<PAGE>

================================================================================


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ----------------
                                    FORM 10-Q
                                ----------------

                                   (Mark One)

           [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934.

                For the quarterly period ended September 30, 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, $0.001 par value,
outstanding as of October 31, 2001 was 130,169,038 shares.


                                       1

<PAGE>

VITRIA TECHNOLOGY, INC.

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

Item 1.  Condensed Consolidated Financial Statements and Notes

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

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

         Condensed Consolidated Statements of Cash Flows for the nine months ended
                  September 30, 2001 and September 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                       12

Item 3:  Quantitative and Qualitative Disclosures About Market Risk                                                  21

PART II:  OTHER INFORMATION

Item 1:  Legal Proceedings                                                                                           31

Item 2:  Changes in Securities and Uses of Proceeds                                                                  31

Item 3:  Defaults Upon Senior Securities                                                                             31

Item 4:  Submission of Matters to a Vote of Security Holders                                                         31

Item 5:  Other Information                                                                                           31

Item 6:  Exhibits and Reports on Form 8-K                                                                            32

Signature                                                                                                            33
</TABLE>


                                       2

<PAGE>

PART I.  FINANCIAL INFORMATION

        ITEM 1.  Financial Statements

<TABLE>
<CAPTION>
                                             Vitria Technology, Inc.
                                      Condensed Consolidated Balance Sheets
                                                 (in thousands)


                                                                      September 30,              December 31,
                                                                           2001                      2000
                                                                    -------------------       --------------------
                                                                       (unaudited)                (See Note 1)
<S>                                                                 <C>                       <C>
                              Assets

    Current Assets:
      Cash and cash equivalents                                     $           59,871        $           154,826
      Short-term investments                                                   109,875                     69,312
      Accounts receivable, net                                                  32,576                     36,889
      Other current assets                                                      12,014                      9,138
                                                                    -------------------       --------------------
           Total current assets                                                214,336                    270,165

    Restricted investments                                                      18,444                     18,757
    Property and equipment, net                                                 16,501                     15,164
    Intangible assets                                                            4,310                          -
    Goodwill                                                                     7,249                          -
    Other assets                                                                 3,005                      6,106
                                                                    -------------------       --------------------
           Total assets                                             $          263,845        $           310,192
                                                                    ===================       ====================

               Liabilities and Stockholders' Equity

    Current Liabilities:
      Accounts payable                                              $            3,723        $             1,396
      Accrued payroll and related                                               17,432                     14,882
      Other accrued liabilities                                                 10,775                     10,158
      Deferred revenue                                                          30,111                     46,611
                                                                    -------------------       --------------------
           Total current liabilities                                            62,041                     73,047

    Commitments
    Stockholders' Equity:
      Common Stock                                                                 130                        128
      Additional paid-in capital                                               269,341                    266,591
      Accumulated other comprehensive income (loss)                                 32                        (68)
      Unearned stock-based compensation                                         (1,931)                    (3,603)
      Notes receivable from stockholders                                          (193)                      (291)
      Accumulated deficit                                                      (65,575)                   (25,612)
                                                                    -------------------       --------------------
           Total stockholders' equity                                          201,804                    237,145
                                                                    -------------------       --------------------
           Total liabilities and stockholders' equity               $          263,845        $           310,192
                                                                    ===================       ====================
</TABLE>



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


                                       3

<PAGE>


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

                                                               Three Months Ended                  Nine Months Ended
                                                                 September 30,                       September 30,
                                                             2001             2000             2001              2000
                                                        ---------------   -------------    -------------   -----------------
<S>                                                     <C>               <C>              <C>             <C>
Revenues:
    License                                             $       15,763    $     32,676     $     56,566    $         74,267
    Service and other                                           14,324           8,935           43,260              19,632
                                                        ---------------   -------------    -------------   -----------------
Total revenues                                                  30,087          41,611           99,826              93,899

Cost of revenues:
    License                                                        420             114            1,042                 802
    Service and other                                            7,050           6,977           22,637              15,240
                                                        ---------------   -------------    -------------   -----------------
Total cost of revenues                                           7,470           7,091           23,679              16,042

                                                        ---------------   -------------    -------------   -----------------
Gross profit                                                    22,617          34,520           76,147              77,857

Operating expenses:
    Sales and marketing                                         23,615          23,521           73,929              55,042
    Research and development                                    10,914           8,647           31,723              20,144
    General and administrative                                   4,082           4,609           12,489              10,025
    Amortization of stock-based compensation                       403             733            1,469               2,773
    Amortization of goodwill                                       723               -            1,360                   -
    Amortization of intangible assets                              529               -              995                   -
    Acquired in-process technology                                   -               -            1,500                   -
                                                        ---------------   -------------    -------------   -----------------
Total operating expenses                                        40,266          37,510          123,465              87,984
                                                        ---------------   -------------    -------------   -----------------

Loss from operations                                           (17,649)         (2,990)         (47,318)            (10,127)
    Interest income                                              1,920           3,887            7,945               9,306
    Other income (expenses), net                                    19            (118)             219                (130)
                                                        ---------------   -------------    -------------   -----------------
Net (loss) income before income taxes                          (15,710)            779          (39,154)               (951)

       Provision for income taxes                                  398              86              809                 153
                                                        ---------------   -------------    -------------   -----------------

Net (loss) income                                       $      (16,108)    $       693     $    (39,963)  $          (1,104)
                                                        ===============   =============    =============   =================

Basic net (loss) income per share                       $        (0.13)    $      0.01     $      (0.32)  $           (0.01)
                                                        ===============   =============    =============   =================

Diluted (loss) income per share                         $        (0.13)    $      0.00     $      (0.32)  $           (0.01)
                                                        ===============   =============    =============   =================

Weighted average shares used in calculating basic
        net (loss) income per share                            127,368         123,361          126,383             121,713
                                                        ===============   =============    =============   =================

Weighted average shares used in calculating diluted
        net (loss) income per share                            127,368         139,431          126,383             121,713
                                                        ===============   =============    =============   =================
</TABLE>



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


                                       4

<PAGE>

<TABLE>
<CAPTION>
                                                Vitria Technology, Inc.
                                    Condensed Consolidated Statements of Cash Flows
                                                     (in thousands)
                                                      (unaudited)

                                                                                          Nine months ended
                                                                                          September 30,
                                                                                 2001                      2000
                                                                          --------------------    -----------------------
<S>                                                                       <C>                      <C>
Operating activities:
    Net loss                                                              $           (39,963)   $                (1,104)
    Adjustments to reconcile net loss to net cash
        (used in) provided by operating activities:
       Amortization of goodwill and intangible assets                                   2,355                          -
       Acquired in-process technology                                                   1,500                          -
       Recognized gain on equity investments, net                                        (760)                         -
       Loss on disposal of fixed assets                                                   491                          -
       Depreciation                                                                     4,801                      2,045
       Amortization of deferred stock-based compensation                                1,469                      2,773
       Provision for doubtful accounts                                                     78                      2,285
       Changes in assets & liabilities:
           Accounts receivable                                                          5,005                    (34,774)
           Other current assets                                                        (2,754)                   (10,261)
           Other assets                                                                  (139)                      (209)
           Accounts payable                                                               468                        728
           Accrued liabilities                                                         (2,459)                    21,999
           Deferred revenue                                                           (17,167)                    40,351
                                                                          --------------------    -----------------------
             Net cash (used in) provided by operating activities                      (47,075)                    23,833
                                                                          --------------------    -----------------------

 Investing activities:
    Acquisition of subsidiary, net of cash acquired                                    (8,869)                        -
    Purchases of property and equipment                                                (5,913)                   (10,766)
    Purchases of investments                                                         (318,703)                  (189,938)
    Maturities of investments                                                         278,670                    113,106
    Purchases of equity investments                                                     4,000                     (5,100)
                                                                          --------------------    -----------------------
              Net cash used in investing activities                                   (50,815)                   (92,698)
                                                                          --------------------    -----------------------

 Financing activities:
     Collection of note receivable                                                         98                          -
     Issuance of common stock, net                                                      2,954                    173,473
                                                                          --------------------    -----------------------
             Net cash provided by financing activities                                  3,052                    173,473
                                                                          --------------------    -----------------------

Effect of exchange rates on changes on cash and cash equivalents                         (117)                       (73)
                                                                          --------------------    -----------------------

Net (decrease) increase in cash and cash equivalents                                  (94,955)                   104,535

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

Cash and cash equivalents at end of period                                $            59,871     $              156,753
                                                                          ====================    =======================

</TABLE>

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


                                       5

<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1)       Basis of Presentation

         The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim consolidated financial information and with the instructions for
Form 10-Q and Article 10 of Regulation S-X. In the opinion of the management of
Vitria Technology, Inc., these unaudited condensed consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, which we consider necessary to fairly state Vitria's financial
position and the results of its operations and its cash flows. The balance sheet
at December 31, 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 (loss) income amounts.

2)       Net (Loss) Income Per Share

         Basic (loss) earnings per share is calculated by dividing net (loss)
income by the weighted-average number of shares of common stock outstanding.
Basic (loss) earnings per share does not include shares subject to Vitria's
right of repurchase, which lapses ratably over the related vesting term. Diluted
(loss) earnings per share is calculated by dividing net (loss) income 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) income 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
(loss) income per share for the periods indicated (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
                                                                  Three months ended                      Nine months ended
                                                           September 30,      September 30,       September 30,       September 30,
                                                               2001                2000               2001                2000
                                                           --------------     ---------------     --------------      --------------
<S>                                                        <C>                <C>                 <C>                 <C>
Numerator for basic and diluted net (loss) income per share:
     Net (loss) income                                     $     (16,108)      $        693       $     (39,963)      $      (1,104)
                                                           ==============     ===============     ==============      ==============

Denominator for basic net (loss) income per share:
   Weighted average shares available to common stock             129,568            127,805             129,075             126,893
    Less shares subject to repurchase                             (2,200)            (4,444)             (2,692)             (5,180)
                                                           --------------     ---------------     --------------      --------------
Denominator for basic net (loss) income per share                127,368            123,361             126,383             121,713
     Dilutive potential common shares, using
            treasury stock method                                      -             16,070                   -                   -
                                                           --------------     ---------------     --------------      --------------
Denominator for diluted net (loss) income per share              127,368            139,431             126,383             121,713
                                                           ==============     ===============     ==============      ==============

Basic net (loss) income per share                          $       (0.13)     $        0.01       $       (0.32)      $       (0.01)
                                                           ==============     ===============     ==============      ==============

Diluted net (loss) income per share                        $       (0.13)     $        0.00       $       (0.32)      $       (0.01)
                                                           ==============     ===============     ==============      ==============
</TABLE>


                                       6

<PAGE>

         For the three months ended September 30, 2001 and September 30, 2000,
shares of potential common stock totalled 5,312,000 and 16,070,000 respectively.
For the nine months ended September 30, 2001 and September 30, 2000 shares of
potential common stock totalled 7,727,000 and 17,877,000 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) Income

         Comprehensive (loss) income is comprised of net (loss) income 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) income was as follows (in thousands):

<TABLE>
<CAPTION>
                                                            Three months ended                         Nine months ended
                                                    September 30,         September 30,       September 30,         September 30,
                                                         2001                 2000                2001                  2000
                                                   -----------------     ----------------    ----------------      ----------------
<S>                                              <C>                     <C>                 <C>                   <C>
Net (loss) income                                 $         (16,108)    $            693     $       (39,963)    $         (1,104)

Other comprehensive income:
   Foreign currency translation adjustment                       12                  (91)              (117)                  (73)
   Unrealized gain (loss) on securities                         114                  (79)               217                   (16)
                                                   -----------------     ----------------    ----------------      ----------------

Comprehensive (loss) income                       $         (15,982)     $           523     $      (39,863)      $        (1,193)
                                                   =================     ================    ================      ================
</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                         Nine months ended
                                                    September 30,         September 30,      September 30,          September 30,
                                                         2001                 2000                2001                  2000
                                                   -----------------     ----------------    ---------------       ----------------
<S>                                              <C>                     <C>                 <C>                    <C>
Cost of revenues                                 $               32    $              58   $            116      $             220
Sales and marketing                                             151                  280                557                  1,057
Research and development                                        145                  265                526                    993
General and administrative                                       75                  130                270                    503
                                                   -----------------     ----------------    ---------------       ----------------

Total amortization of stock-based
     compensation                                $              403    $             733   $          1,469      $           2,773
                                                   =================     ================    ===============       ================
</TABLE>



5)  Accounts Receivable

         At September 30, 2001 our gross accounts receivable balance was $35.9
million. Of this balance, 27.8%, or $10.0 million represents revenue that has
not yet been recognized and is included in the deferred revenue balance. At
September 30, 2001, our deferred revenue balance was $30.1 million. Of this
balance, 3.3%, or $988,000 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


                                       7

<PAGE>

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)  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 which were to be granted on or after October 5, 2001. A
total of 4,470,350 options were cancelled in connection with the option
exchange. A total of 3,799,775 new options were granted on October 5, 2001 with
an exercise price of $2.18 per share. Members of our Board of Directors,
executive officers and vice presidents were not eligible to participate in this
program.

7)  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 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 $860,000, net of an impairment charge
of $1.1 million for an other-than-temporary decline in value in another
investment. In the quarter ended September 30, 2001, we recorded an additional
impairment charge of $100,000 for an other-than-temporary decline in value in
another investment.

8)  Acquisition

     On April 11, 2001 Vitria acquired XMLSolutions Corporation, a provider of
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):


                                       8

<PAGE>

<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>




         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 September 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 10.)

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

<TABLE>
<CAPTION>
                                                       Pro forma                    Pro forma
                                                   Nine months ended,           Nine months ended,
                                                   September 30, 2001           September 30, 2000
                                                 -----------------------      -----------------------
                                                      (unaudited)                  (unaudited)
<S>                                               <C>                           <C>
Net revenue                                         $      101,259               $        98,044
                                                      ==============               ===============

Net loss                                            $      (49,440)              $       (16,443)
                                                      ==============               ===============

Basic and diluted net loss per share                $        (0.39)              $         (0.14)
                                                      ==============               ===============
</TABLE>



                                       9

<PAGE>

         The unaudited pro forma combined results for the nine months ended
September 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.

9)   Derivative Financial Instruments

         Vitria adopted Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended,
on January 1, 2001, and its adoption has not had a material effect on our
financial statements. SFAS 133 requires companies to recognize all of their
derivative instruments as either assets or liabilities in the balance sheet at
fair value. The accounting for changes in the fair value (i.e., unrealized gains
or losses) of a derivative instrument depends on whether it has been designated
and qualifies as part of a hedging relationship and on the type of hedging
relationship. Derivatives that are not hedges must be adjusted to fair value
through current earnings.

         To protect against possible changes in values of certain foreign
currency denominated receivables, primarily resulting from sales outside the
United States, we enter into foreign currency forward contracts which qualify
and are designated as fair value hedges. The gains and losses on these forward
contracts as well as the offsetting losses and gains on the hedged receivables
are recognized in current earnings. The effectiveness test for these contracts
is determined by using the forward-to-forward rate comparison for currency
forward contracts, which makes same-currency hedges perfectly effective. During
the three months and nine months ended September 30, 2001, gains and losses on
the portions of these forward contracts that were excluded from the assessment
of hedge effectiveness, as well as the ineffective portion of these hedging
instruments, were not material.

10)  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.

         In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, ("SFAS 141"), Business
Combinations and No. 142, ("SFAS 142"), Goodwill and Other Intangible Assets.
SFAS 141 requires that all business combinations be accounted for under the
purchase method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS 142 requires that
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to impairment tests in accordance with the
Statements at least annually. Intangible assets with finite lives will continue
to be amortized over their estimated useful lives. SFAS 141 is effective for all
business combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001. The provisions of SFAS 142 will be effective
for fiscal years beginning after December 15, 2001. We do not expect the
adoption of SFAS 142 to have a material impact on the our results of operations,
financial position or cash flows.

                                       10

<PAGE>

         In August 2001, the Financial Accounting Standards Board issued
Satement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", ("SFAS 144"), which is effective
for fiscal periods beginning after December 15, 2001 and interim periods within
those fiscal years. SFAS 144 establishes an accounting model for impairment or
disposal of long-lived assets to be disposed of by sale. We are currently
evaluating the potential impact, if any, the adoption of FAS 144 will have on
our financial position and results of operations.


                                       11

<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. We do not undertake an obligation to update these forward
looking statements.

OVERVIEW

         We are a leading provider of integration and collaboration solutions.
Our flagship product, the BusinessWare(TM) integration server, provides the
infrastructure that enables incompatible information technology, or IT, systems
to exchange information automatically, without human intervention, over
corporate networks and the Internet. This eliminates manual entry of information
into multiple IT systems and eliminates the need to manually exchange
information with customers and business partners. In addition, we provide
collaborative solutions for organizations in the telecommunications,
manufacturing, financial services, energy, insurance and healthcare industries
that automate mission critical business processes, integrate existing
infrastructure and manage information flow between internal systems and external
trading partners.

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

         (1)    Business Process Management (BPM): BPM provides control and
                coordination of business processes spanning a wide combination
                of systems, people and corporate boundaries. It uses graphical
                process models to seamlessly define, automate and manage
                transactions and the exchange of information between internal
                business applications, people and external trading partner
                systems.

         (2)    Business-to-Business Integration (B2Bi): B2Bi enables the secure
                and reliable completion of transactions and the exchange of
                business information between customers and partners over the
                Internet to support collaborative processes. B2Bi helps
                companies manage their value chain interactions end to end.

         (3)    Enterprise Application Integration (EAI): EAI enables secure and
                reliable movement of information in and out of internal business
                applications. By enabling internal applications to communicate
                with each other, EAI helps unify and improve extended enterprise
                processes.

         (4)    Real-Time Analysis (RTA): RTA provides real-time monitoring and
                analysis of running business processes thereby enabling
                optimization of operational efficiency. Our two key RTA
                components - Process Analyzer and Business Cockpit(TM) -
                continuously gather working business process data, analyze and
                visualize it in real time, and enable process owners to
                proactively identify and respond to problems or opportunities as
                they occur.

         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 support and 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.


                                       12

<PAGE>


         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, Taiwan, Spain and Brazil in the first nine months of 2001 and
in Japan, Australia, France, Germany, Italy and The Netherlands in 2000, and the
United Kingdom in 1999.

         We recognized approximately 31% of our revenues from customers outside
the United States in the three months ended September 30, 2001 and approximately
25% from customers outside the United States in the nine months ended September
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.

         Sales to our ten largest customers accounted for 42% of total revenues
in the three months ended September 30, 2001 and 30% of total revenues in the
nine months ended September 30, 2001. One customer, BP, accounted for 15% of our
revenues in the three month period ended September 30, 2001 and 6% of our
revenues in the nine month period ended September 30, 2001. Sales to our ten
largest customers accounted for 35% of total revenues in the three months ended
September 30, 2000 and 27% of total revenues in the nine months ended September
30, 2000. With the exception of the current quarter, our dependence on any
single customer has been declining gradually over the past three years. However,
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 September 30, 2001 due to a deterioration in the
macroeconomic climate which has resulted in a general slowdown in IT spending in
our vertical markets.

         On April 11, 2001, Vitria acquired XMLSolutions, a provider of 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 financial 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


                                       13

<PAGE>

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:

         o        size and timing of customer orders and product and service
                  delivery;
         o        level of demand for our professional services;
         o        changes in the mix of our products and services;
         o        ability to protect our intellectual property;
         o        actions taken by our competitors, including new product
                  introductions and pricing changes;
         o        costs of maintaining and expanding our operations;
         o        introduction of new products;
         o        timing of our development and release of new and enhanced
                  products;
         o        costs and timing of hiring qualified personnel;
         o        success in maintaining and enhancing existing relationships
                  and developing new relationships with system integrators;
         o        technological changes in our markets, including changes in
                  standards for computer and networking software and hardware;
         o        deferrals of customer orders in anticipation of product
                  enhancements or new products;
         o        delays in our ability to recognize revenue as a result of the
                  decision by our customers to postpone software delivery;
         o        customer budget cycles and changes in these budget cycles;
         o        external economic conditions;
         o        availability of customer funds for software purchases given
                  external economic factors;
         o        costs related to acquisition of technologies or businesses;
         o        ability to successfully integrate acquisitions; and
         o        changes in strategy and capability of our competitors.


         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 performance. 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.


                                       14

<PAGE>

RESULTS OF OPERATIONS

For the three and nine months ended September 30, 2001 and 2000

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

<TABLE>
<CAPTION>

                                                               Three Months Ended              Nine Months Ended
                                                                 September 30,                   September 30,
                                                              2001           2000             2001          2000
                                                           ---------------------------     --------------------------
<S>                                                                <C>            <C>              <C>           <C>
Revenues

  License                                                          52%            79%              57%           79%
  Service and other                                                48%            21%              43%           21%
                                                           ------------  -------------     ------------  ------------
Total revenues                                                    100%           100%             100%          100%

Cost of revenues

  License                                                           1%             0%               1%            1%
  Service and other                                                24%            17%              23%           16%
                                                           ------------  -------------     ------------  ------------
Total cost of revenues                                             25%            17%              24%           17%

                                                           ------------  -------------     ------------  ------------
Gross profit                                                       75%            83%              76%           83%


Operating expenses

  Sales and marketing                                              78%            56%              74%           59%
  Research and development                                         36%            21%              32%           21%
  General and administrative                                       14%            11%              13%           11%
  Amortization of stock-based compensation                          1%             2%               1%            3%
  Amortization of goodwill                                          2%             0%               1%            0%
  Amortization of intangibles                                       2%             0%               1%            0%
  Acquired in-process research and development                      0%             0%               2%            0%
                                                           ------------  -------------     ------------  ------------
Total operating expenses                                          133%            90%             124%           94%

                                                           ------------  -------------     ------------  ------------
Loss from operations                                              (58%)           (7%)            (48%)         (11%)
Other income, net                                                   6%             9%               8%           10%

Net (loss) income  before income taxes                            (52%)            2%             (40%)          (1%)
Provision for income taxes                                          1%             0%               1%            0%
                                                           ------------  -------------     ------------  ------------

Net (loss) income                                                 (53%)            2%             (41%)          (1%)
                                                           ============  =============     ============  ============
</TABLE>



                                       15

<PAGE>

REVENUES

         LICENSE. License revenues decreased 52% to $15.8 million in the three
months ended September 30, 2001 from $32.7 million in the three months ended
September 30, 2000. License revenues decreased 24% to $56.6 million in the nine
months ended September 30, 2001 from $74.3 million in the nine months ended
September 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, we expect license revenues to
remain approximately level with the quarter ended September 30, 2001. This is
primarily due to a deterioration in the macroeconomic climate which has resulted
in a general slowdown in IT spending in our vertical markets.

         SERVICE AND OTHER. Service and other revenues increased 60% to $14.3
million in the three months ended September 30, 2001 from $8.9 million in the
three months ended September 30, 2000. Service and other revenues increased 120%
to $43.3 million in the nine months ended September 30, 2001 from $19.6 million
in the nine months ended September 30, 2000. These increases are primarily due
to the growth of maintenance, support and consulting revenues associated with
license agreements signed in earlier periods. 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
an increase in support renewals. For the next quarter, we expect service
revenues to remain approximately level with the quarter ended September 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. These variations are due to fluctuations in the level of
sales of products which incorporate third-party technology. As a percentage of
license revenues, cost of license revenues increased to 3% in the three months
ended September 30, 2001 from less than 1% for the three months ended September
30, 2000 and increased to 2% from 1% for the nine months ended September 30,
2001 as compared to the nine months ended September 30, 2000. As a percentage of
license revenues, we do not expect any significant variation in the cost of
license revenues from the past two years.

         SERVICE AND OTHER. Cost of service and other revenues consists of
salaries, facility costs, travel expenses and third party consultants fees
incurred in providing customer support, training and implementation related
services. Cost of service and other revenues were $7.1 million in the three
months ended September 30, 2001, an increase of 1% over cost of service and
other revenues of $7.0 million in the three months ended September 30, 2000. The
minimal increase in the current quarter was the result of a decrease in the use
of outside consultants, and a decrease in external recruiting expenditures
offset by an increase in salary costs from increased headcount over the same
quarter a year ago. Cost of service and other revenues were $22.6 million in the
nine months ended September 30, 2001, an increase of 49% over cost of service
and other revenues of $15.2 million in the nine months ended September 30, 2000.
The increase resulted from hiring additional service personnel, including the
addition of employees that resulted from acquiring XMLSolutions during the
quarter ended June 30, 2001, and increased facility costs associated with
additional personnel, partially offset by a decrease in the use of outside
consultants. For the next quarter, we expect that cost of service and other
revenues will be approximately level with that of the current quarter. The ratio
of cost of service and other revenues as a percentage of total revenues
increased to 24% in the three months ended September 30, 2001 from 17% in the
three months ended September 30, 2000. This is mainly due to an increase in
service and other revenues in the quarter ended September 30, 2001.



                                       16

<PAGE>

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 September 30, 2001, sales and marketing expenses were $23.6
million, an increase of less than 1% over sales and marketing expenses of $23.5
million for the three months ended September 30, 2000. The increase in salary
and related expenses in the three months ended September 30, 2001 was offset by
a decrease in commission expense due to lower revenues, a decrease in
advertising expense and a decrease in recruiting expense. These expense offsets
resulted in a small change in sales and marketing expenses from the three month
period ended September 30, 2001 as compared to the three months ended September
30, 2000. During the nine months ended September 30, 2001, sales and marketing
expenses were $73.9 million, an increase of 34% over sales and marketing
expenses of $55.0 million for the nine months ended September 30, 2000. This
increase was the result of increased salary costs from hiring additional sales
and marketing personnel, 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 and a
decrease in commission expense. As a percentage of revenue, sales and marketing
expenses increased to 78% in the three months ended September 30, 2001 from 56%
in the three months ended September 30, 2000 and to 74% in the nine months ended
September 30, 2001 from 59% in the nine months ended September 30, 2000. These
increases as a percentage of revenues are due to the fact that our sales and
marketing structure has been established to support a higher revenue base than
we actually experienced in both the three and nine month periods ended September
30, 2001. These increases were partially offset by decreased commission expense
in both periods. At anticipated revenue levels, we expect that sales and
marketing expenses will decline slightly 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 September 30, 2001, research and development expenses were $10.9
million, an increase of 26% over research and development expenses of $8.6
million for the three months ended September 30, 2000. This increase was
primarily the result of higher salary expenses related to additional research
and development personnel, including the addition of XMLSolutions employees, and
offset by a decrease in recruiting expense. During the nine months ended
September 30, 2001, research and development expenses were $31.7 million, an
increase of 57% over research and development expenses of $20.1 million for the
nine months ended September 30, 2000. This increase was 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. At anticipated revenue
levels, we expect research and development expenses will decline slightly 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 our provision for doubtful
accounts. During the three months ended September 30, 2001, general and
administrative expenses were $4.1 million, a decrease of 11% over general and
administrative expenses of $4.6 million for the three months ended September 30,
2000. The decrease is primarily attributable to a decrease in our provision for
doubtful accounts, and a decrease in the use of outside consultants, partially
offset by an increase in salary expense and associated overhead. During the nine
months ended September 30, 2001, general and administrative expenses were $12.5
million, an increase of 25% over general and administrative expenses of $10.0
million for the nine months ended September 30, 2000. This increase was
attributable to a worldwide increase in salary expense and an increase in
outside professional services hired to support our expanding operations, offset
by a decrease in our provision for doubtful accounts. At



                                       17

<PAGE>

anticipated revenue levels, 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
September 30, 2001, amortization of stock-based compensation was $403,000, a
decrease of 45% over amortization of stock-based compensation of $733,000 for
the three months ended September 30, 2000. During the nine months ended
September 30, 2001, amortization of stock-based compensation was $1.5 million, a
decrease of 47% over amortization of stock-based compensation of $2.8 million
for the nine months ended September 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 associated with the acquisition of XMLSolutions Corporation resulted
in charges to earnings of $723,000 and $1.4 million in the three and nine months
ended September 30, 2001, respectively. Amortization of purchased intangible
assets associated with the acquisition resulted in charges to earnings of
$529,000 and $995,000 in the three months and nine months ended September 30,
2001, respectively. In accordance with SFAS 141 and 142 as referenced in Note
10, goodwill will no longer be amortized after December 31, 2001 but will be
subject to a test of impairment at least annually. The purchased intangible
assets will continue to be amortized over their estimated useful lives. 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 in the quarter ended June 30, 2001 in conjunction
with the completion of the acquisition of XMLSolutions Corporation for
in-process technology relating to XMLSolutions' Collaborative Enablement
Program. No expense was recognized in the quarter ended September 30, 2001.
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 49%
to $1.9 million in the three months ended September 30, 2001 from $3.8 million
in the three months ended September 30, 2000. The decrease is primarily
attributable to lower interest income earned from our short-term investments due
to lower interest rates on investments and lower cash balances in the three
months ended September 30, 2001. Interest and other income decreased by 11% to
$8.2 million in the nine months ended September 30, 2001 from $9.2 million in
the nine months ended September 30, 2000. This decrease is 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 were also a contributing factor to this decrease in
interest income.


                                       18

<PAGE>

PROVISION FOR INCOME TAXES

         We recorded an income tax provision of $398,000 and $809,000,
respectively, for the three-month and nine-month periods ended September 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 recorded income tax
provisions of $86,000 and $153,000, respectively, for the three-month and
nine-month periods ended September 30, 2000. The 2000 provisions relate to
income taxes payable on income generated in non-U.S. jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

         As of September 30, 2001, we had $59.9 million in cash and cash
equivalents, $109.9 million in short-term investments, and $152.3 million in
working capital with no outstanding long-term debt, compared to $156.8 million
in cash and cash equivalents, $71.6 million in short-term investments and $196.8
million in working capital with no outstanding long term debt at September 30,
2000.

         Net cash used in operating activities was $47.1 million for the nine
months ended September 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 $1.6 million
at September 30, 2001. Net cash provided by operating activities was $23.8
million for the nine months ended September 30, 2000, which primarily reflected
a decrease in net loss and increases in deferred revenue and accrued
liabilities, partially offset by increases in accounts receivable and deferred
commission expense, included within other current assets.

         Net cash used in investing activities was $50.8 million in the nine
months ended September 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 $92.7 million in the
nine months ended September 30, 2000, primarily due to purchasing investments
from cash received from our initial and follow-on public offerings.

         Net cash provided by financing activities was $3.0 million in the nine
months ended September 30, 2001. Net cash provided by financing activities was
$173.5 million in the nine months ended September 30, 2000. Net cash provided by
financing activities for both periods was primarily from the issuance of common
stock. Net cash provided by financing activities in the nine months ended
September 30, 2000 was higher because of cash received from our follow-on
offering in February 2000.

         At September 30, 2001, we had operating lease commitments of
approximately $41.3 million.

         On April 11, 2001, we completed the 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 our operations. 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. We expect that our capital expenditures in the next quarter to
be at approximately the same level of spending as in the quarter ended September
30, 2001. 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


                                       19

<PAGE>

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.


                                       20

<PAGE>

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
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 September 30, 2001 or
September 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 $65.6 million as of September 30, 2001. 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 September 30, 2001 reflected a
sequential decline from our revenues in the previous two quarters ended March
31, 2001 and June 30, 2001, which were down sequentially from our revenues in
the fourth quarter ended December 31, 2000. For the next quarter, we expect
revenues to be approximately level with


                                       21

<PAGE>

revenues reported in the quarter ended September 30, 2001. This is due primarily
to a deterioration in the general macroeconomic environment which has resulted
in a general slowdown in IT spending in our 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 and we expect this trend to continue. Possible
future terrorist incidents or other external events may shutdown or impair our
operations or those of our customers thereby limiting our ability to close
orders. Any failure or delay in closing 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 operating results are also dependent upon our ability to manage
our cost structure.

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


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<PAGE>

installations of our product exceeds our access to the resources provided by
these system integrators, we could 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.

         Sales to our ten largest customers accounted for 42% of total revenues
in the three months ended September 30, 2001 and 30% of total revenues in the
nine months ended September 30, 2001. One customer, BP, accounted for 15% of our
revenues in the three month period ended September 30, 2001 and 6% of our
revenues in the nine month period ended September 30, 2001. Sales to our ten
largest customers accounted for 35% of total revenues in the three months ended
September 30, 2000 and 27% in the nine months ended September 30, 2000. Our
license agreements do not generally provide for ongoing license payments.
Therefore, we expect that revenues from a limited number of customers will
continue to account for a significant percentage of total revenues in future
quarters. Our ability to attract new customers will depend on a variety of
factors, including the reliability, security, scalability, breadth and depth of
our products, and cost-effectiveness of our products. The loss or delay of
individual orders could have a significant impact on revenues and operating
results. Our failure to add new customers that make significant purchases of our
product and services would reduce our future revenues.

Our 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, energy,
insurance and healthcare 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 prolonged downturn in the U.S. economy may continue to cause a decline in
capital allocations, thus reducing our revenue and affecting our accounts
receivable.

         The prolonged downturn in the U.S. economy may continue to 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


                                       23

<PAGE>

addition, if our customers seek protection from creditors through formal
bankruptcy filings, or if our customers encounter 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
reductions, reduced gross margins and loss of market share, any one of which
could significantly reduce our future revenues. Our current competitors include:

         B2Bi, 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, IONA, Mercator Software,
Peregrine Systems, Inc., Sterling Commerce, 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


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<PAGE>

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 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 industry specific solutions
based on our product, our ability to increase future revenues could be harmed.

         We have developed and intend to continue to develop solutions based on
BusinessWare which incorporate business processes, connectivity and document
transformations specific to the needs of particular industries, including
telecommunications, manufacturing, financial services, energy, insurance and
healthcare. 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 solutions or these solutions do not
achieve market acceptance, our ability to generate 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:

         o        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;

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

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

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



                                       25

<PAGE>

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

If we fail to introduce new versions and releases of our product in a timely
manner, our revenues may decline.

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

Our product relies on third-party programming tools and applications. If we lose
access to these tools and applications, or are unable to modify our product in
response to changes in these tools and applications, our revenues could decline.

         Our programs utilize Java programming technology provided by Sun
Microsystems. We also depend upon access to the interfaces, known as "APIs,"
used for communication between external software products and packaged
application software. Our access to APIs of third-party applications are
controlled by the providers of these applications. If the application provider
denies or delays our access to APIs, our business may be harmed. Some
application providers may become competitors or establish alliances with our
competitors, increasing the likelihood that we would not be granted access to
their APIs. 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.

If we fail to develop the management system and infrastructure to support 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. For us to effectively manage our growth, we must continue to do
the following:

         o        install new management and information control systems; and
         o        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


                                       26

<PAGE>

and timely manner, or if the new systems fail to adequately support our level of
operations, then we could incur substantial additional expenses to remedy these
failures.

If we do not keep pace with technological change, our product may be rendered
obsolete and our operating results may suffer.

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

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.

Our future results may depend significantly on the use of our electronic
commerce platform in electronic 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


                                       27

<PAGE>

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 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:

         o        we fail to provide the product or maintenance and support;
         o        we cease to do business without a successor; or
         o        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, Switzerland, Spain and Brazil 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.


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<PAGE>

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

         We acquired XMLSolutions Corporation in April 2001. 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 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:

         o        develop or enhance our products and services;
         o        acquire technologies, products or businesses;
         o        expand operations, in the United States or internationally;
         o        hire, train and retain employees; or
         o        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:

         o        establishment of a classified Board of Directors requiring
                  that not all members of the Board of Directors may be elected
                  at one time;
         o        authorizing the issuance of "blank check" preferred stock that
                  could be issued by our Board of Directors to increase the
                  number of outstanding shares and thwart a takeover attempt;


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<PAGE>

         o       prohibiting cumulative voting in the election of directors,
                 which would otherwise allow less than a majority of
                 stockholders to elect director candidates;
         o       limitations on the ability of stockholders to call special
                 meetings of stockholders;
         o       prohibiting stockholder action by written consent, thereby
                 requiring all stockholder actions to be taken at a meeting of
                 our stockholders; and
         o       establishing advance notice requirements for nominations for
                 election to the Board of Directors or for proposing matters
                 that can be acted upon by stockholders at stockholder meetings.

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



                                       30

<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. Pursuant to a letter dated November 9, 2001,
DISA is no longer asserting the claims set forth in the April 2001 letter.

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.

         None.

Item 5.  Other Information.

         On October 29, 2001, in accordance with Rule 10b5-1 of the Securities
Exchange Act of 1934, JoMei Chang, our president and chief executive officer,
established a plan to purchase shares of our common stock in the open market.
This rule permits our officers, directors and employees to purchase and sell
shares of our common stock under written plans adopted at a time when they were
not in possession of material non-public information. The plan provides for the
purchase over time of up to $2,000,000 of our common stock, subject to certain
limitations. As of November 10, 2001, 140,000 of shares had been purchased under
the plan.

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<PAGE>

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

a)       Exhibits

         10.13    Employment Agreement between Karen O. Cottle and Vitria dated
                  July 9, 2001.

b)       Reports on Form 8-K

         On August 31, 2001, Vitria filed a Current Report on Form 8-K, dated
July 30, 2001.





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<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:  November 13, 2001                 By:     /s/ Paul R. Auvil, III

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


                                       33