<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 June 30, 2001

                                      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 July 31, 2001 was 129,586,351 shares.

                                       1
<PAGE>

VITRIA TECHNOLOGY, INC.

<TABLE>
<CAPTION>
Index                                                                                                  Page
<S>                                                                                                    <C>
PART I:  FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements and Notes

         Condensed Consolidated Balance Sheets at June 30, 2001 and December 31, 2000                     3

         Condensed Consolidated Statements of Operations for the three and six
                  months ended June 30, 2001 and June 30, 2000                                            4

         Condensed Consolidated Statements of Cash Flows for the six months
                  ended June 30, 2001 and June 30, 2000                                                   5

         Notes to the Condensed Consolidated Financial Statements                                         6

Item 2:  Management's Discussion and Analysis of Financial Condition and Results of Operations           11

Item 3:  Quantitative and Qualitative Disclosures About Market Risk                                      17

PART II:  Other Information

Item 1:  Legal Proceedings                                                                               27

Item 2:  Changes in Securities and Uses of Proceeds                                                      27

Item 3:  Defaults Upon Senior Securities                                                                 27

Item 4:  Submission of Matters to a Vote of Security Holders                                             27

Item 5:  Other Information                                                                               28

Item 6:  Exhibits and Reports on Form 8-K                                                                28

Signature                                                                                                29
</TABLE>

                                       2
<PAGE>

PART I.  FINANCIAL INFORMATION

    ITEM 1.  Financial Statements

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


<TABLE>
<CAPTION>
                                                                       June 30,           December 31,
                                                                         2001                 2000
                                                                    -------------       ---------------
                                                                     (unaudited)
    <S>                                                             <C>                 <C>
                              Assets
    Current Assets:
      Cash and cash equivalents                                     $     69,660        $     154,826
      Short-term investments                                             123,842               69,312
      Accounts receivable, net                                            25,339               36,889
      Other current assets                                                10,457                9,138
                                                                    -------------       --------------
           Total current assets                                          229,298              270,165

    Restricted investments                                                18,448               18,757
    Property and equipment, net                                           16,345               15,164
    Intangible assets                                                      4,839                    -
    Goodwill                                                               7,972                    -
    Other assets                                                           3,091                6,106
                                                                    -------------       --------------
           Total Assets                                             $    279,993        $     310,192
                                                                    =============       ==============

               Liabilities and Stockholders' Equity
    Current Liabilities:
      Accounts payable                                              $      2,660        $       1,396
      Accrued payroll and related                                         17,494               14,882
      Other accrued liabilities                                           10,484               10,158
      Deferred revenue                                                    31,961               46,611
                                                                    -------------       --------------
           Total current liabilities                                      62,599               73,047

    Commitments
    Stockholders' Equity:
      Common Stock                                                           130                  128
      Additional paid-in capital                                         269,470              266,591
      Accumulated other comprehensive loss                                   (94)                 (68)
      Unearned stock-based compensation                                   (2,402)              (3,603)
      Notes receivable from stockholders                                    (243)                (291)
      Accumulated deficit                                                (49,467)             (25,612)
                                                                    -------------       --------------
           Total stockholders' equity                                    217,394              237,145
                                                                    -------------       --------------

           Total liabilities and stockholders' equity               $    279,993        $     310,192
                                                                    =============       ==============
</TABLE>

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

                                       3
<PAGE>

                            Vitria Technology, Inc.
                Condensed Consolidated Statement of Operations
                   (In thousands, except per share amounts)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                    Three Months Ended                   Six Months Ended
                                                                         June 30,                            June 30,
                                                                  2001              2000              2001             2000
                                                            ----------------   --------------    --------------   --------------
<S>                                                         <C>                <C>               <C>              <C>
Revenues:
    License                                                 $        19,942    $      25,273     $      40,803    $      41,591
    Service and other                                                14,459            6,480            28,936           10,697
                                                            ----------------   --------------    --------------   --------------
Total revenues                                                       34,401           31,753            69,739           52,288

Cost of revenues:
    License                                                             297              305               622              688
    Service and other                                                 7,363            4,570            15,587            8,263
                                                            ----------------   --------------    --------------   --------------
Total cost of revenues                                                7,660            4,875            16,209            8,951
                                                            ----------------   --------------    --------------   --------------
Gross profit                                                         26,741           26,878            53,530           43,337

Operating expenses:
    Sales and marketing                                              26,106           19,859            50,314           31,521
    Research and development                                         11,027            6,215            20,809           11,497
    General and administrative                                        4,562            3,227             8,407            5,416
    Amortization of stock-based compensation                            503              976             1,066            2,040
    Amortization of goodwill                                            637                -               637                -
    Amortization of intangible assets                                   466                -               466                -
    Acquired in-process technology                                    1,500                -             1,500                -
                                                            ----------------   --------------    --------------   --------------
Total operating expenses                                             44,801           30,277            83,199           50,474
                                                            ----------------   --------------    --------------   --------------

Loss from operations                                                (18,060)          (3,399)          (29,669)          (7,137)
    Interest income                                                   2,517            3,506             6,024            5,419
    Other income (expenses), net                                        338              (12)              201              (12)
                                                            ----------------   --------------    --------------   --------------
Net income (loss) before income taxes                               (15,205)              95           (23,444)          (1,730)

       Provision for income taxes                                       170               67               411               67
                                                            ----------------   --------------    --------------   --------------

Net income (loss)                                           $       (15,375)    $         28     $     (23,855)   $      (1,797)
                                                            ================   ==============    ==============   ==============

Basic net income (loss) per share                           $         (0.12)    $       0.00      $      (0.19)   $       (0.01)
                                                            ================   ==============    ==============   ==============

Diluted income (loss) per share                             $         (0.12)    $       0.00      $      (0.19)   $       (0.01)
                                                            ================   ==============    ==============   ==============

Weighted average shares used in computing basic
        net income (loss) per share                                 126,573          122,229           125,891          120,894
                                                            ================   ==============    ==============   ==============

Weighted average shares used in computing diluted
        net income (loss) per share                                 126,573          139,657           125,891          120,894
                                                            ================   ==============    ==============   ==============
</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>
                                                                                  Six months ended
                                                                                      June 30,
                                                                               2001              2000
                                                                           -------------     -------------
<S>                                                                        <C>               <C>
Operating activities:
    Net loss                                                               $    (23,855)     $     (1,797)
    Adjustments to reconcile net loss to net cash
        provided by (used in) operating activities:
       Amortization of goodwill and intangible assets                             1,103                 -
       Acquired in-process technology                                             1,500                 -
       Recognized gain on equity investments, net                                  (860)                -
       Loss on disposal of fixed assets                                             400                 -
       Depreciation                                                               3,045             1,135
       Amortization of deferred stock-based compensation                          1,066             2,040
       Provision for doubtful accounts                                                -               717
       Changes in assets & liabilities:
           Accounts receivable                                                   12,320           (31,216)
           Other current assets                                                  (1,197)           (7,576)
           Other assets                                                            (125)             (153)
           Accounts payable                                                        (595)            1,058
           Accrued liabilities                                                   (2,688)           14,049
           Deferred revenue                                                     (15,317)           31,969
                                                                           -------------     -------------
              Net cash provided by (used in) operating activities               (25,203)           10,226
                                                                           -------------     -------------

 Investing activities:
    Acquisition of subsidiary, net of cash acquired                              (8,869)                -
    Purchases of property and equipment                                          (3,911)           (4,797)
    Purchases of investments                                                   (219,260)         (127,467)
    Maturities of investments                                                   165,143            53,602
    Proceeds from sales of equity investments                                     4,000                 -
    Collection of note receivable                                                    48                 -
                                                                           -------------     -------------
              Net cash used in investing activities                             (62,849)          (78,662)
                                                                           -------------     -------------

 Financing activities:
     Issuance of common stock, net                                                3,015           172,681
                                                                           -------------     -------------
             Net cash provided by financing activities                            3,015           172,681
                                                                           -------------     -------------

 Effect of exchange rates on changes on cash and cash equivalents                  (129)               19
                                                                           -------------     -------------

Net increase (decrease) in cash and cash equivalents                            (85,166)          104,264

Cash and cash equivalents at beginning of period                                154,826            52,218
                                                                           -------------     -------------

Cash and cash equivalents at end of period                                 $     69,660      $    156,482
                                                                           =============     =============
</TABLE>

 The accompanying notes are an integral part of these 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, 2000 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, 2000. The results of Vitria's operations for any interim period are
not necessarily indicative of the results of the 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. Such reclassifications did not change the
previously reported operating loss or net income (loss) amounts.

2)   Net Income (Loss) Per Share

         Basic earnings (loss) per share is calculated by dividing net income
(loss) by the weighted-average number of shares of common stock outstanding.
Basic earnings (loss) per share does not include shares subject to Vitria's
right of repurchase, which lapses ratably over the related vesting term. Diluted
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted-average number of shares of common stock outstanding plus shares of
potential common stock. Shares of potential common stock are composed of shares
of common stock subject to Vitria's right of repurchase and shares of common
stock issuable upon the exercise of stock options (using the treasury stock
method). The calculation of diluted net loss per share excludes shares of
potential common stock 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):

<TABLE>
<CAPTION>
                                                                     Three months ended                  Six months ended
                                                                June 30,           June 30,         June 30,          June 30,
                                                                  2001               2000             2001              2000
                                                                ----------        -----------       ----------        ----------
<S>                                                             <C>               <C>               <C>               <C>
Numerator for basic and diluted net income (loss) per share:
     Net income (loss)                                          $  (15,375)       $        28       $  (23,855)       $   (1,797)
                                                                ==========        ===========       ==========        ==========

Denominator for basic net income (loss) per share:
   Weighted average shares available to common stock               129,256            127,636          128,829           126,443
    Less shares subject to repurchase                               (2,683)            (5,407)          (2,938)           (5,549)
                                                                ----------        -----------       ----------        ----------
Denominator for basic net income (loss) per share                  126,573            122,229          125,891           120,894
     Dilutive potential common shares, using
            treasury stock method                                        -             17,428                -                 -
                                                                ----------        -----------       ----------        ----------
Denominator for diluted net income (loss) per share                126,573            139,657          125,891           120,894
                                                                ==========        ===========       ==========        ==========

Basic net income (loss) per share                               $    (0.12)       $      0.00       $    (0.19)       $    (0.01)
                                                                ==========        ===========       ==========        ==========
Diluted net income (loss) per share                             $    (0.12)       $      0.00       $    (0.19)       $    (0.01)
                                                                ==========        ===========       ==========        ==========
</TABLE>

                                       6
<PAGE>

         For the three months ended June 30, 2001 and June 30, 2000, shares of
potential common stock totalled 7,526,000 and 17,428,000 respectively. For the
six months ended June 30, 2001 and June 30, 2000 shares of potential common
stock totalled 8,662,000 and 18,655,000 respectively. Shares of potential common
stock are excluded from the determination of diluted net loss per share as the
effect of such shares on a weighted average basis is anti-dilutive.

3)   Comprehensive Loss

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

<TABLE>
<CAPTION>
                                                               Three months ended                  Six months ended
                                                           June 30,          June 30,         June 30,          June 30,
                                                             2001              2000             2001              2000
                                                        ------------       -----------       ----------        ----------
<S>                                                     <C>                <C>               <C>               <C>
Net income (loss)                                       $   (15,375)       $      28       $    (23,855)       $   (1,797)

Other comprehensive income:

   Foreign currency translation adjustment                       16              (11)               129                27


   Unrealized gain (loss) on securities                         (37)             (49)              (103)               60
                                                        -----------        -----------       ----------        ----------

Comprehensive loss                                      $   (15,396)       $     (32)        $  (23,829)      $    (1,710)
                                                        ===========        ===========       ==========        ==========
</TABLE>

4)   Unearned Stock-Based Compensation

     The breakdown of the amortization of stock-based compensation is as follows
(in thousands):

<TABLE>
<CAPTION>
                                                             Three months ended                  Six months ended
                                                          June 30,          June 30,         June 30,          June 30,
                                                            2001              2000             2001              2000
                                                        ------------      ------------      -----------       -----------
<S>                                                     <C>               <C>               <C>               <C>
Cost of revenues                                        $         40      $         77      $        84       $       162
Sales and marketing                                              192               372              406               777
Research and development                                         180               348              381               728
General and administrative                                        91               179              195               373
                                                          -----------       -----------       ----------        ----------

Total amortization of stock-based
     compensation                                       $        503      $        976      $     1,066       $     2,040
                                                          ===========       ===========       ==========        ==========
</TABLE>

                                       7
<PAGE>

5)   Accounts Receivable

         At June 30, 2001 our gross accounts receivable balance was $28.5
million. Of this balance, 24.9%, or $7.1 million represents revenue that has not
yet been recognized and is included in the deferred revenue balance. At June 30,
2001, our deferred revenue balance was $32.0 million. Of this balance, 2.4%, or
$779,000 has been deferred due to customer credit issues. In accordance with the
provisions of SOP 97-2, Vitria records revenue from software licenses when the
following criteria have been met: a license agreement has been signed by both
parties, the fee is fixed or determinable, collection of the fee is probable and
delivery of the product has occurred. In those cases where all other elements
for revenue recognition have been met except customer credit criteria, we defer
recognizing revenue until the customer pays or other evidence of probability of
collection is obtained.


6)   Recent Accounting Pronouncements

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

         In July 2001, FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations," or "SFAS 141," and Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets," or "SFAS
142." SFAS 141 requires the use of the purchase method for all business
combinations initiated after June 30, 2001, and provides new criteria for
determining whether an acquired intangible asset should be recognized separately
from goodwill. SFAS 142 eliminates the amortization of goodwill and replaces it
with an impairment-only model. Upon adoption, goodwill related to acquisitions
completed before the date of adoption would be subject to the provisions of SFAS
141; amortization of any remaining book value of goodwill would cease and the
new impairment-only approach would apply. The impairment-only approach does not
apply to the treatment of intangible assets. The provisions of SFAS 141 and SFAS
142 will be effective for fiscal years beginning after December 15, 2001. We
will adopt SFAS 141 and SFAS 142 as of January 1, 2002, and do not believe such
adoption will have a material impact on our results of operations, financial
position or cash flows.

7)   Stock Option Exchange Program

         On February 28, 2001, Vitria's Board of Directors approved a voluntary
stock option exchange program for certain employees. Under the program,
employees had the opportunity to cancel outstanding stock options granted to
them on or after September 17, 1999 in exchange for a new option grant for an
equal number of shares to be granted between October 5, 2001 and November 5,
2001. The program terminated on April 4, 2001. A total of 4,470,350 options were
cancelled in connection with the option exchange. The exercise price of the new
options will be based on the market price of Vitria's common stock as reported
on the Nasdaq National Market on the day before the new options are granted.
Members of our Board of Directors, executive officers and vice presidents were
not eligible to participate in this program.

8)   Equity Investments

         At December 31, 2000, Vitria held approximately $5.1 million of common
stock of various private companies. These investments, classified as long-term
investments, are accounted for using the cost method as we have an ownership
interest of less than twenty percent and do not have the ability to exercise
significant influence. These

                                       8
<PAGE>

investments are reviewed each reporting period for an other-than-temporary
decline in value and, if appropriate, written down to their estimated fair
value.

     In the quarter ended June 30, 2001, we sold all of the common stock of a
private company and recognized a gain of $2.0 million. Also in the quarter ended
June 30, 2001, we recorded an impairment charge of $1.1 million for an other-
than-temporary decline in value in another private company.

9)   Acquisition

     On April 11, 2001 Vitria acquired XMLSolutions Corporation, a provider of
EDI (electronic data interchange) and XML (extended markup language)
transformation technology headquartered in McLean, Virginia. The transaction was
accounted for using the purchase method of accounting.

     The cost to acquire XMLSolutions is set forth below and has been allocated
to the assets acquired and liabilities assumed according to their respective
fair values, with the excess purchase price being allocated to goodwill. The
fair value of the acquired assets and liabilities is based upon an independent
valuation.

     The total consideration to acquire XMLSolutions is as follows (in
thousands):


Cash paid to shareholders                    $  7,000
Cash advanced to fund expenses                  1,271
Transaction costs and expenses                    839
                                             --------
                                             $  9,110
                                             ========

The purchase price allocation is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                Annual
                                                            Useful Life      amortization
                                             Amount           in Years       of intangibles
                                          -------------------------------------------------
<S>                                       <C>               <C>              <C>
Tangible assets acquired                   $    1,849
Liabilities assumed (including
   XMLSolutions transaction costs
   and other liabilities resulting
   from the acquisition)                       (8,153)
Intangible assets acquired
          Developed technology                  2,500            3            $      833
          In-process technology                 1,500           N/A                  N/A
          Trademarks                              800            3                   267
          Assembled workforce                   2,000            2                 1,000
          Goodwill                              8,614            3                 2,871
                                          ------------                       ------------
                                           $    9,110                         $    4,971
                                          ============                       ============
</TABLE>

                                       9
<PAGE>

          An independent valuation specialist performed an allocation of the
total purchase price of XMLSolutions to its individual assets. The purchase
price was allocated to XMLSolutions' tangible assets and specific intangible
assets such as developed technology, in-process technology, trademarks and
assembled workforce.

          In-process technology represents that portion of the purchase price of
an acquisition related to the research and development activities which have not
demonstrated their technological feasibility and have no alternative future
uses. Accordingly, Vitria recognized an expense of $1.5 million during the
quarter ending June 30, 2001 in conjunction with this acquisition.

          Goodwill, which represents the excess of the purchase price of an
investment in an acquired business over the fair value of the underlying net
identifiable assets, is being amortized on a straight-line basis over its
estimated remaining useful life of 3 years under the current accounting
guidelines at June 30, 2001. As of January 1, 2002, the amortization of any
remaining book value of goodwill will cease and the new impairment-only model
will apply. (See Note 6.)

          If the acquisition had occurred as of January 1, 2000, Vitria's
unaudited pro forma information for the six months ended June 30, 2001 and June
30, 2000 would have been as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                    Pro forma                   Pro forma
                                                 Six months ended,           Six months ended,
                                                   June 30, 2001               June 30, 2000
                                               --------------------        --------------------
                                                    (unaudited)                 (unaudited)
<S>                                            <C>                         <C>
Net revenue                                    $             71,172        $             55,051
                                               ====================        ====================

Net loss                                       $            (33,332)       $            (12,057)
                                               ====================        ====================

Basic and diluted net loss per share           $              (0.26)       $              (0.10)
                                               ====================        ====================
</TABLE>

          The unaudited pro forma combined results for the six months ended June
30, 2001 exclude the effect of the write-off of acquired in-process technology
cost of $1.5 million, as such amount is non-recurring. The unaudited pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results that would have occurred had the transaction
been completed at the beginning of the period indicated, nor is it necessarily
indicative of future operating results.

                                       10
<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 which are subject to the "safe harbor"
created by those sections. These forward-looking statements are generally
identified by words such as "expect," "anticipate," "intend," "plan," "believe,"
"hope," "assume," "estimate" and other similar words and expressions. These
forward-looking statements involve risks and uncertainties that could cause our
actual results to differ materially from those in the forward-looking
statements, including, without limitation, the risks outlined under "Business
Risks" in this report on Form 10-Q. These business risks should be considered in
evaluating our prospects and future financial performance. 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 integration server provider. Our product,
BusinessWare(TM), provides the infrastructure that enables incompatible
information technology, or IT, 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.

         BusinessWare combines in a single solution the four elements that we
believe are essential for ebusiness infrastructure software:

         (1)  Business Process Management (BPM)--Empowers business users to
              define, manage and automate business processes through a graphical
              modeling environment;

         (2)  Business-to-Business Integration (B2Bi)--Exchanges business
              information between a company, its partners and customers in a
              secure and reliable fashion using internet standards;

         (3)  Enterprise Application Integration (EAI)--Integrates the internal
              and external IT systems that implement business process steps
              across the extended enterprise; and

         (4)  Real-Time Analysis--Gathers key business and process information
              in real time, analyzes the data in real time, and selectively uses
              the results to automatically change business processes.

         We derive revenues primarily from two sources: licenses and services.
Since the introduction of our product in 1997, licenses have become our primary
source of revenues. Our product is typically licensed directly to customers for
a perpetual term, with pricing based on the instances of the software deployed.
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.

         Service and other revenues include product maintenance, consulting and
training. Customers who license BusinessWare normally purchase maintenance
contracts. These contracts provide for unspecified 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. A majority of our customers
use third-party system integrators to implement our products. Customers
typically purchase additional consulting services from us to support their
implementation activities. These consulting services are generally sold on a
time and materials basis; consulting revenue is recognized as the services are
performed. We also offer training services which are sold on a per student
basis; training revenue is recognized as the classes are attended.

         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. While our revenues to date have been derived
primarily from accounts in the United States, we opened offices in Switzerland,
Singapore, Korea and Taiwan in the first six months of 2001 and in Japan,
Australia, France, Germany, Italy and The Netherlands in 2000 and intend to
establish additional international offices

         We recognized approximately 21% of our revenues from customers outside
the United States in the three months ended June 30, 2001 and approximately 16%
from customers outside the United States in the six months ended June 30, 2001,
compared to approximately 13% during fiscal year 2000. We believe international
revenues will become a more significant component of our total revenue as our
operations grow. To date, we have not experienced significant seasonality of
revenues. We expect future results may be affected by the fiscal or quarterly
budget cycle of our customers.

                                       11
<PAGE>

     Sales to our ten largest customers accounted for 36% of total revenues in
the three months ended June 30, 2001 and 30% of total revenues in the six months
ended June 30, 2001. Sales to our ten largest customers accounted for 39% of
total revenues in the three months ended June 30, 2000 and 32% of total revenues
in the six months ended June 30, 2000. However, no one single customer accounted
for more than 10% of total revenues in either the three or six months ended June
30, 2001 or June 30, 2000. While our dependence on any single customer has been
declining over the past three years, we expect that revenues from a limited
number of customers will continue to account for a large percentage of total
revenues in future quarters. As a result, the loss or delay of individual orders
can have a significant impact on our revenues. Our ability to attract new
customers will depend on a variety of factors, including the reliability,
security, scalability and cost-effectiveness of our products.

     For the next quarter, revenues are expected to remain approximately level
with the quarter ended June 30, 2001 due to the ongoing slowdown in the
telecommunications industry combined with a general slowdown in IT spending in
other vertical markets.

     On April 11, 2001, Vitria acquired XMLSolutions, a provider of EDI and XML
transformation technology. The cost to acquire XMLSolutions was $7.0 million in
cash, $2.1 million in transaction costs and expenses and the assumption of $8.2
million of XMLSolutions' liabilities. The acquisition was accounted for as a
purchase.

     An independent valuation specialist performed an allocation of the total
purchase price of XMLSolutions to its individual assets. The purchase price was
allocated to XMLSolutions' tangible assets, specific intangible assets such as
developed technology, trademarks, assembled workforce and in-process technology.

     We have a limited operating history that makes it difficult to predict
future operating results. We believe our success requires expanding our customer
base and continuing to enhance our BusinessWare products. We intend to continue
to invest selectively in sales, marketing and research and development and
expect to incur operating losses for at least the next three quarters. 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. Revenues from contracts
that do not meet our revenue recognition policy requirements for which we have
been paid or have a valid receivable are recorded as deferred revenues. While a
portion of our revenues each quarter is recognized from deferred revenue, our
quarterly performance will depend primarily upon entering into new contracts or
new orders from existing customers to generate revenues for that quarter. New
contracts and new orders 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, but not limited to, 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;

                                       12
<PAGE>

     .    introduction of new products;
     .    timing of our development and release of new and enhanced products;
     .    costs and timing 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;
     .    external economic conditions;
     .    availability of customer funds for software purchases given external
          economic factors;
     .    costs related to acquisition of technologies or businesses; and
     .    ability to successfully integrate acquisitions.

     As a result of these factors, we believe that period-to-period comparisons
of our results of operations are not necessarily meaningful and should not be
relied upon as indications of future performances. It is possible that in some
future quarter our operating results will be below the expectations of public
market analysts and investors. In this event, the price of our common stock
would likely decline.

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

RESULTS OF OPERATIONS
For the three and six months ended June 30, 2001 and 2000

     The following table sets forth the results of operations for the three and
six months ended June 30, 2001 and June 30, 2000, expressed as a percentage of
total revenues.

<TABLE>
<CAPTION>
                                                            Three Months Ended                   Six Months Ended
                                                                 June 30,                            June 30,
                                                           2001             2000               2001             2000
                                                       -----------      -----------        ------------     -----------
<S>                                                    <C>              <C>                <C>              <C>
Revenues
    License                                                     58%              80%                 59%             80%
    Service and other                                           42%              20%                 41%             20%
                                                       -----------      -----------        ------------     -----------
Total revenues                                                 100%             100%                100%            100%

Cost of revenues
    License                                                      1%               1%                  1%              1%
    Service and other                                           21%              14%                 22%             16%
                                                       -----------      -----------        ------------     -----------
Total cost of revenues                                          22%              15%                 23%             17%

Gross profit                                                    78%              85%                 77%             83%

Operating expenses
    Sales and marketing                                         76%              63%                 71%             60%
</TABLE>

                                       13
<PAGE>

<TABLE>
<S>                                                     <C>               <C>                 <C>                <C>
    Research and development                                    32%                20%                  30%               22%
    General and administrative                                  13%                10%                  12%               10%
    Amortization of stock-based compensation                     2%                 3%                   2%                4%
    Amortization of goodwill                                     2%                 0%                   1%                0%
    Amortization of intangibles                                  1%                 0%                   1%                0%
    Acquired in-process research and development                 4%                 0%                   2%                0%
                                                        ----------        -----------         ------------       -----------
Total operating expenses                                       130%                96%                 119%               96%

Loss from operations                                           (52%)              (11%)                (42%)             (13%)
    Interest income                                              7%                11%                   9%               10%
    Other income (expenses), net                                 1%                 0%                   0%                0%
                                                        ----------        -----------         ------------       -----------

Net income (loss) before income taxes                          (44%)                0%                 (33%)              (3%)
    Provision for income taxes                                   0%                 0%                   1%                0%
                                                        ----------        -----------         ------------       -----------

Net income (loss)                                              (44%)                0%                 (34%)              (3%)
                                                        ==========        ===========         ============       ===========
</TABLE>

REVENUES

     LICENSE. License revenues decreased 21% to $19.9 million in the three
months ended June 30, 2001 from $25.3 million in the three months ended June 30,
2000. License revenues decreased 2% to $40.8 million in the six months ended
June 30, 2001 from $41.6 million in the six months ended June 30, 2000. These
decreases were the result of a decrease in the number of licenses and to an
average transaction size on the lower end of our historic $500,000 to $700,000
range. For the next quarter, license revenues are expected to remain
approximately level with the quarter ended June 30, 2001. This is primarily due
to the ongoing slowdown in the telecommunications industry combined with a
general slowdown in information technology spending in other vertical markets.

     SERVICE AND OTHER. Service and other revenues increased 123% to $14.5
million in the three months ended June 30, 2001 from $6.5 million in the three
months ended June 30, 2000. Service and other revenues increased 171% to $28.9
million in the six months ended June 30, 2001 from $10.7 million in the six
months ended June 30, 2000. These increases are primarily due to the growth of
maintenance, support and consulting revenues associated with license agreements
signed in earlier periods. For the next quarter, we expect service revenues to
remain approximately level with the quarter ended June 30, 2001.

COST OF REVENUES

     LICENSE. Cost of license revenues consists of royalty payments to third
parties for technology incorporated into our products. These costs vary from
quarter to quarter, dependent upon the sales of products which incorporate
third-party technology. Cost of license revenues decreased 3% for the three
months ended June 30, 2001 to $297,000 as compared to $305,000 for the same
three months in the prior fiscal year. Cost of license revenues decreased 10%
for the six months ended June 30, 2001 to $622,000 as compared to $688,000 for
the same six months in the prior fiscal year. These differences are due to
fluctuations in the level of sales of products which incorporate third-party
technology. As a percentage of license revenue, we do not expect any significant
variation in the cost of license revenues from the past two years.

                                       14
<PAGE>

     SERVICE AND OTHER. Cost of service and other revenues consists of salaries,
facility costs, travel expenses and payments to third party consultants incurred
in providing customer support, training and implementation services. Cost of
service and other revenues were $7.4 million in the three months ended June 30,
2001, an increase of 61% over cost of service and other revenues of $4.6 million
in the three months ended June 30, 2000. Cost of service and other revenues were
$15.6 million in the six months ended June 30, 2001, an increase of 89% over
cost of service and other revenues of $8.3 million in the six months ended June
30, 2000. The increase resulted from hiring additional support, training and
implementation personnel, including the addition of employees that resulted from
acquiring XMLSolutions, and increased facility costs associated with additional
personnel. For the next quarter, we expect that cost of service and other
revenues will be approximately level with that of the current quarter. The gross
margin on service and other revenues as a percentage of revenue increased to 49%
in the three months ended June 30, 2001 from 29% in the three months ended June
30, 2000. This is mainly due to an increase in service and other revenues in the
quarter ended June 30, 2001. All components of service and other revenues
increased. However, the largest increase was in support revenue, which is due to
a larger installed base of licenses with support agreements and, to a lesser
extent, an increase in support renewals.

OPERATING EXPENSES

     SALES AND MARKETING. Sales and marketing expenses consist of salaries,
commissions, field office expenses, travel and promotional expenses. During the
three months ended June 30, 2001, sales and marketing expenses were $26.1
million, an increase of 31% over sales and marketing expenses of $19.9 million
for the three months ended June 30, 2000. During the six months ended June 30,
2001, sales and marketing expenses were $50.3 million, an increase of 60% over
sales and marketing expenses of $31.5 million for the six months ended June 30,
2000. These increases were the result of increased salary costs from hiring
additional sales and marketing personnel which was partially offset by a
decreased commission expense due to comparatively lower short term revenue
growth expectations, increased facilities costs as we expanded our domestic and
international field offices, and higher travel expenses associated with our
expanded sales force, offset by a decrease in advertising expenses. As a
percentage of revenue, sales and marketing expenses increased to 76% in the
three months ended June 30, 2001 from 63% in the three months ended June 30,
2000. This increase as a percentage of revenue is due to the fact that our sales
and marketing structure has been established to support a higher revenue base
than we actually experienced in the quarter ended June 30, 2001. This increase
was partially offset by a decreased commmission expense due to comparatively
lower short-term revenue growth expectations. We expect that sales and marketing
expenses will decline as a percentage of revenue over the next quarter.

     RESEARCH AND DEVELOPMENT. Research and development expenses include costs
associated with the development of new products, enhancements to existing
products, and quality assurance activities. These costs consist primarily of
employee salaries, benefits, and the cost of consulting resources that
supplement the internal development team. Costs of developing software for
external use that may have been eligible for capitalization have not been
material and we have expensed all of these costs as incurred. During the three
months ended June 30, 2001, research and development expenses were $11.0
million, an increase of 77% over research and development expenses of $6.2
million for the three months ended June 30, 2000. During the six months ended
June 30, 2001, research and development expenses were $20.8 million, an increase
of 81% over research and development expenses of $11.5 million for the six
months ended June 30, 2000. These increases were primarily the result of higher
salary expenses related to additional research and development personnel,
including the addition of XMLSolutions employees, and higher facilities and
overhead costs associated with the increase in personnel. We expect research and
development expenses will decline as a percentage of revenue over the next
quarter.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
salaries for administrative, executive and finance personnel, information
systems costs, outside professional service fees and allowances for doubtful
accounts. During the three months ended June 30, 2001, general and
administrative expenses were $4.6 million, an increase of 41% over general and
administrative expenses of $3.2 million for the three months ended June 30,
2000. During the six months ended June 30, 2001, general and administrative
expenses were $8.4

                                       15
<PAGE>

million, an increase of 55% over general and administrative expenses of $5.4
million for the six months ended June 30, 2000. These increases were
attributable to a worldwide increase in personnel expense and an increase in
outside professional services hired to support our expanding operations. We
expect that our general and administrative expenses will decline slightly as a
percentage of revenue over the next quarter.

     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 in future periods to the extent that options are
terminated prior to full vesting. During the three months ended June 30, 2001,
amortization of stock-based compensation was $503,000, a decrease of 48% over
amortization of stock-based compensation of $976,000 for the three months ended
June 30, 2000. During the six months ended June 30, 2001, amortization of stock-
based compensation was $1.1 million, a decrease of 48% over amortization of
stock-based compensation of $2.0 million for the six months ended June 30, 2000.
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 is
expected to continue to decrease in future periods.

     AMORTIZATION OF GOODWILL AND OTHER PURCHASED INTANGIBLES. Amortization of
goodwill and other purchased intangibles associated with the acquisition of
XMLSolutions Corporation resulted in a $1.1 million charge to earnings in the
quarter ended June 30, 2001. There were no acquistions in fiscal 2000.

     ACQUIRED IN-PROCESS TECHNOLOGY. In-process technology represents that
portion of the purchase price of an acquisition related to the research and
development activities which have not demonstrated their technological
feasibility and have no alternative future uses. Accordingly, Vitria recognized
an expense of $1.5 million during the quarter ending June 30, 2001 in
conjunction with the completion of this acquisition for in-process technology
relating to XMLSolutions' Collaborative Enablement Program. There were no
acquisitions in fiscal 2000.

     Actions and comments from the Securities and Exchange Commission have
indicated that they are reviewing the current valuation methodology of purchased
in-process technology relating to acquisitions. The Commission is concerned that
some companies are allocating more than a reasonable amount to in-process
technology, thereby reducing future amortization charges of other intangibles
acquired. We believe that we are in compliance with all of the rules and
related guidance as they currently exist. However, the Commission may seek to
reduce the amount of purchased in-process technology previously expensed by
Vitria. This would result in the restatement of previously filed financial
statements of Vitria and could have a negative impact on the financial results
for the period subsequent to the acquisition.

     INTEREST AND OTHER INCOME. Interest and other income decreased by 18% to
$2.9 million in the three months ended June 30, 2001 from $3.5 million in the
three months ended June 30, 2000. The decrease was due to a write-off of $1.1
million from one of our equity investments in a private company and disposal of
$400,000 of fixed assets, offset by a gain of $2.0 million from the sale of
another equity investment in a private company. Lower interest rates on our
short-term investments was also a contributing factor to the decrease in
interest income. Interest and other income increased by 15% to $6.2 million in
the six months ended June 30, 2001 from $5.4 million in the six months ended
June 30, 2000. This increase is partly because interest income from proceeds
from our follow-on offering which occurred in February 2000 was earned for the
whole six months in the period ending June 30, 2001, compared to only four
months for the same period in 2000, partly offset by lower interest rates in
2001.

Provision for Income Taxes

     We recorded an income tax provision of $170,000 and $411,000, respectively,
for the three-month and six-month periods ended June 30, 2001. The provisions
relate to income taxes currently payable on income generated in non-U.S. tax
jurisdictions, state income taxes, and foreign withholding taxes incurred on
software license revenue. We

                                       16
<PAGE>

recorded income tax provisions of $67,000 for both the three-month and six-month
periods ended June 30, 2000. The 2000 provisions relate to income taxes payable
on income generated in non-U.S. jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

     As of June 30, 2001, we had $69.7 million in cash and cash equivalents,
$123.8 million in short-term investments, and $166.7 million in working capital
with no outstanding long-term debt, compared to $156.5 million in cash and cash
equivalents, $69.7 million in short-term investments and $206.0 million in
working capital with no outstanding long term debt at June 30, 2000.

     Net cash used in operating activities was $25.2 million for the six months
ended June 30, 2001 and was primarily due to our net loss, and a decrease in
deferred revenue, partially offset by a decrease in accounts receivable. This
includes the effect from paying down liabilities assumed (including XMLsolutions
transaction costs and other liabilities resulting from the acquisition) from
$8.2 million at acquisition to approximately $2.6 million at June 30, 2001. Net
cash provided by operating activities was $10.2 million for the six months ended
June 30, 2000, primarily due to an increase in deferred revenue, partially
offset by an increase in accounts receivable.

     Net cash used in investing activities was $62.8 million in the six months
ended June 30, 2001 and was primarily due to purchases of investments and the
acquisition of XMLSolutions, partially offset by maturities of investments. Net
cash used in investing activities was $78.7 million in the six months ended June
30, 2000, primarily due to purchasing investments.

     Net cash provided by financing activities was $3.0 in the six months ended
June 30, 2001. Net cash provided by financing activities was $172.7 million in
the six months ended June 30, 2000. Net cash provided by financing activities
for both periods was primarily from the issuance of common stock.

     At June 30, 2001, we had operating lease commitments of approximately $43
million.

     On April 11, 2001, Vitria completed its acquisition of XMLSolutions
Corporation, a Virginia corporation. The total purchase price was approximately
$17.3 million, of which approximately $7.0 million was paid to preferred
shareholders, approximately $2.1 million was related to transaction costs and
expenses, and approximately $8.2 million was related to the assumption of
XMLSolutions liabilities.

     In the past, we have invested significantly in operating expenses. For the
next quarter, we expect that operating expenses will decline slightly as a
percentage of revenue. However, we anticipate that operating expenses and
planned capital expenditures will continue to 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 investments will be sufficient to meet
our working capital and operating expense requirements for at least the next
twelve months. At some point in the future 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. If we ever needed to seek additional financing, there
is no assurance that this additional financing will be available, or if
available, will be on reasonable terms and not dilutive to our stockholders.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE 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

                                       17
<PAGE>

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 debt 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 June 30, 2001 or June 30,
2000, 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 in the
early stages of development in a new and rapidly evolving market.

Although we have in the past reported net income, we cannot guarantee we will do
so in the future.

     We have incurred substantial losses since inception as we funded the
development of our products and the growth of our organization. We have an
accumulated deficit of $49.5 million as of June 30, 2001. 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.

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 previous 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.
Period-to-period comparisons of our historical results of operations are not
necessarily a good predictor of our future performance.

     Our revenues for the quarter ended June 30, 2001 reflected a sequential
decline from our revenues in the first quarter ended March 31, 2001, which were
down sequentially from our revenues in the fourth quarter ended December 31,
2000. For the next two quarters, we expect revenues to be approximately level
with revenues reported in the quarter ended June 30, 2001. This is due primarily
to the ongoing slowdown in the telecommunications industry combined with a
general slowdown in IT spending in other vertical markets.

     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

                                       18
<PAGE>

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 have to, 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 strong
relationships with these system integrators and, as a result, these system
integrators may 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 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 and maintain 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 in the past accounted for a substantial
portion of our revenues, our revenues could decline due to the loss or delay of
a single customer order.

                                       19
<PAGE>

     Sales to our ten largest customers accounted for 36% of total revenues in
the three months ended June 30, 2001 and 30% of total revenues in the six months
ended June 30, 2001. Sales to our ten largest customers accounted for 25% of
total revenues in the fiscal year ended December 31, 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 sales are concentrated in the telecommunications, manufacturing, financial
services, energy, insurance and healthcare 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, manufacturing, financial services and
energy 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.

     During the fourth quarter of 2000, companies in the telecommunications
industry began sharply decreasing their capital expenditures as the U.S. economy
contracted. This decrease in spending and the overall slowdown in the U.S.
economy continues to negatively impact our revenues in 2001 and may continue to
negatively impact our revenues for the foreseeable future.

Failure of our current or potential Internet customers to receive necessary
funding could harm our business.

     Some of our customers include 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, thereby reducing our sales. On sales we do
generate from Internet companies, we may need to defer recognizing revenue until
payment is received.

The recent downturn in the U.S. economy may cause a decline in capital
allocations, thus reducing our revenue and affecting our accounts receivable.

     The recent downturn in the U.S. economy may cause a decline in capital
allocations for software purchases. The delay in capital expenditures may cause
a decrease in sales, may cause an increase in our accounts receivable and may
make collection of license and support payments from our customers more
difficult. In addition, if our customers seek protection from creditors through
formal bankruptcy filings, or if our customers experience funding problems, we
may experience an increase in delinquent accounts receivable.

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

                                       20
<PAGE>

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 and BPM Vendors. We face direct and indirect competition from
vendors offering Business-to-Business Integration ("B2Bi") Enterprise
Application Integration ("EAI"), and Business Process Management ("BPM") as well
as other aspects of our products. Some of these vendors include BEA Systems,
Inc., CrossWorlds Software, Inc., IBM Corporation, Sybase, Inc., SeeBeyond
Technology Corporation, 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 introduced
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.

The cost and difficulty in 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

                                       21
<PAGE>

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.

If we are not successful in continuing to develop packaged versions of our
product, our ability to increase future revenues could be harmed.

     We have developed and intend to continue to develop packaged versions of
our product which incorporate business processes of specific industries,
including telecommunications, manufacturing, financial services and energy. 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.

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,

                                       22
<PAGE>

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. We also license technology related to the connectivity of our
product to third-party database and other applications and we incorporate some
third-party technology into our product offerings. Loss of the ability to use
this technology, delays in upgrades, failure of these third parties to support
these technologies, or other difficulties with our third-party technology
partners could lead to delays in product shipment and could cause our revenues
to decline.

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. 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

                                       23
<PAGE>

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.

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 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 second year 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.

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

                                       24
<PAGE>

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.

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 international offices in countries including the United
Kingdom, Japan, Germany, France, Italy, Canada, Australia, The Netherlands,
Singapore, Korea, Taiwan and Switzerland 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.

We may not be able to efficiently integrate the operations of our acquisitions
which may harm our business.

     We recently acquired XMLSolutions Corporation. We may make additional
acquisitions of, or significant investments in, businesses that offer
complementary products, services, technologies or market access. If we are to
realize the anticipated benefits of these acquisitions, the operations of these
companies must be integrated and combined efficiently. Customer relationships
and strategic partnerships may be disrupted during the integration process which
could result in lost sales and lost customers, and could harm our business. We
may also incur significant expenses during the integration process. In addition,
the dedication of management resources to integration may detract attention from
our day-to-day business. The successful integration of any acquisition will also
depend in part on

                                       25
<PAGE>

the retention of key personnel. There can be no assurance that the integration
process will be successful or that the anticipated benefits of any business
integration will be fully realized. Achieving the benefits of any acquisition
will depend in part on our ability to continue to successfully develop and sell
our products and integrate new technologies to develop new products and product
features, in a timely and efficient manner. If we are not successful in these
efforts, our business may be harmed.

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 exists because technology companies have experienced greater than
average stock price volatility in recent years. In addition, a number of public
companies have recently been named as defendants in law suits related to the
alleged practices of investment banks. 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. 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 of directors
          requiring that not all members of the Board of Directors may be
          elected at one time;
     .    authorizing the issuance of "blank check" preferred stock that could
          be issued by our Board of Directors 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 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.

                                       26
<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.


          In April 2001, XMLSoutions Corporation received a letter from DISA,
the Data Interchange Standards Association, asserting a copyright claim with
respect to certain XMLSoutions' technology that we have now acquired as a result
of our acquisition of XMLSoutions. DISA indicated that if the matter is not
resolved to its satisfaction it will pursue all available remedies, including
but not limited to injunctive relief and damages. We believe that the asserted
claim is without merit. We cannot, however, assure that DISA will not commence
formal legal proceedings or that we will prevail in any such proceedings. If
formal legal proceedings are commenced, we intend to vigorously defend
ourselves.

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 May 18, 2001 for the purpose of:

(1)  electing two directors to our board of directors to serve until the 2004
     annual meeting of stockholders;

(2)  to ratify the selection of Ernst & Young LLP as our independent auditors
     for the fiscal year ending December 31, 2001; and

(3)  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 2004 annual meeting:

         Nominee                    For                       Withheld

         Robert M. Halperin         116,223,729               152,633

         John L. Walecka            116,228,746               147,616

                                       27
<PAGE>

Proposal 2:

        The selection of Ernst & Young LLP as our independent auditors for the
fiscal year ending December 31, 2001 was ratified by the following vote:

        For                                Against                    Abstain

        116,254,991                        89,136                     31,235


Item 5. Other Information.

        None.

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

       a) Exhibits

          None.


       b) Reports on Form 8-K

          On April 25, 2001, Vitria filed a Current Report on Form 8-K, dated
          March 25, 2001.

          On May 11, 2001, Vitria filed a Current Report on Form 8-K/A, dated
          March 25, 2001.

                                       28
<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.




Date: August 13, 2001                     By:  /s/ Paul R. Auvil, III

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

                                       29