticipate and support new standards, especially Internet
standards;

 . the integration of additional software modules under development with our
existing product; and

 . our management of software being developed by third parties for our customers
or use with our product.

IF WE FAIL TO INTRODUCE NEW VERSIONS AND RELEASES OF OUR PRODUCT IN A TIMELY
MANNER, OUR REVENUES MAY DECLINE.

  We may fail to introduce or deliver new products on a timely basis, if at all.
In the past, we have experienced delays in the commencement of commercial
shipments of our BusinessWare product. To date, these delays have not had a
material impact on our revenues. If new releases or products are delayed or do
not achieve market acceptance, we could experience a delay or loss of revenues
and cause customer dissatisfaction. In addition, customers may delay purchases
of our product in anticipation of future releases. If customers defer material
orders in anticipation of new releases or new product introductions, our
revenues may decline.

OUR PRODUCT RELIES ON THIRD-PARTY PROGRAMMING TOOLS AND APPLICATIONS. IF WE LOSE
ACCESS TO THESE TOOLS AND APPLICATIONS, OR ARE UNABLE TO MODIFY OUR PRODUCT IN
RESPONSE TO CHANGES IN THESE TOOLS AND APPLICATIONS, OUR REVENUES COULD DECLINE.

  Our programs utilize Java programming technology provided by Sun Microsystems.
We also depend upon access to the interfaces, known as "APIs," used for
communication between external software products and packaged application
software. Our access to APIs of third-party applications are controlled by the
providers of these applications. If the application provider denies or delays
our access to APIs, our business may be harmed. Some application providers may
become competitors or establish alliances with our competitors, increasing the
likelihood that we would not be granted access to their APIs. In addition, we
license technology related to the connectivity of our product to third-party
database and other applications. Loss of the ability to use this technology,
delays in upgrades, or failure of these third parties to support these
technologies could cause our revenues to decline.

                                       20
<PAGE>

WE COULD SUFFER LOSSES AND NEGATIVE PUBLICITY IF NEW VERSIONS AND RELEASES OF
OUR PRODUCT CONTAIN ERRORS OR DEFECTS.

  Our product and its interactions with customers' software applications and IT
systems are complex and, accordingly, there may be undetected errors or failures
when products are introduced or as new versions are released. We have in the
past discovered software errors in our new releases and new products after their
introduction which has resulted in additional research and development expenses.
To date, these additional expenses have not been material. We may in the future
discover errors in new releases or new products after the commencement of
commercial shipments. Since many customers are using our product for mission-
critical business operations, any of these occurrences could seriously harm our
business and generate negative publicity.

OUR GROWTH CONTINUES TO PLACE A SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND
RESOURCES AND IF WE FAIL TO MANAGE OUR GROWTH OUR ABILITY TO MARKET AND SELL OUR
PRODUCT AND DEVELOP NEW PRODUCTS MAY BE HARMED.

  We must plan and manage our growth effectively in order to offer our product
and services and achieve revenue growth and profitability in a rapidly evolving
market. Our growth has and will continue to place a significant strain on our
management systems and resources, and we may not be able to effectively manage
our growth in the future. We continue to increase domestically the scope of our
operations, and have added a number of employees. For us to effectively manage
our growth, we must continue to do the following:

 . install new management and information control systems; and

 . expand, train and motivate our workforce.

In particular, we continue to add new software systems to complement and enhance
our existing accounting, human resource and sales and marketing software
systems. If we fail to install these software systems in an efficient and timely
manner, or if the new systems fail to adequately support our level of
operations, then we could incur substantial additional expenses to remedy these
failures.

IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE, OUR PRODUCT MAY BE RENDERED
OBSOLETE AND OUR OPERATING RESULTS MAY SUFFER.

  Our industry is characterized by very rapid technological change, frequent new
product introductions and enhancements, changes in customer demands and evolving
industry standards. Our existing product will be rendered obsolete if we fail to
introduce new products or product enhancements that meet new customer demands,
support new standards or integrate with new or upgraded versions of packaged
applications. We have also found that the technological life cycle of our
product is difficult to estimate. We believe that we must continue to enhance
our current product while we concurrently develop and introduce new products
that anticipate emerging technology standards and keep pace with competitive and
technological developments. Failure to do so will harm our ability to compete.
As a result, we are required to continue to make substantial product development
investments.

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<PAGE>

IF WE FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR ABILITY TO COMPETE
WILL BE HARMED.

  We depend on the continued service of our key technical, sales and senior
management personnel. None of these persons are bound by an employment
agreement. The loss of any of our senior management or other key research,
development, sales and marketing personnel could have a material adverse effect
on our future operating results. In particular Dr. JoMei Chang, our President
and Chief Executive Officer, and Dr. M. Dale Skeen, our Chief Technology
Officer, would be difficult to replace.

  In addition, we must attract, retain and motivate highly skilled employees. We
face significant competition for individuals with the skills required to
develop, market and support our products and services. We cannot assure that we
will be able to recruit and retain sufficient numbers of these highly skilled
employees.

WE DEPEND ON THE INCREASING USE OF THE INTERNET AND ON THE GROWTH OF ELECTRONIC
COMMERCE. IF THE USE OF THE INTERNET AND ELECTRONIC COMMERCE DOES NOT GROW AS
ANTICIPATED, OUR REVENUES COULD DECLINE AND OUR BUSINESS WILL BE SERIOUSLY
HARMED.

  We depend on the increased acceptance and use of the Internet as a medium for
electronic commerce and the adoption by businesses of eBusiness solutions. Rapid
growth in the use of the Internet is a recent occurrence. As a result,
acceptance and use may not continue to develop at historical rates and a
sufficiently broad base of business customers may not adopt or continue to use
the Internet as a medium of commerce. Demand and market acceptance for recently
introduced services and products over the Internet are subject to a high level
of uncertainty, and there exist few proven services and products.

BUSINESS TO BUSINESS ELECTRONIC COMMERCE NETWORKS, INCLUDING VITRIA'S BUSINESS
NETWORK, ARE AT AN EARLY STAGE OF DEVELOPMENT AND MARKET ACCEPTANCE.

  We are in the early stages of offering subscriptions to the Vitria Business
Network. The revenues associated may be a combination of license and/or annual
subscription fees. Our future prospects could be adversely impacted if the
Vitria Business Network is not commercially successful.

OUR FUTURE RESULTS MAY DEPEND SIGNIFICANTLY ON THE USE OF OUR ELECTRONIC
COMMERCE PLATFORM IN INDEPENDENT INTERNET MARKETPLACES.

  We have entered into agreements with licensees who are forming networks that
will be powered by our business-to-business electronic commerce platform. These
networks have been recently formed and are at an early stage of development.
There is no guarantee regarding the level of activity of different companies in
these networks, the effectiveness of the interaction among companies using our
business-to-business electronic commerce platform and of the attractiveness of
offerings of our competitors. If these networks are not successful, our
business, operating results and financial position could be affected.

                                       22
<PAGE>

IF WE FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WE MAY LOSE THESE
RIGHTS AND OUR BUSINESS MAY BE SERIOUSLY HARMED.

  We depend upon our ability to develop and protect our proprietary technology
and intellectual property rights to distinguish our product from our
competitor's products. The use by others of our proprietary rights could
materially harm our business. We rely on a combination of copyright, trademark
and trade secret laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect our proprietary rights. We have no issued
patents. Despite our efforts to protect our proprietary rights, existing laws
afford only limited protection. Attempts may be made to copy or reverse engineer
aspects of our product or to obtain and use information that we regard as
proprietary. Accordingly, there can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
Furthermore, policing the unauthorized use of our product is difficult, and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.

IF OUR SOURCE CODE IS RELEASED TO OUR CUSTOMERS, OUR ABILITY TO PROTECT OUR
PROPRIETARY RIGHTS COULD BE JEOPARDIZED AND OUR REVENUES COULD DECLINE.

  Some of our license agreements require us to place the source code for our
product in escrow. These agreements generally provide these customers with a
limited, non-exclusive license to use this code if:

 .  we fail to provide the product or maintenance and support;

 .  we cease to do business without a successor; or

 .  there is a bankruptcy proceeding by or against Vitria.

Our revenues could decline and our business could be seriously harmed if
customers were granted this access.

OUR PRODUCT COULD INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS CAUSING
COSTLY LITIGATION AND THE LOSS OF SIGNIFICANT RIGHTS.

  Software developers in our market will increasingly be subject to infringement
claims as the number of products in different software industry segments
overlap. Any claims, with or without merit, could be time-consuming, result in
costly litigation, prevent product shipment or cause delays, or require us to
enter into royalty or licensing agreements, any of which could harm our
business. Patent litigation in particular has complex technical issues and
inherent uncertainties. In the event an infringement claim against us is
successful and we cannot obtain a license on acceptable terms or license a
substitute technology or redesign our product to avoid infringement, our
business would be harmed. Furthermore, former employers of our current and
future employees may assert that our employees have improperly disclosed to us
or are using confidential or proprietary information.


                                       23
<PAGE>

WE MAY NOT SUCCESSFULLY ENTER INTERNATIONAL MARKETS OR GENERATE SIGNIFICANT
PRODUCT REVENUES ABROAD, WHICH COULD RESULT IN SLOWER REVENUE GROWTH AND HARM
OUR BUSINESS.

  We have opened offices in the United Kingdom, Japan, Germany, France, Italy,
Canada and Australia and intend to establish additional international offices.
We anticipate devoting significant resources and management attention to
expanding international opportunities. There are a number of challenges to
establishing operations outside of the United States and we may be unable to
successfully generate significant international revenues. If we fail to
successfully establish our products in international markets, we could
experience slower revenue growth and our business could be harmed. It may be
difficult to protect our intellectual property in certain international
jurisdictions.

FAILURE OF OUR PROSPECTIVE INTERNET CUSTOMERS TO RECEIVE NECESSARY FUNDING COULD
HARM OUR BUSINESS.

  Our targeted customers include rapidly growing Internet companies. Most
privately and publicly held Internet companies require outside cash sources to
continue operations. To the extent additional funding is less available for
Internet companies as a result of a stock market decline or other factors,
demand for our products may decline significantly and thereby reduce our
revenues.

FAILURE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS COULD REDUCE OUR
ABILITY TO COMPETE AND RESULT IN LOWER REVENUES.

  We may need to raise additional funds, and we cannot be certain that we will
be able to obtain additional financing on favorable terms, or at all. If we need
additional capital and cannot raise it on acceptable terms, we may not be able
to, among other things:

 .  develop or enhance our products and services;

 .  acquire technologies, products or businesses;

 .  expand operations, in the United States or internationally;

 .  hire, train and retain employees; or

 .  respond to competitive pressures or unanticipated capital requirements.

Our failure to do any of these things could result in lower revenues and could
seriously harm our business

WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY.

  In the past, securities class action litigation has often been brought against
a company following a decline in the market price of its securities. This risk
is especially acute for us because technology companies have experienced greater
than average stock price volatility in recent years and, as a result, have been
subject to, on average, a greater number of securities class action claims than
companies in other industries. We may in the future be the target of similar
litigation. Securities litigation could result in substantial costs and divert
management's attention and resources, and could seriously harm our business.

                                       24
<PAGE>

WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS WHICH COULD DISCOURAGE OR PREVENT A
TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

  Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:

 .  establishment of a classified board of directors requiring that not all
members of the board may be elected at one time;

 .  authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding shares
and thwart a takeover attempt;

 .  prohibiting cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;

 .  limitations on the ability of stockholders to call special meetings of
stockholders;

 .  prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and

 .  establishing advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.

  In addition, Section 203 of the Delaware General Corporations Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control of Vitria.


                                       25
<PAGE>

                                    PART II
                               OTHER INFORMATION

Item 1.  Legal Proceedings.

Vitria is currently a party to various legal actions arising out of the normal
course of business, none of which are expected to have a material adverse effect
on Vitria's financial position, results of operations, or cash flows.

Item 2.  Changes in Securities and Use of Proceeds.

None.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Submission of Matters to a Vote of Security Holders.

The annual meeting of stockholders of Vitria Technology, Inc. was held on July
21, 2000 for the purpose of:

(1)  electing two directors to our board of directors to serve until the 2003
     annual meeting of stockholders;
(2)  to approve an amendment to our amended and restated certificate of
     incorporation to increase the authorized number of shares of common stock
     from 250,000,000 to 600,000,000 shares;
(3)  to ratify the selection of Ernst & Young LLP as our independent auditors
     for the fiscal year ending December 31, 2000; and
(4)  to transact such other business as may properly come before the meeting or
     any adjournment or postponement thereof.

  Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended, and there was no solicitation in
opposition of management's solicitations. The final vote on the proposals were
recorded as follows:

Proposal 1:
-----------

Election of directors for a three-year term expiring at the 2003 annual meeting.

         NOMINEE               FOR           WITHHELD
---------------------      ------------     ----------
M. Dale Skeen, PH.D.       100,043,112       529,132
William H. Younger, Jr.    100,440,710       131,534

                                      26
<PAGE>

Proposal 2:
------------

To approve an amendment to our amended and restated certificate of incorporation
to increase the authorized number of shares of common stock from 250,000,000 to
600,000,000 shares.

                    FOR           AGAINST        ABSTAIN
                ------------    -----------     ----------
                  96,679,506     3,862,110       31,011

Proposal 3:
------------

The selection of Ernst & Young LLP as our independent auditors for the fiscal
year ending December 31, 2000 was ratified by the following vote:


                    FOR           AGAINST        ABSTAIN
                -------------   -----------     ----------
                  100,470,506      94,055          7,863


Item 5.  Other Information.

None.

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

a)  Exhibits:

27.1  Financial Data Schedule.

b)  Reports on Form 8-K:

None.


                                       27

<PAGE>

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.

                                   Vitria Technology, Inc.
                                     (Registrant)


Date:  November 14, 2000      By:  /s/ Paul R. Auvil, III

                                   Paul R. Auvil, III
                                   Vice President, Finance,
                                   and Chief Financial Officer
                                   (Principal Financial Officer)

                              By:  /s/ Paul J. Schnitz

                                   Paul J. Schnitz
                                   Corporate Controller
                                   (Principal Accounting Officer)


                                       28