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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-K
 
(MARK ONE)
 
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
   ACT OF 1934
 
                   FOR THE FISCAL YEAR ENDED MARCH 31, 1998
 
                                      OR
 
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
   EXCHANGE ACT OF 1934
 
             FOR THE TRANSITION PERIOD FROM           TO
 
                       COMMISSION FILE NUMBER: 000-23997
 
                               ----------------
 
                             BRIO TECHNOLOGY, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
 <S>                              <C>
            DELAWARE                                77-0210797
 (STATE OR OTHER JURISDICTION OF                 (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)
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                            3460 WEST BAYSHORE ROAD
                          PALO ALTO, CALIFORNIA 94303
         (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
 
      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 856-8000
 
       SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                        COMMON STOCK, $0.001 PAR VALUE
 
                               ----------------
 
  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 than the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90
days. (1) YES [X]  NO [_] ;  (2) YES [_]  NO [X]
 
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
 
  The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $29,824,852 as of May 1, 1998, based upon the
closing sale price on the Nasdaq National Market reported for such date.
Shares of Common Stock held by each officer and director and by each person
who owns 5% of more of the outstanding Common Stock have been excluded in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
 
  There were 14,342,171 shares of the registrant's Common Stock issued and
outstanding as of April 30, 1998.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  Part III incorporates information by reference from the definitive proxy
statement for the Annual Meeting of Stockholders to be held on August 12,
1998.
 
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                                    PART I
 
  Certain statements in this Annual Report on Form 10-K, including certain
statements contained in Item 1, "Business" and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors That May Affect Future Operating Results."
 
ITEM 1. BUSINESS.
 
OVERVIEW
 
  Brio Technology, Inc. ("Brio" or the "Company") designs, develops, markets
and supports software products that enable organizations to rapidly implement
enterprise business intelligence solutions. The Company's software solution,
Brio Enterprise, is a comprehensive client-server and Web-based product suite
designed to enable large numbers of business professionals to quickly access
and analyze data to make more informed business decisions. The Company's
product suite and services are designed to allow organizations to rapidly
deploy and effectively manage business intelligence solutions incorporating
the wide range of available corporate data sources, including data marts, data
warehouses, operational data stores, enterprise applications and legacy
applications.
 
INDUSTRY BACKGROUND
 
  In today's increasingly competitive markets, organizations in virtually
every industry are seeking to improve the ability of business professionals to
make timely, fact-based business decisions. To accomplish this objective,
organizations must establish and maintain an infrastructure that empowers
business professionals with analytical tools and information to improve their
decision making. The Company refers to this infrastructure as a business
intelligence environment. Over the last decade, many organizations have spent
considerable effort and resources to collect, organize and distribute data,
but have been unable to fully empower business professionals with the benefits
of a business intelligence environment.
 
LIMITED SCOPE OF TRADITIONAL APPROACHES
 
  Reporting Products. Many organizations use standardized reporting products
to improve the dissemination of information across the organization. Managed
by IT departments, reporting products deliver static reports to business
professionals on paper, through executive information or decision support
systems or recently via the Web and Web browsers. This approach has provided
business professionals with significant amounts of information, but requires
significant IT resources to continually revise and customize reports as
requested by end users. Although reporting products facilitate broad and
timely dissemination of information, they generally do not enable business
professionals to perform the follow-on analysis and custom reporting needed to
maximize the usefulness of the information provided.
 
  Data Access and Analysis Tools and the Data Warehouse. Over the last decade,
data warehousing technology, coupled with access and analysis tools, emerged
as a leading technology framework for enabling business professionals to make
better fact-based decisions. Data warehouses with access and analysis tools
have enabled some non-technical users for the first time to work with data on
their own terms. While this approach has made a positive impact in many
organizations, significant cost and technical barriers have made deploying
data warehousing solutions beyond a small percentage of these organizations'
total user population impractical.
 
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  Although reporting products and data warehousing each serve particular types
of users well, many organizations employing these technologies have continued
to encounter problems. IT departments continue to have a reporting and
applications development backlog, a prohibitively high cost of implementation
and maintenance, and face challenges delivering information in a secure and
controlled manner. Reporting products fail to provide more active users with
the analytical functionality they seek. The Company believes that there is a
large and growing population of professionals who need to interact with data,
for whom a data warehousing solution is prohibitively complex and expensive,
and for whom standardized reporting is inadequate. The Company believes that
as the amount of data and the number and diversity of users increase,
organizations will be unable to meet the needs of business professionals
without a new approach to business intelligence.
 
OPPORTUNITY FOR ENTERPRISE BUSINESS INTELLIGENCE
 
  The Company believes there is a need for an approach to business
intelligence modeled on the concept of an "INFORMATION SUPPLY CHAIN"
consisting of individuals who produce information, or "INFORMATION PRODUCERS,"
and individuals who consume and use information as part of their daily
business, or "INFORMATION CONSUMERS." The Company believes that an enterprise
business intelligence approach based on the concept of an information supply
chain is the most effective means of meeting the needs of users throughout an
organization.
 
  Information Producers. In the information supply chain, IT staff and IT-
savvy business professionals, often referred to as "power users," act as the
information producers for the entire organization. IT professionals, using and
supporting a wide variety of hardware and software technologies, create and
manage the infrastructure that supports the storage, processing and delivery
of information across the enterprise. Power users, as part of their jobs, use
full-function data access, reporting and analysis tools to interact directly
with data resident in data marts or data warehouses and to produce reports and
analyses for their own use or the selective use of information consumers.
Information producers are under pressure from information consumers to
continually develop, customize and deliver reports.
 
  Information Consumers. Information consumers, the customers in the
information supply chain, are the largest group of users within any
organization. Although standardized reports have met the needs of a number of
information consumers for years, over the last decade, information consumers
have become increasingly more sophisticated in their information requirements
and have tried to derive more value from the information delivered to them.
These consumers are seeking technology solutions that will allow them to work
autonomously with information delivered by information producers. Although
information consumers want to have access to customized information products,
they typically do not have the skills or supporting information infrastructure
to do anything other than view static, standardized reports.
 
  The Company believes that to address the needs of all users in the
information supply chain, an effective enterprise business intelligence
solution must:
 
  --meet the needs of growing and diverse user populations and growing
    amounts of data;
 
  --leverage email and the Web as critical components of the information
    infrastructure;
 
  --minimize the dependence and impact on IT departments; and
 
  --leverage existing hardware and software within the organization.
 
BRIO STRATEGY
 
  The Company's strategy is to be a leading provider of enterprise business
intelligence software solutions. The following are key elements of the
Company's strategy:
 
    Extend Technology Leadership. The Company has designed its products to
  satisfy customers' desire for rapid implementation, intuitive user
  interfaces, transparent integration, high performance and limited IT
 
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  involvement. The Company's products incorporate a number of advanced
  technologies, including a proprietary data analysis engine, a distributed
  architecture, and Web access and delivery technology. In addition, the
  Company has in the past rapidly incorporated new technology into its
  product offerings. In particular, the Company shipped its Web-based end
  user analysis extension to its product suite (Brio.Insight) in November
  1996 and its Java-based server extension to its product suite (OnDemand
  Server) in November 1997. The Company intends to extend its technology
  leadership by continuing to devote significant resources to research and
  development efforts and by forming strategic relationships that will enable
  the Company to further enhance its products' functionality and ease of use.
 
    Broaden Distribution Channels. To date, the Company has sold its products
  primarily through its direct sales and services organizations located in
  the United States, Canada, the United Kingdom, France and Australia, and
  has sold its products worldwide through value added resellers ("VARs"),
  resellers and distributors. The Company intends to grow its direct sales
  organization to intensify its coverage of large organizations and to
  augment its telesales operation to cover smaller organizations. In
  addition, the Company will continue to both leverage and grow its existing
  network of value-added resellers, resellers and distributors to expand its
  indirect distribution channel worldwide.
 
    Expand Product Deployments Throughout the Enterprise. The Company's
  products and related services are designed to enable organizations to
  deploy enterprise-wide business intelligence. Although most organizations
  initially deploy the Company's products on a departmental or pilot basis,
  the Company believes that initial customer success with this deployment can
  lead to significant opportunities for enterprise-wide adoption of the
  Company's products. The Company intends to focus its sales and services
  efforts on large organizations seeking enterprise-wide business
  intelligence deployments and on making initial customer pilots or
  deployments successful.
 
    Leverage Industry Relationships. To accelerate the adoption of the
  Company's products as a standard platform for business intelligence, the
  Company has formed strategic relationships that provide for enhanced
  technology integration with partner technology as well as increased market
  exposure and sales opportunities for the Company's products and services.
  The Company's partners include industry-leading providers of software and
  hardware, such as Microsoft, Oracle and IBM, that complement the Company's
  product and service offerings, and providers of a wide range of training,
  implementation and application development services related to the
  Company's products. The Company's strategic relationships with Microsoft,
  Oracle and IBM have to date consisted of (i) Brio's participation in
  various sales and marketing initiatives sponsored by such companies,
  including joint presentations at industry trade shows and conferences, and
  (ii) agreements by Brio to support certain technology standards promoted by
  such companies.
 
    Increase International Presence. Outside of the United States, the
  Company has direct sales offices in Canada, the United Kingdom, France and
  Australia, has established distributor relationships in more than 20
  countries, including Belgium, Italy, Japan, The Netherlands and South
  Africa and has localized products in French, Italian and Japanese. The
  Company intends to expand its global sales capabilities by increasing the
  size of its direct sales and sales support organizations, expanding its
  distribution channels in Europe, Latin America, and Asia/Pacific and
  continuing localization efforts of its products in selected markets.
 
    Provide Premium Customer Support and Service. The Company believes that
  offering quality service and support is important to customer satisfaction
  and provides a significant opportunity for the Company to build customer
  loyalty and to differentiate itself from competitors. The Company intends
  to increase its focus on customer satisfaction by investing in support
  services including additional staffing, a Web-based help line and systems
  infrastructure. In addition, the Company is committed to providing
  customer-driven product functionality through feedback from user groups,
  prospects, consultants, partners and customer surveys.
 
PRODUCTS AND TECHNOLOGY
 
  Brio Enterprise is a fully integrated business intelligence software product
suite providing powerful query, analysis and reporting functionality across
both client-server and Web environments. Designed to meet the needs
 
                                       4
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of users throughout the enterprise, the Company's products combine powerful
functionality with intuitive, easy-to-use interfaces. The Company's products
are designed to enable an IT department to maintain centralized control with
auditing, security and "zero administration" deployment while incorporating a
system architecture that scales to meet the needs of growing and diverse user
populations and increasing amounts of data.
 
  The Company's products use "push" and "pull" server technology to optimize
utilization of client and server system resources. The Company's distributed
architecture, built on the Company's proprietary, portable on-line analytical
processing engine, enables analytical processing to take place on the server
or on the client. This architecture enhances the flexibility and scalability
of the solution without losing analytical capabilities required for
individuals to answer complex data-related business questions. The Company's
adaptive reporting capability further enhances this flexibility by giving IT
departments the ability to control the analytical functionality available to
an information consumer on a report-by-report basis.
 
BRIO ENTERPRISE CLIENT PRODUCTS
 
  The Company's client products, whether Web-based or client-server based,
share the same user-centric design, functionality and intuitive interface. The
Company believes that the result is an integrated, easy-to-navigate suite of
products that consistently guide the user from query and analysis through
reporting and charting. The Company's client products allow users to create
queries that are targeted at single or multiple data sources and that can
combine data from local or server-based data sources without IT department
assistance.
 
  BrioQuery. All editions of BrioQuery unify query, analysis, reporting and
charting capabilities in one product for client-server connected users. To
meet the differing needs of these users, BrioQuery is available in three
editions:
 
    BrioQuery Designer extends the core BrioQuery capabilities with database
  administration functionality, security, auditing and repository setup
  features to enable IT departments to manage and control the business
  intelligence environment;
 
    BrioQuery Explorer is designed for power users or independent analysts
  who need direct access to database tables and repositories of pre-defined
  data models and reports and need to be able to create their own queries,
  analyses and reports; and
 
    BrioQuery Navigator is used by analysts or information consumers who do
  not have the technical ability or need to directly access database tables.
  These users typically only need access to repositories of pre-defined data
  models and reports that they can use as a basis for independent analyses.
 
  Web-based Products. The Company's Web-based client products provide users
with a wide range of report, query and analytical capabilities within standard
Web browsers. Together with the Company's server-based products, they enable
organizations to deploy a "thin client" architecture that facilitates
administration and maintenance in a multi-platform environment.
 
    Brio.Insight. Employing the same user-interface as BrioQuery,
  Brio.Insight delivers interactive query, analysis, reporting and charting
  capabilities inside a standard Web browser. Whether connected to the Web,
  to the Brio Enterprise Server, or operating without connection,
  Brio.Insight enables users to go beyond viewing static reports and to
  perform independent analysis and reporting on the delivered information.
 
    Brio.Quickview. Brio.Quickview enables organizations to deliver a
  portfolio of "view only" reports to users through a Web browser. These
  portfolios can include fully formatted reports with color, highlights,
  charts and tables. When used in conjunction with the Brio Enterprise
  Server, Brio.Quickview provides users with the option to refresh the data
  that is used to create their portfolio, or to limit the view based on a set
  of criteria.
 
BRIO ENTERPRISE SERVER PRODUCTS
 
  Brio Enterprise Server. The Brio Enterprise Server product includes two
powerful server modules, the Broadcast Server and the OnDemand Server, and a
unified administration tool. The Brio Enterprise Server is
 
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designed to meet the information distribution and data access needs of
information consumers, while providing IT departments with centralized
control, administration and security management functionality. This scalable
server suite employs "push" and "pull" technology to enable organizations to
cost-effectively deploy business intelligence solutions to a wide variety of
users across heterogeneous computing environments.
 
  Broadcast Server. The Broadcast Server enables IT departments to control the
integrity and distribution of business information. It allows information
producers to take queries, analyses and reports created with BrioQuery, and to
schedule automatic processing and delivery of such reports based on date,
time, or event. The Broadcast Server pushes the reports and documents in a
highly compressed format out to Web, client-server and mobile users via FTP,
email, Web servers, and network file servers and printers.
 
  OnDemand Server. The OnDemand Server allows both mobile and desktop users
easy and secure access to a variety of data sources. Query execution can be
performed over the Web or on the server; the server can then pre-build reports
and transmit them to the Company's Web client products, Brio.Insight and
Brio.Quickview. With the OnDemand Server and the Company's adaptive reporting
feature, IT departments can determine on a report-by-report basis the level of
Brio.Insight and Brio.Quickview functionality and interactivity that a
particular user is allowed. The OnDemand Server also automates the
installation and maintenance of the Company's Web client software.
 
PLATFORMS AND PRICING
 
  The Company's server products are designed to operate on most popular server
platforms including Windows NT and UNIX (AIX, HPUX, Sun Solaris). Pricing on
the Brio Enterprise Server product, which includes both the Broadcast Server
and the OnDemand Server, ranges from $30,000 to $45,000. Brio client products
currently operate on a number of operating systems including Windows (95, NT
and 3.1), PowerMac and UNIX (AIX, HPUX, Sun Solaris). The Company's products
provide native and ODBC connectivity to a variety of data sources, including
relational database management systems such as Oracle, DB2, SQL Server and
Adaptive Server; non-relational database management systems such as Arbor
Essbase, Oracle Express and Informix Metacube; and legacy systems such as SAS.
Pricing ranges from approximately $50 for Brio.Quickview to $4,000 for
BrioQuery Designer.
 
  The Company's success in the future will depend upon its ability to develop
new products and its ability to sell larger, enterprise-wide implementations
of its products. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors That May Affect Future
Operating Results--Dependence upon Product Development; Rapid Technological
Change and Evolving Industry Standards" and "--Dependence on Emerging Market
for Enterprise Business Intelligence; No Assurance of Market Acceptance of
Enterprise Business Intelligence Products."
 
SALES AND MARKETING
 
  Sales. To date, the Company has sold its products primarily through its
direct sales and services organizations located in the United States, Canada,
the United Kingdom, France and Australia, and has sold its products worldwide
through VARs, resellers and distributors. The direct sales process involves
the generation of sales leads through direct mail, seminars and telemarketing,
or requests for proposal from prospects. The Company's field sales force
conducts multiple presentations and demonstrations of the Company's products
to management and users at customer sites as part of the direct sales effort.
Sales cycles typically last from three to nine months. The direct sales force
is responsible for local partner support, joint sales efforts and channel
management. The direct sales force is compensated for sales made through
indirect channel partners as well as direct sales to ensure appropriate
cooperation with the Company's VARs, resellers and distributors. To date, the
Company has generated a majority of its sales from its direct sales force, and
has supplemented its direct sales efforts with the efforts of VARs, resellers
and distributors in a variety of locations throughout the world. These third
parties perform some or all of the following functions: sales and marketing;
systems implementation and integration; software development and
customization; and ongoing consulting, training, service and technical
 
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support. The Company generally offers such parties discounts on products and
training, a cooperative marketing program and field level assistance from the
Company's direct sales force. The Company intends to leverage sales and
marketing through indirect channel partners that will distribute or resell the
Company's products in their respective markets. Indirect channel partners
accounted for approximately 9%, 7% and 15% of the Company's total revenues in
fiscal 1996, 1997 and 1998, respectively. The Company intends to grow its
direct sales organization and its telesales operation to cover smaller
organizations. In addition, the Company will continue to leverage and grow its
existing network of VARs, resellers and distributors to expand its indirect
distribution channel worldwide. The Company currently expects that it will
fund such expansion out of its working capital. The Company's agreements with
its VARs generally provide VARs with a right to resell a customized version of
the Company's products in conjunction with sales of the VAR's products or
services. The Company typically offers its VARs a purchase discount to incent
the VAR to sell the Company's products. The Company's agreements with its
distributors generally require that such distributors make certain minimum
purchases of the Company's products, none of which minimum purchases are
material in amount either individually or in the aggregate. The Company
recognizes revenue from such minimum purchases as the distributors sell the
Company's products through to end customers. The Company does not typically
grant exclusive sales territories to its distributors. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors That May Affect Future Operating Results--Dependence on
Direct Sales Force," "--Dependence on Key Personnel and Hiring of Additional
Personnel," "--Lengthy Product Sales Cycle," "--Dependence on Development of
Indirect Sales Channels," "--Risks Associated with International Expansion"
and "--Year 2000 Compliance."
 
  Marketing. The Company is focused on building market awareness and
acceptance of the Company and its products as well as on developing strategic
partnerships. The Company has a marketing strategy with several key
components: image and awareness building, direct marketing to both prospective
and existing customers, a strong Web presence, as well as broad-scale
marketing programs in conjunction with key local and global partners. The
Company's corporate marketing strategy includes extensive public relations
activities; a conference and trade show speakers program, as well as programs
to work closely with key analysts and other influential third parties. The
Company's direct marketing activities include participation in selected trade
shows and conferences, targeted advertising, as well as ongoing direct mail
efforts to existing and prospective customers. The Company has effectively
used local, regional and Web-based seminars to assist prospects in selecting
enterprise business intelligence solutions. The Company has used the Web to
further the interest and lead generation process and to improve the quality of
the leads that it provides to the sales organization. The Company's Web site
has become an effective lead generation program. The Company has invested in
building a partner and channel marketing function which helps to recruit,
train, support and conduct cooperative marketing with technology partners,
resellers and VARs. These programs help to foster strong relationships between
the Company and its various partners. The marketing organization also provides
a wide-range of programs, materials and events to support the sales
organization in its efforts.
 
  The Company's sales and marketing organization consisted of 111 full-time
employees as of March 31, 1998. The sales and marketing staff is based at the
Company's corporate headquarters in Palo Alto, California. The Company also
has field sales offices in the metropolitan areas of Chicago, New York, Los
Angeles, Atlanta, Washington D.C. and Dallas.
 
RESEARCH AND DEVELOPMENT
 
  Research and development created the products that have been the basis for
the Company's success, and the Company intends to make substantial investments
in research and development and related activities to maintain and enhance its
product lines. The Company believes that its future success will, in large
part, depend on its ability to maintain and improve current products, and to
develop new products that meet enterprise business intelligence needs. The
Company's research and development organization is divided into teams
consisting of development engineers, product managers, quality assurance
engineers and technical writers. As of March 31, 1998, the Company's research
and development organization consisted of 40 full-time employees.
 
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The research and development organization uses a phase-oriented development
process, which includes constant monitoring of quality, schedule,
functionality, costs and customer satisfaction. Product development is based
upon a consolidation of the requirements from existing customers, technical
support and engineering. The development group infrastructure provides
documentation, quality assurance and delivery and support capabilities (as
well as product design and implementation) for the Company's products. See
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors That May Affect Future Operating Results--
Dependence on Key Personnel and Hiring of Additional Personnel," "--Dependence
on Product Development; Rapid Technological Change and Evolving Industry
Standards" and "--Risks of Product Defects; Product Liability."
 
CUSTOMER AND TECHNICAL SUPPORT
 
  The Company believes that a high level of customer support is important to
the successful marketing and sale of its products. Maintenance and support
contracts, which are typically for twelve months, are offered with the initial
license, may be renewed annually and are typically set at a percentage of the
total license fee. A large portion of the Company's direct sales to customers
have maintenance and support contracts that entitle the customers to patches,
updates and upgrades at no additional cost if and when available, and
technical hotline support. In addition, the Company offers classes and
training programs at the Company's headquarters, local training centers and
customer sites. Customers purchasing maintenance are able to access hotline
telephone support during normal business hours. Incoming customer calls are
immediately logged into the support database at the time of the call. The
Company supplements its standard telephone hotline support with a number of
Web-based support services, including access to FAQs (frequently asked
questions), a patch download area, and an interface to the Company's technical
support department's problem-tracking database, which allows customers to
submit cases and view the status of any of their current cases on-line. Users
of the Company's products can attend regional user group conferences
throughout the year. To improve user access to explanatory materials, the
Company provides on-line documentation with all of its products. Among other
things, such documentation includes detailed explanations of product features
as well as problem-solving tips for middleware connections.
 
COMPETITION
 
  The market in which the Company operates is still developing, and is
intensely competitive, highly fragmented and characterized by rapidly changing
technology and evolving standards. The Company's current and potential
competitors offer a variety of software solutions and generally fall within
four categories: (i) vendors of business intelligence software such as Cognos,
Business Objects, Seagate, and Andyne; (ii) vendors offering alternative
approaches to delivering analysis capabilities to users, such as
MicroStrategy; (iii) database vendors that offer products which operate
specifically with their proprietary database, such as Microsoft, IBM, Oracle
and Arbor; and (iv) other companies that may in the future announce offerings
of an enterprise business intelligence solution. The Company's competitive
position in the market is uncertain, due principally to the variety of current
and potential competitors, and the emerging nature of the market. The Company
has experienced and expects to continue to experience increased competition
from current and potential competitors, many of whom have significantly
greater financial, technical, marketing and other resources than the Company.
Such competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources
to the development, promotion and sales of their products than the Company.
The Company expects additional competition as other established and emerging
companies enter into the business intelligence software market and new
products and technologies are introduced. Increased competition could result
in price reductions, fewer customer orders, reduced gross margins, longer
sales cycles and loss of market share, any of which could materially and
adversely affect the Company's business, operating results and financial
condition. Current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. The Company's current or future indirect
channel partners may establish cooperative relationships with current or
potential competitors of the Company, thereby limiting the Company's ability
to sell its products through particular distribution channels. Accordingly, it
is possible that new competitors
 
                                       8
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or alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could materially adversely affect
the Company's ability to obtain new licenses, and maintenance and support
renewals for existing licenses, on terms favorable to the Company. Further,
competitive pressures may require the Company to reduce the price of its
products, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors, and the failure to do so could have a material adverse
effect upon the Company's business, operating results and financial condition.
The Company competes on the basis of certain factors, including data
scalability, user scalability, open architecture, analytical capabilities,
product features, product performance, product quality, time to market, ease
of use, customer support and price. The Company believes it presently competes
favorably with respect to each of these factors. However, the Company's market
is still evolving and there can be no assurance that the Company will be able
to compete successfully against current and future competitors, and the
failure to do so successfully could have a material adverse effect on the
Company's business, operating results and financial condition. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors That May Affect Future Operating Results--Competition."
 
PROPRIETARY RIGHTS
 
  The Company currently relies primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company currently has one
United States patent application. There can be no assurance that the Company's
patent application will result in the issuance of a patent, or if issued, will
not be invalidated, circumvented or challenged, or that the rights granted
thereunder, if any, will provide competitive advantages to the Company or that
any of the Company's future patent applications, if any, will be issued with
the scope of the claims sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop technologies that are similar
or superior to the Company's technology or design around any patent that may
come to be owned by the Company. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult, and while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to be
a persistent problem. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the United
States. There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate or that
competitors will not independently develop similar technology. The Company has
entered into source code escrow agreements with a number of its customers and
indirect channel partners requiring release of source code under certain
conditions. Such agreements provide that such parties will have a limited,
non-exclusive right to use such code in the event that there is a bankruptcy
proceeding by or against the Company, if the Company ceases to do business or,
in some cases, if the Company fails to meet its contractual obligations. The
provision of source code escrows may increase the likelihood of
misappropriation by third parties. The Company expects that software product
developers will increasingly be subject to infringement claims as the number
of products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays, or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company, if at all. In the event of a
successful claim of product infringement against the Company and failure or
inability of the Company to license the infringed or similar technology, the
Company's business, operating results and financial condition would be
materially adversely affected. The Company relies upon certain software that
it licenses from third parties, including software that is integrated with the
Company's
 
                                       9
<PAGE>
 
internally developed software and used in the Company's products to perform
key functions. The Company pays royalties under certain of these licenses.
There can be no assurance that these third-party software licenses will
continue to be available to the Company on commercially reasonable terms. The
loss of, or inability to maintain, any such software licenses could result in
shipment delays or reductions until equivalent software could be developed,
identified, licensed and integrated, which could have a material adverse
effect on the Company's business, operating results and financial condition.
Currently, the Company is engaged in litigation with Business Objects, S.A.
concerning the alleged infringement by the Company of a U.S. patent held by
Business Objects, S.A. See Item 3, "Legal Proceedings." See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors That May Affect Future Operating Results--Fluctuations in
Quarterly Operating Results," "--Litigation with Business Objects, S.A." and
"--Limited Protection of Proprietary Rights."
 
  Finally, in the future the Company may rely upon certain software that it
may license from third parties, including software that may be integrated with
the Company's internally developed software and used in the Company's products
to perform key functions. There can be no assurance that these third-party
software licenses will be available to the Company on commercially reasonable
terms. The inability to obtain or maintain any such software licenses could
result in shipment delays or reductions until equivalent software could be
developed, identified, licensed and integrated, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
 
EMPLOYEES
 
  As of March 31, 1998, the Company had 199 employees, including 111 in sales
and marketing, 23 in services and support, 40 in research and development and
25 in general and administrative functions. The Company believes its employee
relations are good. The Company's success depends to a significant degree upon
the continued contributions of its key management, engineering, sales and
marketing personnel, many of whom would be difficult to replace. The Company
has employment contracts with only three members of its executive management
personnel, and currently maintains "key person" life insurance only on Yorgen
Edholm, the Company's President and Chief Executive Officer, and Katherine
Glassey, the Company's Executive Vice President, Products and Services and
Chief Technology Officer. The Company does not believe such insurance would
adequately compensate it for the loss of either Mr. Edholm or Ms. Glassey. The
Company believes its future success will also depend in large part upon its
ability to attract and retain highly skilled managerial, engineering, sales
and marketing and finance personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. The loss of the services of any of
the key personnel, the inability to attract or retain qualified personnel in
the future or delays in either hiring required personnel, or the rate at which
new people become productive, particularly sales personnel and engineers,
could have a material adverse effect on the Company's business, operating
results and financial condition. In particular, the Company has from time to
time experienced and may continue to experience significant turnover of its
sales force, due principally to the intensely competitive market for such
personnel. Such turnover tends to slow sales efforts until replacement
personnel can be recruited and trained to become productive members of the
Company's sales force. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors That May Affect Future
Operating Results--Dependence on Direct Sales Force" and "--Dependence on Key
Personnel and Hiring of Additional Personnel."
 
                                      10
<PAGE>
 
                     EXECUTIVE OFFICERS OF THE REGISTRANT
 
  The executive officers of the Company and their ages as of March 31, 1998
are as follows:
 
<TABLE>
<CAPTION>
          NAME            AGE                      POSITION(S)
          ----            ---                      -----------
<S>                       <C> <C>
Yorgen H. Edholm.........  42 President, Chief Executive Officer and Chairman of
                              the Board of Directors
Katherine Glassey........  40 Executive Vice President, Products and Services,
                              Chief Technology Officer and Director
Robert W. Currie.........  52 Executive Vice President, Worldwide Operations
Chris M. Grejtak.........  49 Executive Vice President, Marketing
Karen J. Willem..........  42 Executive Vice President, Finance and Chief
                              Financial Officer
</TABLE>
 
  Yorgen H. Edholm is a co-founder of the Company and has been its President,
Chief Executive Officer and Chairman of the Board of Directors since
inception. Prior to founding the Company, Mr. Edholm was a manager with the
Management Consulting Division of Arthur Young & Company in New York (now
Ernst & Young, LLP) where he co-founded the microcomputer-based Decision
Support Systems Group. Before that, Mr. Edholm was a product manager with
Industri Mathematics AB in Stockholm, Sweden. Mr. Edholm holds a M.S. degree
in Computer Science and Applied Mathematics from the School of Physical
Engineering at the Royal Institute of Technology in Stockholm, Sweden and an
M.B.A. degree in Organizational Behavior and International Economics from the
Stockholm School of Economics in Stockholm, Sweden. Mr. Edholm is the spouse
of Katherine Glassey.
 
  Katherine Glassey is a co-founder of the Company and has been its Executive
Vice President of Products and Services and Chief Technology Officer since
January 1997 and has been a director since inception. Prior to joining the
Company, Ms. Glassey established and managed application development and
consulting organizations for Metaphor Computer Systems, Inc. ("Metaphor"), a
decision support hardware and software company. Before joining Metaphor, Ms.
Glassey was a Senior Consultant with the Management Consulting Division of
Arthur Young & Company in New York. During that time, she co-founded the
microcomputer-based Decision Support Systems Group whose charter was to use
personal computers to enable end-users to make decisions based on corporate
data. Ms. Glassey holds a B.S. degree in Operations Research from Cornell
University with a Minor in English Literature. Ms. Glassey is the spouse of
Yorgen H. Edholm.
 
  Robert W. Currie joined the Company in September 1996 as Executive Vice
President of Worldwide Operations. Prior to joining the Company, Mr. Currie
was Vice President and General Manager of North American Operations at Sybase,
Inc., a database software and systems company, from July 1995 to July 1996.
From December 1993 to July 1995, Mr. Currie was Vice President and General
Manager of European Operations at Sybase, Inc. Mr. Currie holds a B.S. degree
in Business Administration from the University of Massachusetts.
 
  Chris M. Grejtak joined the Company in January 1997 as Executive Vice
President, Marketing. Prior to joining the Company, Mr. Grejtak was Vice
President, Marketing at Red Brick Systems, Inc., a data warehousing company,
from December 1995 to December 1996. From July 1995 to December 1995, he was
Vice President, Sales and Marketing at Avistar Systems, Inc., a video desktop
conferencing software and hardware company. Mr. Grejtak was Vice President,
Marketing at Network General Corporation ("Network General"), a network
management software company, from November 1994 to June 1995. From August 1992
to November 1994, he was a Vice President and then President and CEO of
Metaphor. Mr. Grejtak holds a B.A. degree in Sociology from Middlebury
College.
 
  Karen J. Willem joined the Company in August 1997 as Executive Vice
President, Finance and Operations and Chief Financial Officer. Prior to
joining the Company, Ms. Willem was Vice President, Worldwide Sales
 
                                      11
<PAGE>
 
Operations from April 1995 to January 1997 at Network General. From July 1991
to March 1995, Ms. Willem was Vice President and Corporate Controller at
Network General. Ms. Willem holds a B.S. degree in Biology from Bucknell
University and an M.B.A. degree in Finance from the University of Pittsburgh.
 
ITEM 2. PROPERTIES.
 
  The Company's principal executive offices are located in Palo Alto,
California where the Company leases approximately 12,145 square feet under a
lease that expires in October 2003 and approximately 30,000 square feet under
a lease that expires in March 2000. The Company also leases space (typically
less than 4,000 square feet) in various geographic locations primarily for
sales and support personnel. The Company believes that its current facilities
are adequate to meet its needs through the end of 1999, at which time the
Company may need to lease additional space.
 
ITEM 3. LEGAL PROCEEDINGS.
 
  On January 20, 1997, Business Objects, S.A. filed a complaint (the
"Complaint") against the Company in the U.S. District Court for the Northern
District of California in San Jose, California alleging that certain of the
Company's products (including at least the BrioQuery Navigator, BrioQuery
Explorer and BrioQuery Designer products) infringe at least claims 1, 2 and 4
of U.S. Patent No. 5,555,403. In April 1997, the Company filed an answer and
affirmative defenses to the Complaint, denying certain of the allegations in
the Complaint and asserting a counterclaim requesting declaratory relief that
the Company is not infringing the patent and that the patent is invalid and
unenforceable. In December 1997, venue for the case was changed to the
Northern District of California in San Francisco, California. The Company
believes that it has meritorious defenses to the claims made in the Complaint
on both invalidity and non-infringement grounds, and intends to defend the
suit vigorously. Business Objects, S.A. contends that there was no prior
software or other prior art which allowed users to associate a familiar name
with a query or which permitted retrieved values to be semantically dynamic.
The Company has contended that, if the patent were construed to cover the
Company's current products, the patent would then also cover prior art
products, rendering the patent invalid. Business Objects, S.A. contends that
there are material differences between those prior art products and the
Company's current products. Business Objects, S.A. also contends that the
patent is valid because it has been commercially successful and widely copied
in the industry. The Company disputes these contentions. The Company and
Business Objects, S.A. are currently conducting discovery and a claims
construction hearing has been scheduled for the third quarter of this fiscal
year. The pending litigation could result in substantial expense to the
Company and significant diversion of effort by the Company's technical and
management personnel. The Complaint seeks injunctive relief and unspecified
monetary damages, and Business Objects, S.A. is expected to seek lost profits
and/or equivalent royalties. The Complaint also alleges willful infringement,
and seeks treble damages, costs and attorneys' fees. Litigation is subject to
inherent uncertainties, especially in cases such as this where complex
technical issues must be decided. The Company's defense of this litigation,
regardless of the merits of the Complaint or lack thereof, could be time-
consuming or costly, or divert the attention of technical and management
personnel, which could have a material adverse effect upon the Company's
business, operating results and financial condition. There can be no assurance
that the Company will prevail in the litigation given the complex technical
issues and inherent uncertainties in patent litigation, particularly before
the claims have been construed by the Court. In the event the Company is
unsuccessful in the litigation, the Company may be required to pay damages to
Business Objects, S.A. and could be prohibited from marketing certain of its
products without a license, which license may not be available on acceptable
terms. If the Company is unable to obtain such a license, the Company may be
required to license a substitute technology or redesign to avoid infringement,
in which case the Company's business, operating results and financial
condition could be materially adversely affected. Collectively, sales of
BrioQuery Navigator, BrioQuery Explorer and BrioQuery Designer represented
substantially all of the Company's revenues in fiscal 1996 and represented a
majority of the Company's revenues in fiscal 1997 and fiscal 1998. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors That May Affect Future Operating Results--Litigation with
Business Objects, S.A." and Item 1, "Business--Proprietary Rights."
 
                                      12
<PAGE>
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
  During the fourth quarter, the following matters were submitted to the
Company's stockholders for approval by written consent, and the votes for,
against or abstaining are shown for each matter:
 
  Prior to the Company's initial public offering on April 30, 1998 (the
"IPO"), a majority of the shareholders signed an Action by Written Consent of
the Stockholders effective March 25, 1998, which approved
 
    (i) the reincorporation of the Company from the State of California to
  the State of Delaware by means of a merger of the Company with and into a
  wholly-owned Delaware subsidiary which approval also constituted approval
  of (i) the exchange of shares of capital stock in the California company
  for shares of capital stock in the Delaware company on a one-for-one basis,
  (ii) the execution of indemnification agreements between the Delaware
  company and each of its officers and directors, (iii) certain amendments to
  the Delaware company's charter documents and (iv) a reduction in the
  automatic conversion price of the Company's Preferred Stock from $7.04 per
  share to $3.50 per share;
 
    (ii) an amendment and restatement of the Company's Certificate of
  Incorporation to effect a 1-for-2 reverse stock of the outstanding Common
  and Preferred Stock;
 
    (iii) the adoption of the Company's 1998 Director's Stock Option Plan and
  the reservation of 300,000 shares of the Company's Common Stock for
  issuance thereunder;
 
    (iv) the adoption of the Company's 1998 Employee Stock Purchase Plan and
  the reservation of 500,000 shares of the Company's Common Stock for
  issuance thereunder;
 
    (v) the adoption of the Company's 1998 Stock Option Plan and the
  reservation of 2,250,000 shares of the Company's Common Stock for issuance
  thereunder; and
 
    (vi) an amendment and restatement of the Company's Certificate of
  Incorporation effective upon the closing of the IPO, authorizing, among
  other things, 2,000,000 shares of undesignated Preferred Stock.
 
<TABLE>
     <S>        <C>                  <C>               <C>           <C>               <C>
     For        10,714,952           Against             0           Abstain           497,469
                ----------                             ---                             -------
</TABLE>
 
                                      13
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
  (a) The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "BRYO" since the Company's IPO. The following table sets
forth the high and low sales prices of the Company's Common Stock as reported
by the Nasdaq National Market for the periods indicated.
 
<TABLE>
<CAPTION>
                                                                   HIGH     LOW
                                                                   ----     ---
     <S>                                                           <C>      <C>
     FISCAL YEAR ENDED MARCH 31, 1999
     First Quarter (through June 24, 1998)........................ $19 1/16 $11
</TABLE>
 
  At April 30, 1998, there were approximately 110 holders of record of the
Company's Common Stock.
 
  The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain all available funds and any future
earnings for use in the operation of its business and does not anticipate
paying any cash dividends in the foreseeable future. In addition, the terms of
the Company's primary credit facility prohibit the paying of dividends without
the lender's consent.
 
  (b) Recent Sales of Unregistered Securities
 
    (1) In June 1997, the Company issued and sold, pursuant to a Series C
  Preferred Stock Purchase Agreement, an aggregate of 852,269 shares of its
  Series C Preferred Stock convertible into 852,269 shares of Common Stock at
  a purchase price of $7.04 per share for an aggregate offering price of
  $5,999,973.76.
 
    (2) From March 31, 1997 through March 31, 1998, the Company granted
  options under the 1992 Stock Option Plan to purchase an aggregate of
  723,847 shares of Common Stock at exercise prices ranging from $0.60 to
  $8.00 per share to 193 employees, directors and consultants.
 
    (3) From March 31, 1997 through March 31, 1998, an aggregate of 105,295
  shares of Common Stock were issued pursuant to option exercises at exercise
  prices ranging from $0.60 to $8.00 per share to 27 employees, directors and
  consultants.
 
  There were no underwritten offerings in connection with any of the
transactions set forth in Items 5(b)(1) and 5(b)(2) above. The issuances
described in Items 5(b)(2) and 5(b)(3) above were deemed to be exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
thereunder in that they were offered and sold pursuant to a written
compensation plan. In addition, such issuances were deemed to be exempt from
registration under the Securities Act under Section 4(2) of the Securities Act
as transactions not involving any public offering. The recipients of
securities in the transaction described in Item 5(b)(1) above represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the securities issued in such transaction.
All recipients had adequate access, through their relationships with the
Company, to information about the Company.
 
  (c) Use of Proceeds
 
  The Company filed a Registration Statement on Form S-1 (the "Registration
Statement"), File No. 333-47263, in connection with its initial public
offering of Common Stock, which was declared effective by the Securities and
Exchange Commission on April 30, 1998. The offering was underwritten by
Deutsche Morgan Grenfell Inc., BancAmerica Robertson Stephens, First Albany
Corporation and Piper Jaffray Inc. In the offering, the Company sold 3,085,000
shares (including shares sold on exercise of the underwriters' over-allotment
option) and the selling stockholders sold 250,000 shares (including shares
sold on exercise of the underwriters' over-allotment option). The aggregate
proceeds to the Company and the selling stockholders, after deducting
estimated offering expenses, were approximately $30.6 million and $2.6
million, respectively. The Company has used $900,000 of the proceeds for
capital expenditures, primarily related to the expansion of its facilities,
and $100,000 for operating activities, net of cash collected from sales. In
addition, the Company has used $3.4 million to repay all of the Company's bank
borrowings, and invested the balance of the net offering proceeds of $26.2
million in short-term money market investments. The use of proceeds described
herein does not represent a material change in the use of proceeds described
in the prospectus included in the Registration Statement.
 
                                      14
<PAGE>
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
 
  The selected consolidated financial data set forth below should be read in
conjunction with Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements
and the Notes thereto and the other information contained in this Report. The
selected consolidated statements of operations data for the years ended March
31, 1998, 1997 and 1996, and the selected consolidated balance sheet data as
of March 31, 1998 and 1997, are derived from, and are qualified by reference
to, the audited consolidated financial statements of the Company appearing
elsewhere in this Report. The selected consolidated statement of operations
data for the year ended March 31, 1995, and the selected consolidated balance
sheet data as of March 31, 1996 and 1995, are derived from audited
consolidated financial statements of the Company not included herein. The
selected consolidated statement of operations data for the year ended
March 31, 1994 and the selected consolidated balance sheet data as of March
31, 1994 is derived from unaudited consolidated financial statements of the
Company not included in this Report which have been prepared by the Company on
a basis consistent with the audited consolidated financial statements
appearing elsewhere in this Report and, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary
for fair presentation of such data. The historical results of operations
presented are not necessarily indicative of results to be expected for any
subsequent period.
 
<TABLE>
<CAPTION>
                                            YEAR ENDED MARCH 31,
                                 ----------------------------------------------
                                  1998     1997     1996     1995      1994
                                 -------  -------  -------  ------  -----------
                                                                    (UNAUDITED)
                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>      <C>      <C>      <C>     <C>
CONSOLIDATED STATEMENTS OF
 OPERATIONS DATA:
Revenues:
  License fees.................. $19,795  $10,328  $ 3,212  $2,487    $3,180
  Services......................   6,977    3,058    1,315   1,025       287
                                 -------  -------  -------  ------    ------
    Total revenues..............  26,772   13,386    4,527   3,512     3,467
                                 -------  -------  -------  ------    ------
Cost of revenues:
  License fees..................   1,008      839      340     192       184
  Services......................   2,595      817      371     205       174
                                 -------  -------  -------  ------    ------
    Total cost of revenues......   3,603    1,656      711     397       358
                                 -------  -------  -------  ------    ------
Gross profit....................  23,169   11,730    3,816   3,115     3,109
                                 -------  -------  -------  ------    ------
Operating expenses:
  Research and development......   5,218    2,447    1,555     934       725
  Sales and marketing...........  22,728   13,588    4,476   1,662     1,001
  General and administrative....   2,954    1,685    1,014     849       819
                                 -------  -------  -------  ------    ------
    Total operating expenses....  30,900   17,720    7,045   3,445     2,545
                                 -------  -------  -------  ------    ------
Income (loss) from operations...  (7,731)  (5,990)  (3,229)   (330)      564
Interest and other income
 (expense), net.................    (341)      25       33     (40)      (40)
                                 -------  -------  -------  ------    ------
Net income (loss)............... $(8,072) $(5,965) $(3,196) $ (370)   $  524
                                 =======  =======  =======  ======    ======
Basic net income (loss) per
 share.......................... $ (1.41) $ (1.14) $ (0.64) $(0.07)   $ 0.10
                                 =======  =======  =======  ======    ======
Shares used in computing basic
 net income (loss) per share....   5,724    5,218    5,018   5,000     5,000
                                 =======  =======  =======  ======    ======
Pro forma basic net loss per
 share.......................... $ (0.74) $ (0.63)
                                 =======  =======
Shares used in computing pro
 forma net loss per share.......  10,977    9,479
                                 =======  =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                YEAR ENDED MARCH 31,
                                      -----------------------------------------
                                       1998     1997   1996   1995     1994
                                      -------  ------ ------ ------ -----------
                                                                    (UNAUDITED)
                                                   (IN THOUSANDS)
<S>                                   <C>      <C>    <C>    <C>    <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............ $ 2,647  $  890 $  546 $3,091   $   39
Total current assets.................  10,474   6,516  3,002  4,284      925
Total current liabilities............  14,384   8,295  3,371  1,221    1,178
Noncurrent liabilities...............   1,556     457      0      0        0
Stockholders' equity (deficit).......  (1,854)    133    100  3,236     (166)
</TABLE>
 
 
                                      15
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
 
  The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto and the other information included
elsewhere in this Report. Certain statements in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are forward-
looking statements. The forward-looking statements contained herein are based
on current expectations and entail various risks and uncertainties that could
cause actual results to differ materially from those expressed in such
forward-looking statements. For a more detailed discussion of these and other
business risks, see "Factors That May Affect Future Operating Results" below.
 
OVERVIEW
 
  The Company designs, develops, markets and supports software products that
enable organizations to rapidly implement enterprise business intelligence
solutions. The Company's first product, DataPrism, was introduced in 1990, and
the Company's most recent version of its product suite, Brio Enterprise 5.5,
was introduced in 1997. The Company had net losses of $3.2 million, $6.0
million and $8.1 million in fiscal 1996, 1997 and 1998, respectively, and had
an accumulated deficit of approximately $17.9 million as of March 31, 1998.
See "Factors That May Affect Future Operating Results--History of Net Losses;
Substantial Accumulated Deficit; Uncertain Future Profitability" below.
 
  The Company's revenues are derived principally from license fees for
software products and, to a lesser extent, fees for a range of services
complementing such products, including software maintenance and support,
training and system implementation consulting. Revenues in current periods are
generally attributable to the sale of the most recent version of the Company's
product suite, and the Company generally discontinues marketing older versions
upon new version introductions. The Company typically licenses its products on
a per user basis with the price per user varying based on the selection of
products licensed. Additionally, the Company is increasing its efforts to sell
customers larger enterprise-wide implementations of the Company's products
through licenses on a per site basis with the price per site varying based on
the selection of products licensed, the number of authorized users for each
product at each site and the number of licensed sites. The Company's customers
include organizations in a diverse set of industry segments. No single
customer has accounted for more than 10% of the Company's total revenues for
the fiscal year ended March 31, 1998. Revenues from license fees are
recognized upon shipment of the software if collection of the resulting
receivable is probable, the fee is fixed or determinable and vendor-specific
objective evidence exists to allocate the total fee to all delivered and
undelivered elements of the arrangement. In instances where payments are
subject to extended payment terms, revenue is deferred until payments become
due. If an acceptance period is required, revenue is recognized upon the
earlier of customer acceptance or the expiration of the acceptance period.
Allowances are established for potential product returns and credit losses,
which have been insignificant to date. Fees for services are charged
separately from license fees. In addition, service revenues from maintenance
and support services, which include ongoing product support and periodic
product updates, are recognized ratably over the term of each contract, which
is typically twelve months. Payments for maintenance and support services are
generally made in advance and are non-refundable. Service revenues from
training and consulting services are recognized when the services are
performed.
 
  To date, revenues from license fees have been derived principally from
direct sales of software products to end users through the Company's direct
sales force. Although the Company believes that such direct sales will
continue to account for a significant portion of revenues from license fees in
the foreseeable future, the Company has recently developed and intends to
continue to develop reselling relationships with companies in the Indirect
Channel, and the Company expects that revenues from sales through the Indirect
Channel will increase as a percentage of revenues from license fees. Revenues
from the Indirect Channel were 9%, 7% and 15% of total revenues for fiscal
1996, 1997 and 1998, respectively. The Company's ability to achieve revenue
growth and improved operating margins, as well as increased worldwide sales,
in the future will depend in large part upon its success in expanding and
maintaining the Indirect Channel worldwide. See "Factors That May Affect
Future Operating Results--Dependence on Direct Sales Force" and "--Dependence
on Development of Indirect Sales Channels" below.
 
                                      16
<PAGE>
 
  The Company is also increasing its efforts to sell customers larger,
enterprise-wide implementations of the Company's products, rather than
departmental sales, which may increase the complexity and length of the sales
cycle. In connection with such larger sales, the Company has in the past and
may in the future choose to grant greater pricing and other concessions, such
as discounted training and consulting, than for single department or local
network sales. See "Factors That May Affect Future Operating Results--Lengthy
Product Sales Cycle" below.
 
  The Company has, to date, sold its products internationally through direct
sales offices in the United Kingdom, France and Australia, and indirectly
through established distribution relationships in more than 20 countries,
including Belgium, Italy, Japan, The Netherlands and South Africa. Sales to
customers outside of the United States and Canada, including sales generated
by the Company's foreign subsidiaries, represented 9%, 14% and 19% of total
revenues for fiscal 1996, 1997 and 1998, respectively. The Company's direct
sales offices in the United Kingdom and Australia were formed through the
Company's acquisition of distributors in those countries. A substantial
portion of the Company's international sales in the past have been denominated
and collected in foreign currencies, and the Company believes that a portion
of the Company's cost of revenues and operating expenses will continue to be
incurred in foreign currencies. Although it is impossible to predict future
exchange rate movements between the U.S. dollar and other currencies, to the
extent the U.S. dollar strengthens or weakens against other currencies, a
substantial portion of the Company's revenues, cost of revenues and operating
expenses will be commensurately lower or higher than would be the case in a
more stable foreign currency environment. Although the Company has not
historically undertaken foreign exchange hedging transactions to cover its
potential foreign currency exposure, it may do so in the future. See "Factors
That May Affect Future Operating Results--Risks Associated with International
Expansion" below.
 
  Although the Company has experienced significant quarter-to-quarter revenue
growth in fiscal 1997 and 1998, the Company does not expect to sustain the
same rate of sequential quarterly revenue growth in future periods, and there
can be no assurance that the Company will be able to sustain revenue growth or
attain profitability in the future. The Company currently intends to commit
substantial financial resources to research and development, customer support
and sales and marketing, including the expansion of its direct sales force,
third-party partnering relationships and its indirect channel sales
organization, and expects that expenses relating to its litigation with
Business Objects, S.A. will increase in future periods. The Company also
expects to increase its staffing and systems infrastructure in order to
support the Company's expanding operations and to comply with the additional
responsibilities of a public company. As a result, the Company expects that
its operating expenses will increase significantly in fiscal 1999. See
"Factors That May Affect Future Operating Results--Fluctuations in Quarterly
Operating Results" and "--Litigation with Business Objects, S.A." below.
 
                                      17
<PAGE>
 
RESULTS OF OPERATIONS
 
  The following table sets forth certain selected consolidated statements of
operations data as a percentage of revenues for the periods indicated:
 
<TABLE>
<CAPTION>
                                                   YEAR ENDED MARCH 31,
                                                   --------------------------
                                                    1998      1997      1996
                                                   ------    ------    ------
   <S>                                             <C>       <C>       <C>
   CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
   Revenues:
     License fees.................................     74%       77%       71%
     Services.....................................     26        23        29
                                                   ------    ------    ------
       Total revenues.............................    100       100       100
                                                   ------    ------    ------
   Cost of revenues:
     License fees.................................      4         6         8
     Services.....................................     10         6         8
                                                   ------    ------    ------
       Total cost of revenues.....................     14        12        16
                                                   ------    ------    ------
   Gross profit...................................     86        88        84
   Operating expenses:
     Research and development.....................     19        18        34
     Sales and marketing..........................     85       102        99
     General and administrative...................     11        13        23
                                                   ------    ------    ------
       Total operating expenses...................    115       133       156
   Loss from operations...........................    (29)      (45)      (72)
   Interest and other income (expense), net.......     (1)       --         1
                                                   ------    ------    ------
   Net loss.......................................    (30)%     (45)%     (71)%
                                                   ======    ======    ======
</TABLE>
 
REVENUES
 
  The Company's revenues are derived from license fees and services, which
include software maintenance and support, training and system implementation
consulting. Total revenues increased by 196% from $4.5 million in fiscal 1996
to $13.4 million in fiscal 1997 and by 100% to $26.8 million in fiscal 1998.
 
  License Fees. The Company's revenues from license fees increased by 222%
from $3.2 million in fiscal 1996 to $10.3 million in fiscal 1997 and by 92% to
$19.8 million in fiscal 1998. The increases in fiscal 1997 and 1998 were due
to growing sales to new customers (approximately $3.1 million of the increase
in fiscal 1997 and approximately $4.8 million of the increase in fiscal 1998)
and increased follow-on sales to existing customers (approximately $4.0
million of the increase in fiscal 1997 and approximately $4.7 million of the
increase in fiscal 1998), primarily as a result of the expansion of the
BrioQuery product suite through the introduction of the Company's Web-based
extensions of its product suite in fiscal 1997 and 1998.
 
  Services. The Company's service revenues increased by 133% from $1.3 million
in fiscal 1996 to $3.1 million in fiscal 1997 and by 128% to $7.0 million in
fiscal 1998. The increases in fiscal 1997 and 1998 were due to an increase in
maintenance and support revenues (approximately $900,000 of the increase in
fiscal 1997 and approximately $2.2 million of the increase in fiscal 1998) and
an increase in training and consulting revenues (approximately $900,000 of the
increase in fiscal 1997 and approximately $1.7 million of the increase in
fiscal 1998), related to increases in the Company's installed customer base.
 
COST OF REVENUES
 
  License Fees. Cost of revenues from license fees consists primarily of
product packaging, shipping, media, documentation, and related personnel and
overhead allocations. The Company's cost of revenues from license fees
increased by 147% from $340,000 in fiscal 1996 to $839,000 in fiscal 1997 and
by 20% to $1 million in
 
                                      18
<PAGE>
 
fiscal 1998. The increase in absolute dollars was due to the increase in the
number of licenses sold. The decrease as a percentage of revenues from license
fees was primarily due to an increase in the number of customers purchasing
master disks, which are less expensive to produce and ship, as compared to
"shrinkwrapped" product and economies of scale associated with absorbing fixed
costs over a larger revenue base. Cost of revenues from license fees may vary
between periods due to the mix of customers purchasing master disks relative
to customers purchasing "shrinkwrapped" product.
 
  Services. Cost of service revenues consists primarily of personnel costs and
third-party consulting fees associated with providing software maintenance and
support, training and consulting services. Cost of service revenues increased
by 120% from $371,000 in fiscal 1996 to $817,000 in fiscal 1997 and by 218% to
$2.6 million in fiscal 1998. The increases from fiscal 1996 to 1997 were due
principally to increases in personnel resulting from the Company's expansion
of its support services in response to increased demand for maintenance and
support, training and consulting services. Approximately $1.7 million of the
increase in fiscal 1998 was due to increases in personnel and related costs
resulting from the Company's expansion of its support services and
approximately $900,000 of the increase was due to increases in the use of
outside consultants for training and consulting services. Cost of service
revenues may vary between periods due to the mix of services provided by the
Company's personnel relative to services provided by outside consultants and
to varying levels of expenditures required to build the services organization.
 
OPERATING EXPENSES
 
  Research and development. Research and development expenses consist
primarily of personnel and related costs associated with the development of
new products, the enhancement and localization of existing products, quality
assurance and testing. Research and development expenses increased by 57% from
$1.6 million in fiscal 1996 to $2.4 million in fiscal 1997 and by 113% to $5.2
million in fiscal 1998. The increases from year to year were primarily due to
increased personnel and related costs required to continue to develop and
enhance the Company's fully integrated Brio Enterprise solution for both the
client/server and Web-based environments, while developing new products, such
as the Brio Enterprise server products. The Company believes that significant
investment for product research and development is essential to product and
technical leadership and anticipates that it will continue to commit
substantial resources to research and development in the future. The Company
anticipates that research and development expenditures will continue to
increase in absolute dollars, although such expenses may vary as a percentage
of total revenues.
 
  Sales and marketing. Sales and marketing expenses consist primarily of
salaries and other personnel related costs, commissions, bonuses and sales
incentives, travel, marketing programs such as trade shows and seminars, and
promotion costs. Sales and marketing expenses increased by 204% from $4.5
million in fiscal 1996 to $13.6 million in fiscal 1997 and by 67% to $22.7
million in fiscal 1998. The increases were attributable to the costs
associated with the expansion of the Company's sales and marketing
organization, including domestically through the growth of the telesales
organization, internationally through the establishment of subsidiary offices
in the United Kingdom, Australia, and France and through the expansion of the
worldwide field sales organization and related costs (approximately $5.6
million in fiscal 1997 and approximately $5.7 million in fiscal 1998), higher
sales commissions, bonuses and sales incentives associated with increased
revenues (approximately $1.6 million in fiscal 1997 and approximately $1.9
million in fiscal 1998), and increased domestic and international marketing
expenses, including marketing activities, personnel and related costs
(approximately $1.9 million in fiscal 1997 and approximately $1.5 million in
fiscal 1998). The decrease as a percentage of total revenues was generally
attributable to increases in revenues for the periods. The Company believes
that as it continues to expand its direct sales and pre-sales support
organization and its third-party partnering relationships and its indirect
channel sales organization on a worldwide basis, sales and marketing expenses
will continue to increase in absolute dollars. Such expenses are currently
intended to be funded by the Company's working capital. In particular, the
Company expects that sales compensation, travel and related expenses will
increase significantly as the Company continues to increase the number of its
direct sales personnel and its emphasis on direct field sales efforts.
Nonetheless, the Company expects sales and marketing expenses will continue to
vary as a percentage of total revenues.
 
                                      19
<PAGE>
 
  General and administrative. General and administrative expenses consist
primarily of personnel costs for finance, human resources, information
systems, and general management, as well as legal, accounting and unallocated
overhead expenses. General and administrative expenses increased by 66% from
$1.0 million in fiscal 1996 to $1.7 million in fiscal 1997 and by 75% to $3.0
million in fiscal 1998. Substantially all of the increases were due to
increased personnel and related costs (approximately $500,000 in fiscal 1997
and approximately $1.1 million in fiscal 1998) and professional fees
(approximately $200,000 in fiscal 1997 and approximately $200,000 in fiscal
1998) necessary to manage and support the Company's growth and facilities
expansion. The decrease in general and administrative expenses as a percentage
of total revenues is primarily attributable to increased efficiencies in the
Company's administrative operations and increased revenues. The Company
expects that its general and administrative expenses will increase in absolute
dollars as the Company expands its staffing to support expanded operations,
incurs expenses in its litigation with Business Objects, S.A., and assumes the
responsibilities of a public company. The Company expects that such expenses
will vary as a percentage of total revenues.
 
  Deferred Compensation. In connection with the grant of certain stock options
to employees during fiscal 1998, the Company recorded deferred compensation of
$580,000, representing the difference between the deemed value of the Common
Stock for accounting purposes and the option exercise price of such options at
the date of grant. Such amount is presented as a reduction of stockholder's
equity and amortized ratably over the vesting period of the applicable
options. Approximately $105,000 was expensed during fiscal 1998, and the
balance will be expensed ratably over the next four years as the options vest.
See Note 8 of Notes to Consolidated Financial Statements.
 
INTEREST AND OTHER INCOME (EXPENSE), NET
 
  Interest and other income (expense), net, is comprised primarily of interest
income and foreign currency transaction gains or losses, net of interest
expense. Interest expense is comprised of interest incurred on the Company's
bank line of credit. The Company's interest and other income (expense), net,
decreased from $33,000 in fiscal 1996 to $25,000 in fiscal 1997. Interest and
other income (expense), net, decreased to a net expense of $341,000 in fiscal
1998. The decrease in fiscal 1997 was due to increased bank borrowings. The
decrease in fiscal 1998 was attributable to an increase in the amount of
borrowings on the Company's line of credit to fund growth in operations, and
to a lesser extent losses of approximately $131,000 on foreign currency
transactions resulting from intercompany receivables from foreign
subsidiaries. See Note 2 of Notes to Consolidated Financial Statements.
 
PROVISION FOR INCOME TAXES
 
  As of March 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $8.7 million and $2.8 million, respectively,
available to offset future taxable income, which expire at various dates
through 2012 if not utilized. Further, as of March 31, 1998, the Company had
tax credit carryforwards of approximately $553,000 which expire at various
dates through 2012. In addition, the Internal Revenue Code of 1986, as
amended, contains certain provisions that may limit the net operating loss
carryforwards available for use in any given period upon the occurrence of
certain events, including a significant change in ownership interests. The
Company has net deferred tax assets, including its net operating loss
carryforwards, totaling approximately $5.3 million as of March 31, 1998. The
Company has recorded a valuation allowance for all of its net deferred tax
assets as a result of significant uncertainties regarding the realization of
most of its assets, including the limited operating history of the Company, a
recent history of losses and the variability of operating results. See Note 10
of Notes to Consolidated Financial Statements.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for the Company's fiscal year beginning on
April 1, 1998. This standard defines comprehensive income as the changes in
equity of
 
                                      20
<PAGE>
 
an enterprise except those resulting from stockholder transactions. All
components of comprehensive income will be required to be reported in
financial statements issued for periods beginning after the effective date of
SFAS No. 130. Management believes the adoption of SFAS No. 130 will not have a
material effect on the Company's consolidated financial statements.
 
  In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 is effective for the Company's fiscal years beginning on April 1,
1998. SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers.
Management believes the adoption of SFAS No. 131 will not have a material
effect on the Company's consolidated financial statements.
 
  In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 which will supersede SOP 91-1,
"Software Revenue Recognition." SOP 97-2 is effective for transactions entered
into in the Company's fiscal years beginning April 1, 1998. Management has
assessed this new statement and believes that its adoption will not have a
material effect on the Company's consolidated financial statements or the
timing of the Company's revenue recognition, or cause changes to its revenue
recognition policies.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Since inception, the Company has funded its operations and capital
expenditures primarily from the net proceeds of approximately $15.7 million
from private sales of Preferred Stock, cash from operations and, early in the
Company's history, development fees, and to a lesser extent, from bank
borrowings. Subsequent to March 31, 1998, the Company sold 3,085,000 shares of
common stock in connection with its initial public offering. The aggregate
proceeds to the Company, after deducting estimated offering expenses, were
approximately $30.6 million. Net cash used in operating activities in fiscal
1996, 1997 and 1998 was $3.3 million, $4.7 million and $3.8 million,
respectively.
 
  As of March 31, 1998, the Company had cash and cash equivalents of $2.6
million. In addition, during January 1998, the Company obtained a bank line of
credit which provides for up to $10.0 million in borrowings. The Company can
borrow up to 80% of eligible accounts receivable against this line, with an
additional $1.5 million in non-formula availability, which is collateralized
by substantially all of the Company's assets, including the Company's
intellectual property to the extent required to secure the Bank's interest in
the accounts receivables and which provides for interest at the bank's prime
rate. This line of credit requires the Company to comply with various
financial covenants, including quarterly requirements to maintain a minimum
quick ratio of 2.0:1.0 and a minimum tangible net worth of two times the
commitment amount. The line expires on December 1, 1999, when any amounts
outstanding thereunder would be due and payable. See Note 6 of Notes to
Consolidated Financial Statements. As of March 31, 1998, the Company's bank
borrowings were $3.4 million. Subsequent to March 31, 1998, the Company
utilized a portion of the net proceeds from its initial public offering to
repay all of its bank borrowings.
 
  Net cash used in investing activities was $380,000, $2.0 million and $1.7
million in fiscal 1996, 1997 and 1998, respectively, consisting primarily of
purchases of property and equipment and, to a lesser extent, a one-time
payment in connection with the acquisition of the Company's Australian
subsidiary. The Company has planned capital commitments of up to approximately
$2.0 million in fiscal 1999.
 
  Net cash provided by financing activities was $1.2 million, $7.1 million and
$7.2 million in fiscal 1996, 1997 and 1998, respectively, consisting primarily
of proceeds from private sales of Preferred Stock and periodic borrowings, net
of repayments, on the bank line of credit.
 
  The Company believes that its current cash balances and any cash generated
from operations and from available or future debt financing, will be
sufficient to meet the Company's operating and capital requirements for at
least the next 12 months. However, there can be no assurance that the Company
will not require additional financing within this time frame. The Company has
no current plans, and is not currently negotiating, to obtain additional
financing.
 
                                      21
<PAGE>
 
               FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
 
  History of Net Losses; Substantial Accumulated Deficit; Uncertain Future
Profitability. The Company incurred net losses of $3.2 million, $6.0 million
and $8.1 million in fiscal 1996, 1997 and 1998, respectively. As of March 31,
1998, the Company had a shareholders' deficit of approximately $1.9 million.
Given the Company's history of net losses, there can be no assurance of
revenue growth or profitability on a quarterly or annual basis in the future.
While the Company achieved significant quarter-to-quarter revenue growth in
fiscal 1997 and 1998, the Company does not expect to sustain the same rate of
sequential quarterly revenue growth in future periods. In addition, the
Company intends to increase its operating expenses significantly in fiscal
1999; therefore, the Company's operating results will be adversely affected if
revenue does not increase. The Company's prospects must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in rapidly evolving
markets. To address these risks, the Company must, among other things,
successfully increase the scope of its operations, respond to competitive
developments, continue to attract, retain and motivate qualified personnel and
continue to commercialize products incorporating advanced technologies. There
can be no assurance that the Company will be successful in addressing such
risks, and the failure to do so would have a material adverse effect on the
Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" above.
 
  Fluctuations in Quarterly Operating Results. The Company has experienced and
expects to continue to experience significant fluctuations in quarterly
operating results based on a number of factors, many of which are not within
the Company's control. Among other things, the Company's operating results
have fluctuated in the past due to the timing of product enhancements and new
product announcements by the Company, the lengthy sales cycle of the Company's
products, market acceptance of and demand for the Company's products, capital
spending patterns of the Company's customers, customer order deferrals in
anticipation of enhancements or new products offered by the Company, the
Company's ability to attract and retain key personnel, the mix of domestic and
international sales, the mix of license and service revenues, personnel
changes and changes in the timing and level of operating expenses. The
Company's results of operations may also fluctuate in the future due to a
number of factors, including but not limited to those discussed above, as well
as the number and significance of product enhancements and new product
announcements by the Company's competitors, changes in pricing policies by the
Company or its competitors, the ability of the Company to develop, introduce
and market new and enhanced versions of the Company's products on a timely
basis, customer order deferrals in anticipation of enhancements or new
products offered by the Company's competitors, nonrenewal of service
agreements, software defects and other product quality problems, the mix of
direct and indirect sales, currency fluctuations, costs or damage awards
associated with the current Business Objects, S.A. litigation and general
economic conditions. The Company anticipates that an increasing portion of its
revenue could be derived from larger orders, in which case the timing of
receipt and fulfillment of any such orders could cause material fluctuations
in the Company's operating results, particularly on a quarterly basis.
Furthermore, the Company has experienced, and expects to continue to
experience, seasonality due, among other things, to customer capital spending
patterns and the general summer slowdown in sales. Such seasonality could have
a material adverse effect on the Company's results of operations, particularly
for the quarters ending June 30 or September 30.
 
  In addition, the Company currently intends to commit substantial financial
resources to research and development, customer support and sales and
marketing, including the expansion of its direct sales force, third-party
partnering relationships and its indirect channel sales organization, and
expects that expenses relating to its litigation with Business Objects, S.A.
will increase in future periods. The Company also expects to increase its
staffing and systems infrastructure in order to support the Company's
expanding operations and to comply with the additional responsibilities of a
public company. To the extent such expenses are not subsequently followed by
increased revenues, the Company's business, operating results and financial
condition could be materially adversely affected. The timing of such expansion
and the rate at which new sales people become productive could also cause
material fluctuations in the Company's quarterly operating results.
 
                                      22
<PAGE>
 
  Due to the foregoing factors, quarterly revenue and operating results are
difficult to forecast. Further, the Company's expense levels are based in
significant part on the Company's expectations as to future revenue and are
therefore relatively fixed in the short term. Additionally, the Company has in
the past and expects in the future to recognize a large portion of its license
revenue in the last month of each quarter. If revenue levels fall below
expectations, net income is likely to be disproportionately adversely affected
because a proportionately smaller amount of the Company's expenses varies with
its revenue. In light of the foregoing, in some future quarter the Company's
reported or anticipated operating results may fail to meet or exceed the
expectations of securities analysts or investors. In such event, the price of
the Company's Common Stock would be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" above.
 
  Dependence on Direct Sales Force. The Company has historically sold its
products primarily through its direct sales and services organization located
in the United States, Canada, the United Kingdom, France and Australia, and
the Company intends to continue to invest significant resources to expand its
direct sales force. Revenues from direct sales were 91%, 93% and 85% of total
revenues for fiscal 1996, 1997 and 1998, respectively. Competition for
personnel with a sufficient level of expertise and experience for these
positions is intense, particularly among the Company's competitors who may
have substantially greater resources than the Company or greater resources
dedicated to hiring such personnel. In addition, the Company has experienced
significant turnover of its sales force. Such turnover tends to slow sales
efforts until replacement personnel can be recruited and trained to become
productive members of the Company's sales force. There can be no assurance
that the Company will be able to attract and retain adequate sales and
marketing personnel, despite the expenditure of significant resources to do
so, and the failure to do so could have a material adverse effect on the
Company's business, operating results and financial condition. See "--
Dependence on Key Personnel and Hiring of Additional Personnel."
 
  Dependence on Key Personnel and Hiring of Additional Personnel. The
Company's success depends to a significant degree upon the continued
contributions of its key management, engineering, sales and marketing
personnel, many of whom would be difficult to replace. The Company has
employment contracts with only three members of its executive management
personnel, and currently maintains "key person" life insurance only on Yorgen
Edholm, the Company's President and Chief Executive Officer, and Katherine
Glassey, the Company's Executive Vice President, Products and Services and
Chief Technology Officer, respectively. The Company does not believe such
insurance would adequately compensate it for the loss of either Mr. Edholm or
Ms. Glassey. The Company believes its future success will also depend in large
part upon its ability to attract and retain highly skilled managerial,
engineering, sales and marketing and finance personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company has
recently experienced difficulties in hiring highly qualified sales and
engineering personnel, and the Company believes that it may have greater
difficulty in attracting such personnel with equity incentives as a public
company than it had while privately held. For example, as a result of market
forces, companies in the enterprise software industry have historically
experienced significant fluctuations in their market valuations. To the extent
that the Company's Common Stock trades at a premium relative to historical
industry averages or to other companies in the enterprise software industry,
the Company may experience difficulty in attracting qualified personnel. The
loss of the services of any of the key personnel, the inability to attract or
retain qualified personnel in the future or delays in either hiring required
personnel or the rate at which new people become productive, particularly
sales personnel and engineers, could have a material adverse effect on the
Company's business, operating results and financial condition. In addition,
companies in the enterprise software industry whose employees accept positions
with competitive companies frequently claim that their competitors have
engaged in unfair hiring practices. The Company has, from time to time,
received such claims from other companies and there can be no assurance that
the Company will not receive additional claims in the future as it seeks to
hire qualified personnel or that such claims will not result in litigation
involving the Company. The Company could incur substantial costs in defending
itself against any such claims, regardless of the merits of such claims or
lack thereof. See Item 1, "Business--Employees."
 
                                      23
<PAGE>
 
  Lengthy Product Sales Cycle. The purchase of the Company's products may
require significant, executive-level investment and systems architecture
decisions by prospective customers. Such transactions may be delayed during
the customer acceptance process because the Company must provide a significant
level of education to prospective customers regarding the use and benefits of
the Company's products. The Company believes that most companies currently are
not yet aware of the benefits of enterprise-wide business intelligence
solutions or of the Company's products and capabilities, nor have such
companies deployed business intelligence solutions on an enterprise-wide
basis. Accordingly, the sales cycle associated with the purchase of the
Company's enterprise business intelligence products is typically three to nine
months in length and subject to a number of significant risks over which the
Company has little or no control, including customers' budgeting constraints
and internal acceptance review procedures. Further, to the extent that
potential customers divert resources and attention to issues associated with
the year 2000 issue, the Company's sales cycle could be further lengthened.
See "--Year 2000 Compliance."
 
  Additionally, the sales cycle for the Company's products in international
markets has historically been, and is expected to continue to be, longer than
the sales cycle in the United States and Canada. Accordingly, as the Company
expands internationally, the average sales cycle for the Company's products is
expected to lengthen. Based in part upon, among other things, its lengthy
sales cycle, the Company believes that its quarterly revenues and operating
results could vary significantly in the future, and that excessive delay in
product sales could have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" above and Item 1,
"Business--Sales and Marketing."
 
  Dependence on Development of Indirect Sales Channels. To date, the Company
has sold its products principally through its direct sales and services
organizations and, to a lesser extent, through VARs, resellers and
distributors (collectively referred to as the Company's "Indirect Channel").
Revenues from the Company's Indirect Channel were 9%, 7% and 15% of total
revenues for fiscal 1996, 1997 and 1998, respectively. The Company's ability
to achieve revenue growth and improved operating margins on product sales, as
well as increased worldwide sales, in the future will depend in large part
upon its success in expanding and maintaining the Indirect Channel worldwide.
Although the Company is currently investing and plans to continue to invest
significant resources to develop the Indirect Channel, there can be no
assurance that the Company will be able to continue to attract and retain
additional companies in the Indirect Channel that will be able to market the
Company's products effectively and will be qualified to provide timely and
cost-effective customer support and services. There also can be no assurance
that the Company will be able to manage conflicts within the Indirect Channel
or that the Company's focus on increasing sales through the Indirect Channel
will not divert management resources and attention from direct sales. In
addition, the Company's agreements with companies in the Indirect Channel do
not restrict such companies from distributing competing products, and in many
cases may be terminated by either party without cause. There can be no
assurance that the Company will be able to successfully expand its Indirect
Channel or that any such expansion will result in an increase in revenues, and
failure to do so could have a material adverse effect on the Company's
business, operating results and financial condition. See Item 1, "Business--
Brio Strategy" and "--Sales and Marketing."
 
  Competition. The market in which the Company operates is still developing,
and is intensely competitive, highly fragmented and characterized by rapidly
changing technology and evolving standards. The Company's current and
potential competitors offer a variety of software solutions and generally fall
within four categories: (i) vendors of business intelligence software such as
Cognos, Business Objects, S.A., Seagate, and Andyne; (ii) vendors offering
alternative approaches to delivering analysis capabilities to users, such as
MicroStrategy; (iii) database vendors that offer products which operate
specifically with their proprietary database, such as Microsoft, IBM, Oracle
or Arbor; and (iv) other companies that may in the future announce offerings
of enterprise business intelligence solutions. The Company's competitive
position in the market is uncertain, due principally to the variety of current
and potential competitors and the emerging nature of the market. The Company
has experienced and expects to continue to experience increased competition
from current and potential competitors, many of whom have significantly
greater financial, technical, marketing and other
 
                                      24
<PAGE>
 
resources than the Company. Such competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements
or devote greater resources to the development, promotion and sales of their
products than the Company. The Company expects additional competition as other
established and emerging companies enter into the business intelligence
software market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins, longer sales cycles and loss of market share, any of which
could have a material adverse effect on the Company's business, operating
results and financial condition. Current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with third parties, thereby increasing the ability of their products to
address the needs of the Company's prospective customers. The Company's
current or future indirect channel partners may establish cooperative
relationships with current or potential competitors of the Company, thereby
limiting the Company's ability to sell its products through particular
distribution channels. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could have a material adverse
effect on the Company's ability to obtain new licenses, and maintenance and
support renewals for existing licenses, on terms favorable to the Company.
Further, competitive pressures may require the Company to reduce the price of
its products, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors, and the failure to do so could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company competes on the basis of certain factors, including product
features, time to market, ease of use, product performance, product quality,
analytical capabilities, user scalability, open architecture, customer support
and price. The Company believes it presently competes favorably with respect
to each of these factors. However, the Company's market is still evolving and
there can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
successfully could have a material adverse effect on the Company's business,
operating results and financial condition.
 
  Litigation With Business Objects, S.A. On January 20, 1997, Business
Objects, S.A. filed a complaint (the "Complaint") against the Company in the
U.S. District Court for the Northern District of California in San Jose,
California alleging that certain of the Company's products (including at least
the BrioQuery Navigator, BrioQuery Explorer and BrioQuery Designer products)
infringe at least claims 1, 2 and 4 of U.S. Patent No. 5,555,403. In April
1997, the Company filed an answer and affirmative defenses to the Complaint,
denying certain of the allegations in the Complaint and asserting a
counterclaim requesting declaratory relief that the Company is not infringing
the patent and that the patent is invalid and unenforceable. In December 1997,
venue for the case was changed to the Northern District of California in San
Francisco, California. The Company believes that it has meritorious defenses
to the claims made in the Complaint on both invalidity and non-infringement
grounds, and intends to defend the suit vigorously. Business Objects, S.A.
contends that there was no prior software or other prior art which allowed
users to associate a familiar name with a query or which permitted retrieved
values to be semantically dynamic. The Company has contended that, if the
patent were construed to cover the Company's current products, the patent
would then also cover prior art products, rendering the patent invalid.
Business Objects, S.A. contends that there are material differences between
those prior art products and the Company's current products. Business Objects,
S.A. also contends that the patent is valid because it has been commercially
successful and widely copied in the industry. The Company disputes these
contentions. The Company and Business Objects, S.A. are currently conducting
discovery and are awaiting a date for the claims construction hearing. The
pending litigation could result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. The Complaint seeks injunctive relief and unspecified monetary
damages, and Business Objects, S.A. is expected to seek lost profits and/or
equivalent royalties. The Complaint also alleges willful infringement, and
seeks treble damages, costs and attorneys' fees. Litigation is subject to
inherent uncertainties, especially in cases such as this where complex
technical issues must be decided. The Company's defense of this litigation,
regardless of the merits of the Complaint or lack thereof, could be time-
consuming or costly, or divert the attention of technical and management
personnel, which could have a material adverse effect upon the Company's
business, operating results and financial condition. There can be no assurance
that the Company will prevail in the
 
                                      25
<PAGE>
 
litigation given the complex technical issues and inherent uncertainties in
patent litigation, particularly before the claims have been construed by the
Court. In the event the Company is unsuccessful in the litigation, the Company
may be required to pay damages to Business Objects, S.A. and could be
prohibited from marketing certain of its products without a license, which
license may not be available on acceptable terms. If the Company is unable to
obtain such a license, the Company may be required to license a substitute
technology or redesign to avoid infringement, in which case the Company's
business, operating results and financial condition could be materially
adversely affected. Collectively, sales of BrioQuery Navigator, BrioQuery
Explorer and BrioQuery Designer represented substantially all of the Company's
revenues in fiscal 1996 and represented a majority of the Company's revenues
in fiscal 1997 and fiscal 1998. See Item 1, "Business--Proprietary Rights" and
Item 3, "Legal Proceedings."
 
  Management of Operations; New Management Team. The Company's recent growth
and expansion of operations has placed, and is expected to continue to place,
a significant strain on its managerial, operational and financial resources.
To manage its potential growth, the Company must continue to implement and
improve its operational and financial systems and to expand, train and manage
its employee base. Over half of the Company's executive management have joined
the Company within approximately the last eighteen months, including the
Company's Chief Financial Officer, Executive Vice President, Marketing and
Executive Vice President, Worldwide Operations. These individuals have not
previously worked together for substantial lengths of time and are in the
process of integrating as a management team, and certain of such individuals
do not have significant prior experience in public company executive
management. There can be no assurance that the Company will be able to
effectively manage the expansion of its operations, that the Company's
systems, procedures or controls will be adequate to support the Company's
operations or that Company management will be able to achieve the rapid
execution necessary to fully exploit the market opportunity for the Company's
products and services. Any inability to manage growth, if any, could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" above.
 
  Risks Associated With International Expansion. Sales to customers outside of
the United States and Canada, including sales generated by the Company's
foreign subsidiaries, represented 9%, 14% and 19% of total revenues for fiscal
1996, 1997 and 1998, respectively. The Company has direct sales offices in the
United Kingdom, France and Australia, and has established distribution
relationships in more than 20 countries, including Belgium, Italy, Japan, The
Netherlands and South Africa. The Company has, to date, localized its products
in French, Italian and Japanese. A key component of the Company's strategy is
its planned expansion into additional international markets. To facilitate
this international expansion, the Company anticipates localizing its products
for additional foreign markets in the future. If the international revenues
generated by these expanded operations are not adequate to offset the expense
of establishing and maintaining these foreign operations, the Company's
business, operating results and financial condition could be materially
adversely affected. To date, the Company has only limited experience in
developing localized versions of its products and marketing and distributing
its products internationally. There can be no assurance that the Company will
be able to successfully localize, market, sell and deliver its products in
these markets, and failure to do so could have a material adverse effect on
the Company's business, operating results and financial condition.
 
  In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent in doing business on
an international level, such as increased difficulty in controlling operating
expenses, unexpected changes in regulatory requirements, tariffs and other
trade barriers, difficulties in staffing and managing foreign operations,
longer payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates, seasonal reductions in
business activity during the summer months in Europe and certain other parts
of the world and potentially adverse tax consequences, which could adversely
impact the success of the Company's international operations. In particular,
the Company's international sales are generally denominated and collected in
foreign currencies, and the Company has not historically undertaken foreign
exchange hedging transactions to cover its potential foreign currency
exposure. In fiscal 1998, the Company incurred losses on foreign currency
translations resulting from intercompany
 
                                      26
<PAGE>
 
receivables from its foreign subsidiaries in an amount of approximately
$131,000. There can be no assurance that one or more of such factors will not
have a material adverse effect on the Company's future international
operations and, consequently, on the Company's business, operating results and
financial condition.
 
  Dependence Upon Product Development; Rapid Technological Change and Evolving
Industry Standards. The Company's success will depend upon its ability to
develop new products that meet changing customer requirements. The market for
the Company's products is characterized by rapidly changing technology,
evolving industry standards and customer requirements, emerging competition
and frequent new product introductions. The Company's products incorporate a
number of advanced technologies, including a proprietary data analysis engine,
a distributed architecture, as well as Web access and delivery technology. As
a result, the Company may be required to change and improve its products in
response to changes in operating systems, applications, networking and
connectivity software, computer and communications hardware, programming tools
and computer language technology. Such changes and improvements are dependent,
in part, on the Company's ability to hire and retain highly qualified
engineering personnel. See "--Dependence on Key Personnel and Hiring of
Additional Personnel." In addition, the Company attempts to establish and
maintain partner alliances with influential companies in a variety of core
technology areas. The Company's failure to establish such alliances with
leading companies in particular technology areas could have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that the Company can successfully respond to
changing technology, identify new product opportunities or develop and bring
new products to market in a timely and cost-effective manner. The Company has
in the past experienced delays in software development and there can be no
assurance that the Company will not experience delays in connection with its
current or future product development activities. In particular, development
efforts in the UNIX server environment are complex, and the Company in the
past has encountered delays in developing products for this environment.
Delays and difficulties associated with new product introductions or product
enhancements could have a material adverse effect on the Company's business,
operating results and financial condition. Failure of the Company, for
technological or other reasons, to develop and introduce new products and
product enhancements on a timely basis that are compatible with industry
standards and that satisfy customer requirements would have a material adverse
effect on the Company's business, operating results and financial condition.
 
  In addition, the Company or its competitors may announce enhancements to
existing products, or new products embodying new technologies, industry
standards or customer requirements that have the potential to supplant or
provide lower cost alternatives to the Company's existing products. The
introduction of such enhancements or new products could render the Company's
existing products obsolete and unmarketable. There can be no assurance that
the announcement or introduction of new products by the Company or its
competitors or any change in industry standards will not cause customers to
defer or cancel purchases of existing products, which could have a material
adverse effect on the Company's business, operating results and financial
condition. Furthermore, introduction by the Company of products with
reliability, quality or compatibility problems could result in reduced orders,
delays in collecting accounts receivable and additional service costs. The
failure to introduce a new product or product enhancement on a timely basis
could delay or hinder market acceptance. Any such event could have a material
adverse effect on the Company's business, operating results and financial
condition. See Item 1, "Business-- Products and Technology."
 
  Dependence on Emerging Market for Enterprise Business Intelligence; No
Assurance of Market Acceptance of Enterprise Business Intelligence
Products. The Company is focusing its selling efforts increasingly on larger,
enterprise-wide implementations of its products, and the Company expects such
sales to constitute an increasing portion of the Company's future revenue
growth, if any. To date, the Company's selling efforts have resulted in
limited enterprise-wide implementations of the Company's products. The Company
believes that most companies currently are not yet aware of the benefits of
enterprise-wide business intelligence solutions or of the Company's products
and capabilities, nor have such companies deployed business intelligence
solutions on an enterprise-wide basis. While the Company has devoted
significant resources to promoting market awareness of its products and the
problems such products address (including training of its sales force to
promote enterprise business
 
                                      27
<PAGE>
 
intelligence and demonstrating the enterprise-wide business intelligence
capabilities of Brio Enterprise at industry conferences and trade shows, the
costs of which the Company views as a normal part of its new product sales and
marketing activity), no assurance can be given that these efforts will be
sufficient to build market awareness of the need for enterprise business
intelligence or acceptance of the Company's products. Failure of a significant
market for enterprise business intelligence products to develop, or failure of
enterprise-wide implementations of the Company's products to achieve broad
market acceptance, would have a material adverse effect on the Company's
business, operating results and financial condition.
 
  Year 2000 Compliance. Many existing computer systems and applications, and
other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century.
As a result, such systems and applications could fail or create erroneous
results unless corrected so that they can process data related to the year
2000 and beyond. The Company relies on its systems, applications and devices
in operating and monitoring all major aspects of its business, including
financial systems (such as general ledger, accounts payable and payroll),
customer services, infrastructure, networks and telecommunications equipment.
The Company also relies, directly and indirectly, on external systems of
business enterprises such as customers, suppliers, creditors, financial
organizations, and governmental entities, both domestic and international, for
accurate exchange of data. The Company's current estimate is that the costs
associated with the year 2000 issue, and the consequences of incomplete or
untimely resolution of the year 2000 issue, will not have a material adverse
effect on the results of operations or financial position of the Company in
any given year. However, despite the Company's efforts to address the year
2000 impact on its internal systems, the Company has not fully identified such
impact or whether it can resolve it without disruption of its business and
without incurring significant expense. In addition, even if the internal
systems of the Company are not materially affected by the year 2000 issue, the
Company could be affected through disruption in the operation of the
enterprises with which the Company interacts. Furthermore, although the
Company's products comply with such year 2000 requirements, the Company
believes that the purchasing patterns of customers and potential customers may
be affected by year 2000 issues as companies expend significant resources to
correct or patch their current software systems to comply with year 2000
requirements. These expenditures may result in reduced funds available to
purchase software products such as those offered by the Company, which could
have a material adverse effect on the Company's business, operating results
and financial condition. See "--Lengthy Product Sales Cycle."
 
  Risks of Product Defects; Product Liability. As a result of their
complexity, the Company's software products may contain undetected errors,
failures or viruses. Despite testing by the Company and use by current and
potential customers when new products are first introduced or new enhancements
are released, there can be no assurance that errors will not be found in new
products or enhancements after commencement of commercial shipments. Although
the Company has not experienced material adverse effects resulting from any
such defects and errors to date, there can be no assurance that defects and
errors will not be found in new products or enhancements after commencement of
commercial shipments, resulting in loss of revenues, delay in market
acceptance or damage to the Company's reputation, which could have a material
adverse effect upon the Company's business, operating results and financial
condition. Further, the Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure for
potential claims based on errors or malfunctions of its products. It is
possible, however, that the limitation of liability provisions contained in
the Company's license agreements may not be effective under the laws of
certain jurisdictions. Although the Company has not experienced any product
liability claims to date, the sale and support of the Company's products
entails the risk of such claims. Although the Company carries insurance
against product liability risks, there can be no assurance that such insurance
would be adequate to cover a potential claim. A product liability claim
brought against the Company could have a material adverse effect on the
Company's business, operating results and financial condition.
 
  Limited Protection of Proprietary Rights. The Company currently relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company also believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable product
 
                                      28
<PAGE>
 
maintenance are essential to establishing and maintaining a technology
leadership position. The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which
afford only limited protection. The Company currently has one United States
patent application. There can be no assurance that the Company's patent
application will result in the issuance of a patent, or if issued, will not be
invalidated, circumvented or challenged, or that the rights granted
thereunder, if any, will provide competitive advantages to the Company or that
any of the Company's future patent applications, if any, will be issued with
the scope of the claims sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop technologies that are similar
or superior to the Company's technology or design around any patent that may
come to be owned by the Company. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult, and while the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to be
a persistent problem. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the United
States. There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate or that
competitors will not independently develop similar technology. The Company has
entered into source code escrow agreements with a number of its customers and
indirect channel partners requiring release of source code under certain
conditions. Such agreements provide that such parties will have a limited,
non-exclusive right to use such code in the event that there is a bankruptcy
proceeding by or against the Company, if the Company ceases to do business or,
in some cases, if the Company fails to meet its contractual obligations. The
provision of source code escrows may increase the likelihood of
misappropriation by third parties. The Company expects that software product
developers will increasingly be subject to infringement claims as the number
of products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time consuming to defend, result in
costly litigation, divert management's attention and resources, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company, if at all. In the event of a
successful claim of product infringement against the Company and failure or
inability of the Company to license the infringed or similar technology, the
Company's business, operating results and financial condition would be
materially adversely affected. Currently, the Company is engaged in litigation
with Business Objects, S.A. concerning the alleged infringement by the Company
of a U.S. patent held by Business Objects, S.A. See "--Litigation with
Business Objects, S.A." and Item 3, "Legal Proceedings."
 
  Finally, in the future the Company may rely upon certain software that it
may license from third parties, including software that may be integrated with
the Company's internally developed software and used in the Company's products
to perform key functions. There can be no assurance that these third-party
software licenses will be available to the Company on commercially reasonable
terms. The inability to obtain or maintain any such software licenses could
result in shipment delays or reductions until equivalent software could be
developed, identified, licensed and integrated, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
 
  Limited History of Prior Market for Common Stock; Possible Volatility of
Stock Price. There has been a public market for the Company's Common Stock
only since April 30, 1998, and there can be no assurance that an active public
market will continue. The market price of the shares of the Company's Common
Stock is likely to be highly volatile and may be significantly affected by
factors such as actual or anticipated fluctuations in the Company's operating
results, announcement of business partnerships, technological innovations or
new product introductions by the Company or its competitors, changes of
estimates of the Company's future operating results by securities analysts,
developments with respect to copyrights or proprietary rights, general market
conditions and other factors. In addition, the stock market has from time to
time experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many
technology companies. Broad market fluctuations, as well as economic
conditions generally and in the software industry specifically, may result in
material adverse effects on the market price of the Company's Common Stock. In
the past,
 
                                      29
<PAGE>
 
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. There can be no assurance that such litigation will not occur in
the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect upon the Company's business,
operating results and financial condition. These broad market fluctuations may
adversely effect the market price of the Company's Common Stock.
 
  Control by Existing Stockholders. The Company's executive officers and
directors, together with entities affiliated with such individuals,
beneficially own a majority of the Company's Common Stock. In particular,
Yorgen Edholm, the Company's President and Chief Executive Officer and a
director of the Company, and his spouse Katherine Glassey, the Company's
Executive Vice President, Products and Services and Chief Technology Officer
and a director of the Company, beneficially own over 30% of the Company's
Common Stock. Accordingly, these stockholders may, as a practical matter,
continue to be able to control the election of a majority of the Company's
directors and the determination of all corporate actions. This concentration
of ownership could have the effect of delaying or preventing a change in
control of the Company.
 
  Anti-Takeover Provisions. Certain provisions of the Company's charter
documents, including provisions relating to a classified board of directors
and provisions eliminating cumulative voting, eliminating the ability of
stockholders to take actions by written consent and limiting the ability of
stockholders to raise matters at a meeting of stockholders without giving
advance notice, may have the effect of delaying or preventing a change in
control or management of the Company, which could have an adverse effect on
the market price of the Company's Common Stock. In addition, the Board of
Directors has authority to issue up to 2,000,000 shares of Preferred Stock and
to fix the rights, preferences, privileges and restrictions, including voting
rights, of these shares without any further vote or action by the
stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company, thereby delaying, deferring or preventing a
change in control of the Company. Furthermore, such Preferred Stock may have
other rights, including economic rights senior to the Common Stock, and as a
result, the issuance of such Preferred Stock could have a material adverse
effect on the market value of the Common Stock. The Company has no present
plan to issue shares of Preferred Stock. Further, Section 203 of the General
Corporation Law of the State of Delaware (as amended from time to time, the
"DGCL"), which is applicable to the Company, prohibits certain business
combinations with certain stockholders for a period of three years after they
acquire 15% or more of the outstanding voting stock of a corporation.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
  Not applicable.
 
                                      30
<PAGE>
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                             BRIO TECHNOLOGY, INC.
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                                          <C>
Report of Independent Public Accountants....................................  32
Consolidated Balance Sheets.................................................  33
Consolidated Statements of Operations.......................................  34
Consolidated Statements of Shareholders' Equity (Deficit)...................  35
Consolidated Statements of Cash Flows.......................................  36
Notes to Consolidated Financial Statements..................................  37
</TABLE>
 
                                       31
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Shareholders of Brio Technology, Inc.:
 
  We have audited the accompanying consolidated balance sheets of Brio
Technology, Inc. (a California corporation) and subsidiaries as of March 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity (deficit), and cash flows for each of the three years in
the period ended March 31, 1998. These financial statements and the schedule
referenced below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brio Technology, Inc. and
subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles.
 
  Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under item 14(a)2
is presented for purposes of complying with the Securities and Exchange
Commissions rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
 
                                          Arthur Andersen LLP
 
San Jose, California
April 13, 1998 (except with
respect to the matter discussed in
Note 11, as to which the date is
May 1, 1998)
 
                                      32
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                MARCH 31,
                                             1998 PRO FORMA      MARCH 31,
                                              SHAREHOLDERS'   -----------------
                                            DEFICIT (NOTE 11)   1998     1997
                                            ----------------- --------  -------
                                               (UNAUDITED)
<S>                                         <C>               <C>       <C>
                  ASSETS
Current Assets:
  Cash and cash equivalents...............                    $  2,647  $   890
  Accounts receivable, net of allowance of
   $551 and $371..........................                       6,508    5,144
  Inventories.............................                         361      104
  Prepaid expenses and other current
   assets.................................                         958      378
                                                              --------  -------
      Total current assets................                      10,474    6,516
Property and Equipment, net...............                       3,127    2,052
Other Assets..............................                         485      317
                                                              --------  -------
                                                              $ 14,086  $ 8,885
                                                              ========  =======
   LIABILITIES AND STOCKHOLDERS' EQUITY
                (DEFICIT)
Current Liabilities:
  Current maturities of notes payable.....                    $  3,248  $ 1,724
  Accounts payable........................                       2,140    1,535
  Accrued liabilities--
    Payroll and related benefits..........                       1,422    1,318
    Other.................................                         918      657
  Deferred revenue, current...............                       6,656    3,061
                                                              --------  -------
      Total current liabilities...........                      14,384    8,295
Notes Payable, net of current maturities..                         189      438
Noncurrent Deferred Revenue...............                       1,321      --
Other Noncurrent Liabilities..............                          46       19
                                                              --------  -------
      Total liabilities...................                      15,940    8,752
                                                              --------  -------
Commitments and Contingencies (Notes 5 and
 9)
Stockholders' Equity (Deficit):
  Convertible preferred stock, no par
   value, aggregate liquidation preference
   of $15,850:
    Authorized--5,625,000 shares pro
     forma, at March 31, 1998 and 1997
    Issued and outstanding (Series A, B
     and C)--5,466,172 pro forma, at March
     31, 1998 and 4,613,903 at March 31,
     1997.................................                      15,655    9,811
  Common stock, no par value:
    Authorized--13,500,000 shares
    Issued and outstanding--11,228,897 pro
     forma, 5,762,725 at March 31, 1998
     and 5,656,910 shares at March 31,
     1997.................................        16,786         1,131      495
Notes receivable from shareholders........          (292)         (292)    (314)
Deferred compensation.....................          (459)         (459)     --
Cumulative translation adjustment.........           (20)          (20)     (62)
Accumulated deficit.......................       (17,869)      (17,869)  (9,797)
                                                --------      --------  -------
      Total shareholders' equity
       (deficit)..........................        (1,854)       (1,854)     133
                                                ========      --------  -------
                                                              $ 14,086  $ 8,885
                                                              ========  =======
</TABLE>
 
      The accompanying notes are an integral part of these balance sheets.
 
                                       33
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                      YEARS ENDED MARCH 31,
                                                     -------------------------
                                                      1998     1997     1996
                                                     -------  -------  -------
<S>                                                  <C>      <C>      <C>
Revenues:
  License fees...................................... $19,795  $10,328  $ 3,212
  Services..........................................   6,977    3,058    1,315
                                                     -------  -------  -------
    Total revenues..................................  26,772   13,386    4,527
                                                     -------  -------  -------
Cost of revenues:
  License fees......................................   1,008      839      340
  Services..........................................   2,595      817      371
                                                     -------  -------  -------
    Total cost of revenues..........................   3,603    1,656      711
                                                     -------  -------  -------
Gross Profit........................................  23,169   11,730    3,816
                                                     -------  -------  -------
Operating Expenses:
  Research and development..........................   5,218    2,447    1,555
  Sales and marketing...............................  22,728   13,588    4,476
  General and administrative........................   2,954    1,685    1,014
                                                     -------  -------  -------
    Total operating expenses........................  30,900   17,720    7,045
                                                     -------  -------  -------
Loss from operations................................  (7,731)  (5,990)  (3,229)
                                                     -------  -------  -------
Interest and other income (expense), net:
  Interest income...................................      84       93       44
  Interest expenses.................................    (294)     (68)      (2)
  Other expense, net................................    (131)     --        (9)
                                                     -------  -------  -------
    Total interest and other income (expense), net..    (341)      25       33
                                                     -------  -------  -------
Net loss............................................ $(8,072) $(5,965) $(3,196)
                                                     =======  =======  =======
Basic net loss per share............................ $ (1.41) $ (1.14) $ (0.64)
                                                     =======  =======  =======
Shares used in computing basic net loss per share...   5,724    5,218    5,018
                                                     =======  =======  =======
Pro forma basic net loss per share.................. $ (0.74) $ (0.63)
                                                     =======  =======
Shares used in computing pro forma basic net loss
 per share..........................................  10,977    9,479
                                                     =======  =======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                       34
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                             CONVERTIBLE                          NOTES                                        TOTAL
                           PREFERRED STOCK    COMMON STOCK      RECEIVABLE  DEFERRED CUMULATIVE  ACCUMU-   SHAREHOLDERS'
                          ----------------- -----------------      FROM     COMPEN-  TRANSLATION  LATED       EQUITY
                           SHARES   AMOUNT   SHARES    AMOUNT  SHAREHOLDERS  SATION  ADJUSTMENT  DEFICIT     (DEFICIT)
                          --------- ------- ---------  ------  ------------ -------- ----------- --------  -------------
<S>                       <C>       <C>     <C>        <C>     <C>          <C>      <C>         <C>       <C>
BALANCE, MARCH 31, 1995.  2,464,331 $ 3,768 5,005,032  $  104     $ --       $ --       $ --     $   (636)    $ 3,236
 Issuance of Series A
  preferred stock, net..     32,425      50       --      --        --         --         --          --           50
 Issuance of common
  stock for cash........        --      --     16,360      10       --         --         --          --           10
 Net loss...............        --      --        --      --        --         --         --       (3,196)     (3,196)
                          --------- ------- ---------  ------     -----      -----      -----    --------     -------
BALANCE, MARCH 31, 1996.  2,496,756   3,818 5,021,392     114       --         --         --       (3,832)        100
 Issuance of Series B
  preferred stock, net..  2,117,147   5,993       --      --        --         --         --          --        5,993
 Exercise of common
  stock options for
  cash..................        --      --    112,435      67       --         --         --          --           67
 Exercise of common
  stock options for
  notes receivable......        --      --    553,500     332      (332)       --         --          --          --
 Repurchase of
  restricted shares.....        --      --    (30,417)    (18)       18        --         --          --          --
 Cumulative translation
  adjustment............        --      --        --      --        --         --         (62)        --          (62)
 Net loss...............        --      --        --      --        --         --         --       (5,965)     (5,965)
                          --------- ------- ---------  ------     -----      -----      -----    --------     -------
BALANCE, MARCH 31, 1997.  4,613,903   9,811 5,656,910     495      (314)       --         (62)     (9,797)        133
 Issuance of Series C
  preferred stock, net..    852,269   5,844       --      --        --         --         --          --        5,844
 Exercise of common
  stock options for
  cash..................        --      --     47,594      37       --         --         --          --           37
 Exercise of common
  stock options for
  notes receivable......        --      --     57,701      35       (35)       --         --          --          --
 Exercise of common
  stock warrant for
  cash..................        --      --     10,000       6       --         --         --          --            6
 Repurchase of
  restricted shares.....        --      --     (9,480)     (6)      --         --         --          --           (6)
 Repayment of notes
  receivable from
  shareholders..........        --      --        --      --         57        --         --          --           57
 Deferred compensation..        --      --        --      580       --        (580)       --          --          --
 Amortization of
  deferred compensation.        --      --        --      --        --         105        --          --          105
 Termination of shares
  granted under
  incentive stock plans.        --      --        --      (16)      --          16        --          --          --
 Cumulative translation
  adjustment............        --      --        --      --        --         --          42         --           42
 Net loss...............        --      --        --      --        --         --         --       (8,072)     (8,072)
                          --------- ------- ---------  ------     -----      -----      -----    --------     -------
BALANCE, MARCH 31, 1998.  5,466,172 $15,655 5,762,725  $1,131     $(292)     $(459)     $ (20)   $(17,869)    $(1,854)
                          ========= ======= =========  ======     =====      =====      =====    ========     =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       35
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                     YEARS ENDED MARCH 31,
                                                    -------------------------
                                                     1998     1997     1996
                                                    -------  -------  -------
<S>                                                 <C>      <C>      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(8,072) $(5,965) $(3,196)
Adjustments to reconcile net loss to cash used in
 operating activities--
  Depreciation and amortization....................     673      298      140
  Provision for returns and doubtful accounts......     180      346      108
  Deferred compensation amortization...............     105      --       --
  Changes in operating assets and liabilities--
    Accounts receivable............................  (1,544)  (3,213)  (1,375)
    Inventories....................................    (257)      48      (51)
    Prepaid expenses and other assets..............    (794)    (571)      (1)
    Accounts payable and accrued liabilities.......     997    2,790       41
    Deferred revenue...............................   4,916    1,533    1,005
                                                    -------  -------  -------
      Cash used in operating activities............  (3,796)  (4,734)  (3,329)
                                                    -------  -------  -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................  (1,702)  (1,883)    (380)
Cash payment for DataBasics acquisition............     --       (95)     --
                                                    -------  -------  -------
      Cash used in investing activities............  (1,702)  (1,978)    (380)
                                                    -------  -------  -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable........................   4,950    2,093    1,104
Repayments under notes payable.....................  (3,675)  (1,035)     --
Proceeds from issuance of preferred stock, net.....   5,844    5,993       50
Proceeds from issuance of common stock, net........      37       67       10
Proceeds from repayment of notes receivable from
 shareholders......................................     457      --       --
Issuance of note to shareholder....................    (400)     --       --
                                                    -------  -------  -------
      Net cash provided by financing activities....   7,213    7,118    1,164
                                                    -------  -------  -------
Net increase (decrease) in cash and cash
 equivalents.......................................   1,715      406   (2,545)
Effect of exchange rate changes on cash............      42      (62)     --
Cash and cash equivalents, beginning of period.....     890      546    3,091
                                                    -------  -------  -------
Cash and cash equivalents, end of period........... $ 2,647  $   890  $   546
                                                    =======  =======  =======
Supplemental disclosure of cash flow information:
  Cash paid for interest........................... $   144  $    54  $    46
                                                    =======  =======  =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       36
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                                MARCH 31, 1998
 
1. ORGANIZATION AND OPERATIONS:
 
  Brio Technology, Inc. (the "Company"), a California corporation, was
incorporated in 1989. The Company designs, develops, markets and supports
software products that enable organizations to rapidly implement enterprise
business intelligence solutions. The Company's products and services are
designed to allow organizations to quickly deploy and effectively manage
business intelligence solutions incorporating the wide range of available
corporate data sources, including data marts, data warehouses, operational
data stores, enterprise applications and legacy applications.
 
  The Company is subject to a number of risks associated with companies in a
similar stage of development, including negative working capital and
shareholders' deficit, rapid technological growth, dependence on key personnel
and the sales force, litigation (see Note 9), potential competition from
larger, more established companies, dependence on product development, the
ability to penetrate the market with its products, and the ability to obtain
adequate financing to support its growth.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
 Principles of Consolidation
 
  The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
are eliminated in consolidation.
 
 Use of Estimates in the Preparation of Financial Statements
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
 
 Foreign Currency Translation
 
  The functional currency of the Company's subsidiaries is the local currency.
Accordingly, the Company applies the current rate method to translate the
subsidiaries' financial statements into U.S. dollars. Translation adjustments
are included as a separate component of shareholders' equity (deficit) in the
accompanying consolidated financial statements. Transaction gains and losses,
which have not been material, are included in other income (expense).
 
 Cash and Cash Equivalents
 
  The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At March 31, 1998 and
1997, the Company held its cash in checking and money market accounts.
 
 Inventories
 
  The Company's inventories are carried at the lower of cost or market on a
first-in, first-out basis. Inventory consists principally of completed
software packages including media and documentation.
 
                                      37
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 31, 1998
 
 
 Property and Equipment
 
  Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (three to seven years) of
the assets. Leasehold improvements are depreciated over the shorter of the
term of the related lease or the estimated useful life of the asset.
 
  Property and equipment consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                                ---------------
                                                                 1998     1997
                                                                -------  ------
     <S>                                                        <C>      <C>
     Computer equipment and software........................... $ 2,999  $1,780
     Furniture and fixtures....................................   1,156     638
     Leasehold improvements....................................     175     210
                                                                -------  ------
                                                                  4,330   2,628
     Less: Accumulated depreciation............................  (1,203)   (576)
                                                                -------  ------
                                                                $ 3,127  $2,052
                                                                =======  ======
</TABLE>
 
 Revenue Recognition
 
  The Company's revenues are derived from two sources, license fees and
services. Services include software maintenance and support, training and
system implementation consulting.
 
  Revenue from license fees is recognized upon shipment of the software if
collection of the resulting receivable is probable, the fee is fixed or
determinable, and vendor-specific objective evidence exists to allocate the
total fee to all delivered and undelivered elements of the arrangement. Such
undelivered elements in these arrangements typically consist of services.
Allowances are established for potential product returns and credit losses. In
instances where payments are subject to extended payment terms, revenue is
deferred until payments become due. If an acceptance period is required,
revenue is recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.
 
  Maintenance revenue is recognized ratably over the term of the maintenance
contract. If maintenance is included in an arrangement which includes a
license agreement, amounts related to maintenance are unbundled from the
license fee based on vendor specific objective evidence. Consulting and
training revenue is recognized when the services are performed.
 
  Cost of revenues consists primarily of third-party fees, related personnel
and overhead allocations and overhead costs, the cost of media, documentation,
packaging and shipping related to products sold.
 
 Deferred Revenue
 
  Deferred revenue represents amounts received from customers under certain
license, maintenance and service agreements for which the revenue earnings
process has not been completed. In situations where the services are not
expected to be provided and revenue recognized within twelve months of the
balance sheet date, such amounts are classified as noncurrent deferred
revenue.
 
 Software Development Costs
 
  Under Statement of Financial Accounting Standards (SFAS) No. 86 "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
costs incurred in the research and development of software
 
                                      38
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 31, 1998
 
products are expensed as incurred until technological feasibility has been
established. Once established, these costs would be capitalized. Amounts that
could have been capitalized under this Statement were insignificant and,
therefore, no costs have been capitalized to date.
 
 Computation of Basic Net Loss Per Share and Pro Forma Basic Net Loss Per
Share
 
  Historical net loss per share has been calculated under SFAS No. 128
"Earnings Per Share." Basic net loss per share on a historical basis is
computed using the weighted average number of shares of common stock
outstanding. No diluted loss per share information has been presented in the
accompanying consolidated statements of operations since potential common
shares from conversion of preferred stock, stock options, and warrants are
antidilutive. The Company evaluated the requirements of the Securities and
Exchange Commission Staff Accounting Bulletin (SAB) No. 98 and concluded that
there are no nominal issuances of common stock or potential common stock which
would be required to be shown as outstanding for all periods as outlined in
SAB No. 98.
 
  Pro forma basic net loss per share has been calculated assuming the
conversion of preferred stock into an equivalent number of common shares, as
if the shares had converted on the dates of their issuance.
 
 Fair Value of Financial Instruments
 
  The following methods and assumptions were used in estimating the fair
values of financial instruments:
 
    Cash and cash equivalents: The carrying amount approximates fair value
  because of the short maturity of those instruments.
 
    Short-term and long-term debt: The carrying value of the notes payable
  approximates the debts' fair market value as the rates are variable and
  based on the bank's prime rate.
 
  It is estimated that the carrying value of the Company's other financial
instruments approximated fair value at March 31, 1998 and 1997.
 
 Recent Accounting Pronouncements
 
  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is effective for the Company's
fiscal year beginning April 1, 1998. This standard defines comprehensive
income as the changes in equity of an enterprise except those resulting from
shareholder transactions. All components of comprehensive income will be
required to be reported in financial statements issued for periods beginning
after the effective date of SFAS No. 130. Management believes the adoption of
SFAS No. 130 will not have a material effect on the Company's financial
statements.
 
  In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 is effective for the Company's fiscal year beginning April 1,
1998. SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers.
Management believes the adoption of SFAS No. 131 will not have a material
effect on the Company's financial statements.
 
  In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 which will supersede SOP 91-1,
"Software Revenue Recognition." SOP 97-2 is effective for transactions entered
into in the Company's fiscal year beginning April 1, 1998. Management has
assessed this
 
                                      39
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 31, 1998
 
new statement and believes that its adoption will not have a material effect
on the Company's financial statements or on the timing of the Company's
revenue recognition, or cause changes to its revenue recognition policies.
 
3. ACQUISITIONS:
 
  On April 1, 1996, the Company purchased Brio Technology Ltd. from Management
Decisions (MD), one of the Company's distributors in the United Kingdom. The
Company paid a nominal value for the outstanding stock and operations of Brio
Technology Ltd., and the acquisition was accounted for as a purchase. No
goodwill resulted from this acquisition. Brio Technology Ltd. is now a wholly-
owned subsidiary of the Company. Sales to MD for the year ended March 31, 1996
were $39,100.
 
  On July 1, 1996, the Company purchased DataBasics, one of the Company's
distributors in Australia, for $95,000 in cash. The acquisition was accounted
for as a purchase and resulted in goodwill of $60,000 that is being amortized
over a five year period. DataBasics was renamed Brio Technology Pty. Ltd., and
is now a wholly-owned subsidiary of the Company. Sales to DataBasics for the
year ended March 31, 1996 were $121,000.
 
  Pro forma information related to these acquisitions has not been presented
as the prior operations of the acquired companies were immaterial.
 
4. SIGNIFICANT CONCENTRATIONS:
 
  Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. The Company
performs periodic credit evaluations of its customers' financial condition and
generally does not require collateral.
 
  For the years ended March 31, 1998 and 1997, no customer accounted for more
than 10% of the Company's total revenues. For the year ended March 31, 1996,
one customer accounted for approximately 15% of the Company's total revenues.
 
  The Company markets its products in the United States and Canada and in
other foreign countries through its domestic sales personnel and through its
foreign subsidiaries. International revenue, which consists of U.S. sales to
customers in foreign countries and sales from the Company's foreign
subsidiaries, was 19%, 14% and 9% of total revenues for the years ended March
31, 1998, 1997 and 1996, respectively.
 
                                      40
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 31, 1998
 
 
  Information about the Company's operations in different geographic locations
is shown below. International operations were not material in fiscal 1996.
 
<TABLE>
<CAPTION>
                                                                 MARCH 31,
                                                              ----------------
                                                               1998     1997
                                                              -------  -------
                                                               (IN THOUSANDS)
     <S>                                                      <C>      <C>
     Total revenues:
       United States......................................... $24,020  $12,473
       International.........................................   3,882    1,484
       Eliminations..........................................  (1,130)    (571)
                                                              -------  -------
         Consolidated........................................ $26,772  $13,386
                                                              =======  =======
     Intercompany sales between geographic areas:
       United States......................................... $ 1,130  $   571
       International.........................................     --       --
                                                              -------  -------
         Consolidated........................................ $ 1,130  $   571
                                                              =======  =======
     Net loss:
       United States......................................... $(5,949) $(4,356)
       International.........................................  (2,117)  (1,499)
       Eliminations..........................................      (6)    (110)
                                                              -------  -------
         Consolidated........................................ $(8,072) $(5,965)
                                                              =======  =======
     Identifiable assets:
       United States......................................... $16,442  $ 9,638
       International.........................................   2,392    1,179
       Eliminations..........................................  (4,748)  (1,932)
                                                              -------  -------
         Consolidated........................................ $14,086  $ 8,885
                                                              =======  =======
</TABLE>
 
5. COMMITMENTS:
 
  The Company leases various facilities under operating leases which expire on
various dates through October 2003. The Company also leases office equipment
under various non-cancelable operating leases with terms which expire through
July 1998. Future minimum lease payments relating to these agreements as of
March 31, 1998, are as follows (in thousands):
 
<TABLE>
<CAPTION>
     FISCAL YEAR
     -----------
     <S>                                                                  <C>
       1999.............................................................. $1,726
       2000..............................................................  1,575
       2001..............................................................    511
       2002..............................................................    434
       2003..............................................................    434
       Thereafter........................................................    253
                                                                          ------
                                                                          $4,933
                                                                          ======
</TABLE>
 
  Rent expense for the years ending March 31, 1998, 1997 and 1996 was
$1,532,700, $798,000, and $260,300, respectively.
 
                                      41
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 31, 1998
 
 
6. NOTES PAYABLE:
 
  At March 31, 1998, the Company had a $10,000,000 accounts receivable-based
line of credit agreement. Interest on borrowings under the accounts receivable
line accrues at the bank's prime rate (8.5% at March 31, 1998). At March 31,
1998, $3,437,000 was outstanding under these arrangements of which $3,248,000
was classified as current and $189,000 as noncurrent, due in fiscal 1999.
Borrowings under the accounts receivable line of credit were limited to 80% of
eligible accounts receivable, in addition to up to $1.5 million in non-formula
availability. The line of credit is collateralized by substantially all of the
Company's assets, including the Company's intellectual property, accounts
receivable, and property and equipment. This line of credit requires the
Company to comply with various financial covenants, including quarterly
requirements to maintain a minimum quick ratio, a minimum tangible net worth,
and minimum results of operations (the results of operation covenant was
eliminated as a result of the initial public offering). The line expires on
December 1, 1999. Subsequent to March 31, 1998, the Company utilized a portion
of the net proceeds from its initial public offering to repay all of its bank
borrowings (see Note 11).
 
7. PREFERRED STOCK:
 
  As of March 31, 1998, the Company had issued 2,496,756 shares of Series A
Convertible Preferred Stock (Series A), 2,117,147 shares of Series B
Convertible Preferred Stock (Series B) and 852,269 shares of Series C
Convertible Preferred Stock (Series C).
 
  In February 1998, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed Initial Public
Offering (IPO) (see Note 11). On May 1, 1998, the offering was consummated and
all of the currently outstanding convertible preferred stock converted to
5,466,172 shares of common stock upon the closing of the IPO. The effect of
the conversion has been reflected as unaudited pro forma shareholders' deficit
in the accompanying consolidated balance sheet as of March 31, 1998.
 
8. COMMON STOCK:
 
  As of March 31, 1998, the Company had reserved shares of its common stock
for future issuance as follows:
 
<TABLE>
     <S>                                                               <C>
     Conversion of convertible preferred stock........................ 5,466,172
     Exercise of stock options........................................ 3,877,066
                                                                       ---------
       Total shares reserved.......................................... 9,343,238
                                                                       =========
</TABLE>
 
  During fiscal 1997 and 1998, certain employees funded the purchase of common
stock under the 1992 Stock Option Plan with fully secured notes payable to the
Company.
 
 Stock Rights and Warrants
 
  In connection with the issuance of a promissory note in 1992, the Company
issued warrants to the noteholder to purchase up to 128,205 shares of common
stock at $1.542 per share. The warrants expired, unexercised, on April 17,
1997.
 
  Under the terms of an agreement with a customer, the Company granted the
customer the right to purchase up to $1,300,000 of equity securities of the
same type and price of the securities issued to third parties in the event the
Company issues at least $500,000 of such securities. This right expired,
unexercised, in connection with the Company's IPO (see Note 11).
 
                                      42
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 31, 1998
 
 
  In connection with the purchase of Brio Technology Ltd. from MD in 1996, the
Company granted MD warrants to purchase 10,000 shares of the Company's common
stock at $.60 per share. The value of the warrants was not material. The
warrants were exercised prior to March 31, 1998.
 
 Stock Options
 
  Through March 31, 1998, the Company has reserved 1,327,066 shares of common
stock for issuance under the 1992 Stock Option Plan (the "Plan"). Under the
Plan, the Board of Directors may grant options to purchase the Company's
common stock to employees, directors, or consultants at an exercise price of
not less than 100% of the fair value of the Company's common stock, as
determined by the Board of Directors. Any options granted must be granted by
the tenth anniversary of the effective date of the Plan. Options issued under
the Plan generally have a term of five years from the date of grant and
generally vest ratably over four years.
 
  Option activity under the Plan is as follows:
 
<TABLE>
<CAPTION>
                                                                        WEIGHTED
                                                  SHARES                AVERAGE
                                                 AVAILABLE    OPTIONS   EXERCISE
                                                 FOR GRANT  OUTSTANDING  PRICE
                                                 ---------  ----------- --------
<S>                                              <C>        <C>         <C>
Outstanding--March 31, 1995..................... 1,304,426     370,333   $0.60
  Options granted...............................  (372,125)    372,125    0.60
  Options exercised.............................       --      (16,360)   0.60
  Options canceled..............................    59,051     (59,051)   0.60
                                                 ---------   ---------   -----
Outstanding--March 31, 1996.....................   991,352     667,047    0.60
  Authorized....................................   400,000         --      --
  Restricted shares repurchased.................    30,417         --      --
  Options granted...............................  (939,521)    939,521    0.72
  Options exercised.............................       --     (665,935)   0.60
  Options canceled..............................    93,594     (93,594)   0.62
                                                 ---------   ---------   -----
Outstanding--March 31, 1997.....................   575,842     847,039    0.74
  Restricted shares repurchased.................     9,480         --      --
  Options granted...............................  (723,847)    723,847    3.08
  Options exercised.............................       --     (105,295)    .67
  Options canceled..............................   263,317    (263,317)   1.28
                                                 ---------   ---------   -----
Outstanding--March 31, 1998.....................   124,792   1,202,274    2.03
                                                 =========   =========   =====
</TABLE>
 
  Certain unvested options have been exercised and are subject to repurchase
by the Company until such shares vest. As of March 31, 1998, 151,248 shares
were subject to the right of repurchase at an exercise price of $0.60 per
share.
 
                                      43
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 31, 1998
 
 
  A summary of options outstanding and exercisable as of March 31, 1998, is as
follows:
 
<TABLE>
<CAPTION>
                                      AS OF MARCH 31, 1998
                    -------------------------------------------------------------
                           OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                    ------------------------------------  -----------------------
                                               WEIGHTED                 WEIGHTED
       RANGE OF                   AVERAGE      AVERAGE                  AVERAGE
     CONTRACTUAL     NUMBER     CONTRACTUAL    EXERCISE     NUMBER      EXERCISE
        PRICES       OPTIONS    LIFE (YEARS)    PRICE     EXERCISABLE    PRICE
     ------------   ---------   ------------   --------   -----------   --------
     <S>            <C>         <C>            <C>        <C>           <C>
     $       0.60     412,764       3.34        $0.60       188,113      $0.60
             1.20     412,154       4.08         1.20        84,531       1.20
             2.00     148,971       4.38         2.00           934       2.00
             3.00      24,661       4.56         3.00         1,496       3.00
             6.00     148,645       4.71         6.00         5,185       6.00
             8.00      55,079       4.90         8.00           342       8.00
     ------------   ---------       ----        -----       -------      -----
     $0.60--$6.00   1,202,274       3.99        $2.03       280,601      $0.91
     ============   =========       ====        =====       =======      =====
</TABLE>
 
  The Company accounts for its Plan under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Had compensation expense for the Plan been
determined consistent with SFAS No. 123, "Accounting for Stock Based
Compensation," the Company's net loss would have increased to the following
pro forma amounts (in thousands, except per share information):
 
<TABLE>
<CAPTION>
                                                       YEARS ENDED MARCH 31,
                                                      -------------------------
                                                       1998     1997     1996
                                                      -------  -------  -------
     <S>                                              <C>      <C>      <C>
     Net loss:
       As reported................................... $(8,072) $(5,965) $(3,196)
       Pro forma..................................... $(8,154) $(5,988) $(3,198)
     Basic net loss per share:
       As reported................................... $ (1.41) $ (1.14) $ (0.64)
       Pro forma..................................... $ (1.42) $ (1.15) $ (0.64)
</TABLE>
 
  Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
 
  The weighted average grant date fair value of options granted during fiscal
1998, 1997 and 1996, was $0.64, $0.12 and $0.08, respectively. The fair value
of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used for grants in all
periods: risk-free interest rates ranging from 5.2 to 6.7 percent; expected
dividend yields of zero percent; expected lives of 3 to 4 years from grant
date; and expected volatility of 0.01 percent.
 
 Deferred Compensation
 
  In connection with the grant of certain stock options to employees during
the fiscal year ended March 31, 1998, the Company recorded deferred
compensation of $580,000, representing the difference between the deemed value
of the common stock for accounting purposes and the option exercise price of
such options at the date of grant. Such amount is presented as a reduction of
shareholder's equity and amortized ratably over the vesting period of the
applicable options. Approximately $105,000 was expensed during the fiscal year
ended March 31, 1998, and the balance will be expensed ratably over the next
four years as the options vest. Compensation expense is decreased in the
period of forfeiture for any accrued but unvested compensation arising
 
                                      44
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 31, 1998
 
from the early termination of an option holder's services. No compensation
expense related to any other periods presented has been recorded.
 
 1998 Stock Option Plan
 
  The Company's 1998 Stock Option Plan (the "1998 Plan") was adopted by the
Company's Board of Directors in February 1998. A total of 2,250,000 shares of
common stock have been reserved for issuance under the 1998 Plan. Through
March 31, 1998, no options were granted under the 1998 Stock Option Plan. The
shares reserved for issuance under the 1998 Plan increase annually on the
first day of the Company's fiscal year through April 1, 2003, by the lesser of
600,000 or three percent of the shares outstanding on the last day of the
immediately preceding fiscal year. Under the 1998 Plan, the Board of Directors
may grant options to purchase the Company's common stock to employees,
directors or consultants at an exercise price of not less than 100% of the
fair value of the Company's common stock on the date of grant, in the case of
incentive stock options, and not less than 85% of the fair value of the
Company's common stock on the date of grant, in the case of nonqualified stock
options. Options must all be granted by the tenth anniversary of the effective
date of the 1998 Plan. Options issued under the 1998 Plan will generally have
a term of 10 years from the date of grant and will generally vest ratably over
four years.
 
 1998 Employee Stock Purchase Plan
 
  The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors in February 1998. A total of
500,000 shares of common stock has been reserved for issuance under the
Purchase Plan. The shares reserved for issuance under the Purchase Plan
increase annually on the first day of the Company's fiscal year through April
1, 2000, by the lesser of 300,000 or two percent of the shares outstanding on
the last day of the immediately preceding fiscal year. The Purchase Plan
permits eligible employees to purchase common stock at 85% of the lower of the
fair market value of the Company's common stock on the first day or the last
day of each six-month offering period.
 
 1998 Directors' Stock Option Plan
 
  The Company's 1998 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Company's Board of Directors in February 1998. A total of
300,000 shares of common stock has been reserved for issuance under the
Directors' Plan. Through March 31, 1998, no options were granted under the
Directors' Stock Option Plan. The Directors' Plan provides for the initial
grant of nonqualified stock options to purchase 20,000 shares of common stock
on the date on which the optionee first becomes a nonemployee director of the
Company subsequent to the initial public offering (the "First Option"), and an
additional option to purchase 5,000 shares of common stock on the next
anniversary to existing and future nonemployee directors of the Company if, on
such date, the director has served on the board for at least six months (the
"Subsequent Option"). The exercise price per share of all options granted
under the Directors' Plan will equal the fair market value of a share of the
Company's common stock on the date of grant of the option. Options issued
under the Directors' Plan will have a term of 10 years from the date of grant;
the First Option shall become exercisable in installments of 25% of the total
number of shares subject to the First Option on each of the first, second,
third and fourth anniversaries of the date of grant of the First Option; each
Subsequent Option shall become exercisable in full on the day before the first
anniversary of the date of grant of that Subsequent Option.
 
9. CONTINGENCIES:
 
  On January 20, 1997, Business Objects, S.A. filed a complaint (the
"Complaint") against the Company in the U.S. District Court for the Northern
District of California in San Jose, California alleging that certain of the
Company's products infringe U.S. Patent No. 5,555,403. The Complaint seeks
injunctive relief and unspecified
 
                                      45
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
                                MARCH 31, 1998
 
monetary damages. In April 1997, the Company filed an answer and affirmative
defenses to the Complaint, denying certain of the allegations in the
Complaint, and asserting a counterclaim requesting declaratory relief that the
Company is not infringing the patent and that the patent is invalid and
unenforceable. In December 1997, venue for the case was changed to the
Northern District of California in San Francisco, California. The Company
believes that it has meritorious defenses to the claims made in the Complaint
on both invalidity and non-infringement grounds, and intends to defend the
suit vigorously. The Company and Business Objects, S.A. are currently
conducting discovery and are awaiting a date for the claims construction
hearing. The pending litigation could result in substantial expense to the
Company and significant diversion of effort by the Company's technical and
management personnel. Litigation is subject to inherent uncertainties,
especially in cases such as this where complex technical issues must be
decided. The Company's defense of this litigation, regardless of the merits of
the Complaint or lack thereof, could be time-consuming or costly, or divert
the attention of technical and management personnel, which could have a
material adverse effect upon the Company's business, operating results and
financial condition. There can be no assurance that the Company will prevail
in the litigation given the complex technical issues and inherent
uncertainties in patent litigation. In the event the Company is unsuccessful
in the litigation, the Company may be required to pay damages to Business
Objects, S.A. and could be prohibited from marketing certain of its products
without a license, which license may not be available on acceptable terms. If
the Company is unable to obtain such a license, the Company may be required to
license a substitute technology or redesign to avoid infringement, in which
case the Company's business, operating results and financial condition could
be materially adversely affected. Collectively, sales of BrioQuery Navigator,
BrioQuery Explorer and BrioQuery Designer represented substantially all of the
Company's revenues in fiscal 1996 and represented a majority of the Company's
revenues in fiscal 1997 and fiscal 1998. The Company is unable to estimate the
amount of loss, if any, which may be incurred as a result of the Complaint.
 
10. INCOME TAXES:
 
  The Company accounts for income taxes using an asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events which have been recognized in the
Company's financial statements. Deferred tax assets and liabilities are
determined using the current applicable enacted tax rate and provisions of the
enacted tax law.
 
  The Company had a net deferred tax asset at March 31, 1998 and 1997 as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                1998     1997
                                                               -------  -------
     <S>                                                       <C>      <C>
     Allowance for sales returns and doubtful accounts........ $   220  $   152
     Accumulated depreciation.................................    (143)     (92)
     Accrued expenses and other...............................   1,415    1,699
     Federal and state credits................................     307      103
     Capitalized research and development.....................     246      161
     Net operating losses.....................................   3,211    2,003
                                                               -------  -------
                                                                 5,256    4,026
     Valuation allowance......................................  (5,256)  (4,026)
                                                               -------  -------
     Net deferred income tax asset............................ $   --   $   --
                                                               =======  =======
</TABLE>
 
  At March 31, 1998, the Company had Federal and state net operating loss
carryforwards of $8.7 million and $2.8 million, respectively, which expire at
various dates through 2012. The Company believes that, based on a number of
factors, there is sufficient uncertainty regarding the realizability of
carryforwards and credits that a full valuation allowance has been recorded
against the net deferred tax asset. These factors include a history of
operating losses, recent increases in expense levels to support the Company's
growth, the competitive nature of
 
                                      46
<PAGE>
 
                             BRIO TECHNOLOGY, INC.
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
 
                                MARCH 31, 1998
 
the Company's market and the lack of predictability of revenue. Management
will continue to assess the realizability of the tax benefits available to the
Company based on actual and forecasted operating results. The Internal Revenue
Code contains provisions which may limit the net operating loss and research
and development credit carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership.
 
11. SUBSEQUENT EVENT
 
  In April 1998, the Company was reincorporated via a merger with a newly-
formed Delaware corporation in connection with the Company's IPO which was
consummated May 1, 1998. Also, the shareholders approved a one-for-two reverse
stock split, the 1998 Stock Option Plan, the 1998 Employee Stock Purchase Plan
and the 1998 Directors' Stock Option Plan. All common, preferred, and per
share amounts have been adjusted retroactively to give effect to the reverse
stock split.
 
                                      47
<PAGE>
 
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                        BALANCE                        BALANCE
                                          AT     CHARGED TO             AT END
                                       BEGINNING COSTS AND                OF
             DESCRIPTION               OF PERIOD  EXPENSES  DEDUCTIONS  PERIOD
-------------------------------------- --------- ---------- ---------- --------
<S>                                    <C>       <C>        <C>        <C>
Year ended March 31, 1996:
Allowance for returns and doubtful
 accounts............................. $141,000   $108,000   $    --   $249,000
Year ended March 31, 1997:
Allowance for returns and doubtful
 accounts............................. $249,000   $346,000   $224,000  $371,000
Year ended March 31, 1998:
Allowance for returns and doubtful
 accounts............................. $371,000   $469,000   $289,000  $551,000
</TABLE>
 
                                       48
<PAGE>
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
  None.
 
                                   PART III
 
  Certain information required by Part III is omitted from this report because
the Company will file a definitive proxy statement within 120 days after the
end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement") for
its Annual Meeting of Stockholders to be held August 12, 1998, and the
information included in the Proxy Statement is incorporated herein by
reference.
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
  (a) Executive Officers--See the section entitled "Executive Officers of the
Registrant" in Part I, Item 1 hereof.
 
  (b) Directors--the information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Registrant's
Proxy Statement.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
  The information required by this Item is incorporated by reference to the
sections entitled "Executive Compensation" in the Registrant's Proxy
statement.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
  The information required by this Item is incorporated by reference to the
sections entitled "Share Ownership of Directors, Executive Officers and
Certain Beneficial Owners" of the Registrant's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
  The information required by this Item is incorporated by reference to the
section entitled "Employment Agreements and Certain Relationships and Related
Transactions" in the Registrant's Proxy Statement.
 
                                      49
<PAGE>
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
  (a) The following documents are filed as part of this report:
 
    (1) Financial Statements and Report of Arthur Andersen LLP, Independent
  Auditors
 
    (2) Financial Statement Schedule
 
    (3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
 
  (b) Reports on Form 8-K.
 
    None
 
  (c) Exhibits.
 
<TABLE>
 <C>   <S>
  3.1  Amended and Restated Certificate of Incorporation of the Company.*
  3.2  Form of Amended and Restated Certificate of Incorporation of the Company
       which became effective upon the closing of the Company's initial public
       offering.*
  3.3  Bylaws of the Company.*
  4.1  Specimen Stock Certificate.*
  4.2  Amended and Restated Rights Agreement dated as of June 27,1997 between
       the Company and the individuals and entities listed in the signature
       pages thereto, as amended effective February 27, 1998.*
 10.1  Form of Indemnification Agreement between the Company and each of its
       Officers and Directors.*
 10.2  Loan and Security Agreement dated December 30, 1997 between the Company
       and Silicon Valley Bank.*
 10.3  Sublease dated February 1997 between the Company and KPMG Peat Marwick
       LLP.*
 10.4  Lease Agreement dated June 27, 1996 between the Company and the
       Arrillaga Family Trust.*
 10.5  Employment Agreement dated July 15, 1996 between the Company and Robert
       Currie.*
 10.6  Employment Agreement dated July 21, 1997 between the Company and Karen
       Willem.*
 10.7  Employment Agreement dated June 30, 1994 between the Company and Yorgen
       Edholm.*
 10.8  1992 Stock Option Plan.*
 10.9  1998 Stock Option Plan.*
 10.10 1998 Directors' Stock Option Plan.*
 10.11 1998 Employee Stock Purchase Plan.*
 21.1  List of Subsidiaries.*
 27.1  Financial Data Schedule.
</TABLE>
--------
* Incorporated by reference to identically numbered exhibits filed with the
  Company's Registration Statement on Form S-1 (No. 333-47263) and amendments
  thereto, which became effective April 30, 1998.
 
                                      50
<PAGE>
 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
 
                                          Brio Technology, Inc.
 
                                                   /s/ Yorgen H. Edholm
                                          By: _________________________________
                                                     Yorgen H. Edholm
                                            President, Chief Executive Officer
                                                            and
                                            Chairman of the Board of Directors
                                               (Principal Executive Officer)
 
Date: June 25, 1998
 
                               POWER OF ATTORNEY
 
  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Yorgen H. Edholm and Karen J. Willem, jointly
and severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his or her substitute or substitutes may do or cause to be done by
virtue hereof.
 
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
 
<TABLE>
<CAPTION>
             SIGNATURE                           TITLE                    DATE
             ---------                           -----                    ----
 
<S>                                  <C>                           <C>
   /s/ Yorgen H. Edholm              President, Chief Executive      June 25, 1998
____________________________________ Officer and Chairman of the
   Yorgen H. Edholm                  Board of Directors
                                     (Principal Executive
                                     Officer)
 
   /s/ Karen J. Willem               Chief Financial Officer         June 25, 1998
____________________________________ (Principal Financial and
   Karen J. Willem                   Accounting Officer)
 
   /s/ Katherine Glassey             Director                        June 25, 1998
____________________________________
   Katherine Glassey
 
   /s/ E. Floyd Kvamme               Director                        June 25, 1998
____________________________________
   E. Floyd Kvamme
 
   /s/ Bernard J. Lacroute           Director                        June 25, 1998
____________________________________
   Bernard J. Lacroute
 
                                     Director
____________________________________
   Norman Vincent
</TABLE>
 
                                      51