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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                                  FORM 10-K/A
(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, 1999

                                       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)

         Delaware                                                77-0210797
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)


                            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 [X]
NO [_]

  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 $318,269,327 as of April 28, 2000 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%
or 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 27,755,649 shares of the registrant's Common Stock issued and
outstanding as of April 28, 2000.


                      DOCUMENTS INCORPORATED BY REFERENCE

  Part III incorporates information by reference from the definitive proxy
statement for the Annual Meeting of Stockholders held on August 3, 1999.

================================================================================
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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--Risk Factors That May Affect Future Operating Results."

Item 1. Business.

Overview

  Brio Technology is a leader in developing, marketing and supporting enterprise
business intelligence software. Enterprise business intelligence software is
software that enables organizations to maximize the value of their corporate
information through intuitive, interactive data access and analysis, resulting
in more informed business decisions. Brio's product suite offers a comprehensive
platform for rapidly implementing and deploying business intelligence solutions
that meet the needs of both information technology-savvy "information producers"
and non-technical "information consumers" throughout an organization. Brio's
products are flexible enough to accommodate the growth of Brio's customers and
to effectively incorporate a wide range of available corporate data sources,
including data marts, data warehouses, operational data stores, enterprise
resource planning (ERP) systems, customer relationship management (CRM) systems,
sales force automation (SFA) systems and other computer software applications.

  Brio sells and markets its software and services through its direct sales and
services organizations located in North America, the United Kingdom, France,
Germany, Japan and Australia as well as worldwide through its indirect channel
of value-added resellers and distributors. See Note 4 of Notes to Consolidated
Financial Statements for additional information about geographic revenue.

  Brio currently serves thousands of organizations worldwide with over 4,000
sites and features over one third of the Fortune 500 as customers. Brio
customers include Alaska Airlines, AT&T, British Telecom, California State
University System, Carrefour, Compaq Computer Corp., Fidelity Investment,
Hewlett-Packard, Hoffman LaRoche, Hughes Communications, IBM, Merrill Lynch,
Motorola, Sun Microsystems and the U.S. Army.

Industry Background

  In today's increasingly competitive markets, organizations in virtually every
industry are seeking to improve the ability of business professionals to make
more timely, fact-based business decisions. To accomplish this objective,
organizations must establish and maintain a computer software infrastructure
that empowers business professionals with the analytical tools and information
to improve their decision making. Brio refers to this software 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.

  At the same time, the Web has not only transformed how information is produced
and distributed within an organization, but also has enabled organizations to
extend access to information to their business partners and customers. The Web
has created the opportunity for new populations of business professionals, both
inside and outside an organization, to have access to published business
information. To fully capitalize on this opportunity, however, organizations
require that:

     .  their business intelligence software products take full advantage of the
        distribution and delivery benefits offered by the Web;
     .  their software integrates with the organization's existing systems; and
     .  their software provides a comprehensive solution to the organization's
        information needs.

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  In the absence of a comprehensive platform, organizations have deployed
partial solutions for their reporting, analysis and information access needs.
However, many organizations are realizing that incompatible and disparate
reporting and analysis tools have inhibited the production and distribution of
information.  In addition, they are also realizing that they do not have the
time to deploy two separate systems to service internal employees and external
constituencies such as business partners and customers.  As a result, Brio
believes that organizations need a comprehensive, easy-to-use business
intelligence product solution that unifies access to all business information,
meets the needs of all users inside and outside the enterprise and is effective
in traditional network as well as email and Web environments.

Brio Solution

  Brio ONE is Brio's flagship offering, a complete business intelligence
solution that integrates business intelligence, enterprise reporting, analytic
applications and enterprise information portal software.  Brio ONE is the result
of Brio's integration of its software with the technologies it acquired as part
of the merger with SQRIBE Technologies Corp. in August 1999. The Brio ONE
business intelligence solution takes the entire enterprise into account--
supporting traditional "brick-and-mortar" business requirements as well as the
demands of the new e-business model. Brio ONE is designed to meet the complete
range of decision-making needs--including internal employees as well as external
customers, vendors and business partners. Brio ONE aims to increase the business
value of enterprise information by empowering everyone in the enterprise to
easily access and utilize the information they need to make better business
decisions.

  Brio ONE is designed to couple ease of experience for both users and
information technology (IT) staff with scalability and performance.  In terms of
ease of experience, Brio ONE:

     .  has an intuitive interface and is easy to use;
     .  delivers a personalized experience for each end user;
     .  adapts to individual work styles and information needs;
     .  accommodates real-time interaction with information for greater
        understanding; and
     .  streamlines the IT requirements for implementation, administration and
        maintenance.

  In terms of scalability and performance, Brio ONE:

     .  scales in multiple dimensions from work groups to the enterprise to the
        Internet, from bytes to terabytes of data, from one to hundreds of
        database and application servers and from one to thousands of users and
     .  can distribute processing and operate across the broadest range of
        platforms of any business intelligence vendor.

  Brio ONE supports the full range of information delivery and analysis
requirements for users throughout the enterprise, at every level of experience,
technological sophistication and security clearance. Brio ONE facilitates
business intelligence by:

     .  enhancing the value of existing enterprise information;
     .  leveraging customers' information assets and infrastructure, including
        ERP applications, data marts and data warehouses; and
     .  empowering personnel, at every level of the enterprise as well as
        externally, to find, use and publish information that contributes to the
        enterprise's success.

Brio Strategy

  Brio's strategy is to be a leading provider of enterprise business
intelligence software solutions for traditional Fortune 1000 companies who use
Brio products to manage their internal business and to leverage the Internet to
extend information value to their customers and partners.  The following are key
elements of Brio's strategy:

  Extend Technology Leadership. Brio has designed its products to satisfy
customers' desire for rapid implementation, intuitive user interfaces, easy
integration with existing database and other system software, high performance
and limited information technology staff support. Brio's products incorporate a
number of advanced technologies, including a proprietary data analysis engine, a
distributed architecture and Web access and delivery technology based on
standards such as Java, HTML and XML. Brio intends to devote significant
resources to research and development efforts and to form strategic
relationships that will enable Brio to further enhance its products'
functionality and ease of use.

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  Broaden Distribution Channels. To date, Brio has sold its products primarily
through its direct sales and services organizations located in the United
States, Canada, the United Kingdom, France, Germany, Japan and Australia.  In
addition, Brio has sold its products worldwide through value added resellers,
resellers and distributors. Brio 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, Brio 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. Brio's products and
related services are designed to enable its customers to deploy business
intelligence throughout their organization. Although most organizations
initially deploy Brio's products on a departmental or pilot basis, Brio believes
that initial customer success with this deployment can lead to significant
opportunities for larger scale adoption of Brio's products within the
organization. Brio intends to focus its sales and services efforts on large
organizations seeking large-scale business intelligence deployments and on
making initial customer pilots or deployments successful.

  Leverage Industry Relationships. To accelerate the adoption of Brio's products
as a standard platform for business intelligence, Brio has formed strategic
relationships that provide for enhanced compatibility with partner technology as
well as increased market exposure and sales opportunities for Brio's products
and services. Brio's partners include industry-leading providers of software and
hardware, such as IBM, Microsoft, Oracle and Peoplesoft, that compliment Brio's
product and service offerings, and providers of a wide range of training,
implementation and application development services related to Brio's products.
Brio's strategic relationships with IBM, Microsoft, Oracle and Peoplesoft have,
to date, consisted of:

     .  Brio's participation in various sales and marketing initiatives
        sponsored by these companies, including joint presentations at industry
        trade shows and conferences; and
     .  agreements by Brio to support certain technology standards promoted by
        these companies.

  Increase International Presence. Outside of the United States, Brio

     .  has direct sales offices in Canada, the United Kingdom, France, Germany,
        Japan  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 Chinese, French, German, Italian, Japanese,
        Portuguese (Brazilian) and Spanish.

  Brio 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. Brio believes that offering
quality service and support is important to customer satisfaction and provides a
significant opportunity to build customer loyalty and to differentiate itself
from its competition. Brio 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, Brio is committed
to providing customer-driven product functionality through feedback from user
groups, prospects, consultants, partners and customer surveys.

Products and Technology

  Brio offers a set of technologies that create an integrated business
intelligence platform called "Brio ONE". Brio ONE is designed to meet the entire
range of business intelligence needs of companies who need to provide decision
processing and self-service business intelligence to a broad constituency of
individuals, including,employees, customers and business partners. Brio ONE's
product functionality includes enterprise reporting, analytical reporting, ad
hoc query and on-line analytical processing (OLAP), as well as tools for
building and deploying a wide range of analytic applications.

  All of the products within the Brio ONE platform are designed to deliver
enterprise-caliber scalability, performance and ease of experience to users.

  The major benefits of Brio ONE include the ability to:

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     .  provide universal access to all information sources "inside and outside"
        the enterprise, including: data stored and maintained in data warehouses
        and data marts; ERP, SFA and CRM systems and other corporate or
        departmental applications; as well as documents, spreadsheets and other
        unstructured data;
     .  support the delivery of information and content across the entire Web-
        enabled enterprise;
     .  support the decision-processing needs of everyone in your enterprise,
        including information producers (e.g., IT and power users) as well as
        information consumers; and
     .  implement a single-source solution that supports the development and
        delivery of a wide-range of decision-processing applications, from
        personal query and reporting applications to strategic analytic
        applications.

  Brio ONE is comprised of the following integrated product line solutions:

     .  Brio.Enterprise, Brio's integrated business intelligence suite;
     .  Brio.Report, Brio's enterprise reporting technology;
     .  Brio.Portal, Brio's Enterprise Information Portal ; and
     .  Brio.Applications, Brio's analytic application suite for strategic
        business analysis and performance management.

Brio Enterprise

  Brio.Enterprise is Brio's integrated business intelligence suite that
incorporates query, analysis and analytical reporting capabilities for
client/server and Web environments. Brio.Enterprise includes: BrioQuery
Designer, BrioQuery Explorer, BrioQuery Navigator, Brio.Insight, Brio.QuickView
and the Brio Enterprise Server (comprised of the OnDemand Server and the
Broadcast Server).

  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 setup features to
        enable information technology 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 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 pre-defined data and
        reports that they can use as a basis for independent analyses.

  Web-based Products. Brio's Web-based client products provide users with a wide
range of report, query and analytical capabilities within standard Web browsers.
Together with Brio's server-based products, they enable organizations to deploy
software that facilitates simplified administration and maintenance.  Brio's
web-based products include:

     .  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. 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 designed to meet the
information distribution and data access needs of information consumers, while
providing information technology departments with centralized control,
administration and security management functionality.

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     .  Broadcast Server. The Broadcast Server enables information technology
        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 file transfer
        protocol, email, Web servers, and network file servers and printers.

     .  OnDemand Server. The OnDemand Server offers both mobile and desktop
        users easy and secure access to a variety of data sources. Users can
        make queries over the Web or on the server; the server can then pre-
        build reports and transmit them to Brio's Web client products,
        Brio.Insight and Brio.Quickview. With the OnDemand Server and Brio's
        adaptive reporting feature, information technology 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 Brio's Web client software.

Brio.Report

  Brio.Report is a high-volume, high-performance server-based enterprise
reporting tool that enables customers to develop and process a complete range of
reports, from small reports to mission-critical operational reports that access
large volumes of data in production databases, legacy applications and data
warehouses. Output from Brio.Report can range from high-volume printed reports
to highly interactive reports delivered via the Web. Brio.Report consists of
Brio.Report Builder, SQR Server, Brio.Report Viewer and Brio.Report Activator,
as described below:

     .  Brio.Report Builder. A powerful and flexible graphical report
        development environment, Brio.Report Builder enables users to rapidly
        create enterprise reports via an easy point-and-click interface. With
        Brio.Report Builder, you can easily embed visual analysis capabilities
        right into the interactive reports they create, reducing the amount of
        time spent customizing and personalizing reports for individual end
        users. Brio.Report Builder also enables power users to quickly build
        personalized reports without assistance from their information
        technology personnel.

     .  Brio.Report SQR Server. A core component of the Brio.Report enterprise
        reporting solution, Brio.Report SQR Server is a powerful report
        processing and data manipulation technology for high-performance
        reporting. It provides native access to over 125 combinations of
        databases and operating environments and enables customers to take
        advantage of the powerful SQR programming language.

     .  Brio.Report Viewer. Brio.Report Viewer is a utility for viewing end-user
        reports.

     .  Brio.Report Activator. Brio.Report Activator provides a set of
        integration components and ActiveX controls designed to enable
        developers to add extensive, flexible data-access and reporting features
        to commercial and custom Microsoft Windows applications, allowing users
        of those applications to pull information from databases easily and
        quickly.

Brio.Portal

  Brio.Portal is designed to provide dynamic, self-service access to enterprise
information to everyone across the enterprise. Brio.Portal's dynamic distributed
architecture includes a browser-based interface and a set of server-based
cooperative services that manage, secure and distribute information objects.
Brio.Portal's browser-based user interface and the content end users have access
to, are automatically personalized based on each user's preferences and
administrator authorization.  Brio.Portal consists of the following two
products:

     .  Brio.Portal Administrator. This graphic user internface (GUI)-based
        management interface enables administrators distributed across the
        enterprise to easily load content into the Brio.Portal repository,
        organize and catalog information using dynamically evolving categories,
        assign privileges to users and groups, assign permissions for content
        items and manage life span for repository content.

     .  Brio.Portal Services. Brio.Portal's multi-threaded services can be
        replicated, as required, enabling the product to scale to support
        hundreds of thousands of users and a virtually unlimited number of
        information objects.

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Brio.Applications

  With the Brio.Applications analytic applications suite, Brio is delivering a
flexible, powerful and evolutionary application framework to meet strategic
analysis and performance management requirements. The initial product offering
in the Brio.Applications suite is the Brio.Impact Revenue Optimization
Application.

  Brio.Impact Revenue Optimization Application  is designed specifically to help
executives and managers proactively analyze revenue performance and market
dynamics to better understand what factors are really driving revenue and to
develop the best strategies for further increasing those revenues. Armed with
such insight, a company's sales and marketing efforts can be better focused on
aggressively driving the value it receives for each product or service it sells.
Its key features include:

     .  a complete and customizable analytic foundation that captures and
        automates best practices and analytical methods for analyzing and
        optimizing revenue performance;
     .  a tightly integrated, collaborative framework by which all users share
        and interact with the same embedded business and analytical models,
        tactics and plans;
     .  an easy-to-use "performance dashboard" that provides intelligent
        navigation paths to isolate anomalies and analyze performance in the
        same way that top performers analyze and make decisions about their
        business; and
     .  sophisticated performance improvement loops to continuously capture new
        knowledge and management approaches and incorporate them into the
        system.

Platforms

  Brio's enterprise reporting products, business intelligence solutions,
enterprise information portal, enterprise reporting solutions and enterprise
analytical applications are designed to operate on most popular server platforms
including Windows NT and UNIX (AIX, HP-UX and Sun Solaris).  Brio's client
products currently operate on a number of operating systems including Windows
(95, 98 and NT), PowerMac and UNIX (AIX, HP-UX and Sun Solaris).   Brio's
products provide native, ODBC, DB2 and OLEDB 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 Hyperion Essbase, Microsoft On-line Analytical Processing Services and
Informix Metacube.

  Brio's success in the future will depend upon its ability to develop new
products and its ability to sell larger, organization-wide sales of its
products.

Sales and Marketing

  Sales. To date, Brio has sold its products primarily through its direct sales
and services organizations located in the United States, Canada, the United
Kingdom, France, Germany, Japan and Australia, and has sold its products
worldwide through value-added resellers, or "VARs", resellers and distributors.
The direct sales process involves the generation of sales leads through direct
mail, seminars and telemarketing, or requests for proposals from prospects.
Brio's field sales force conducts multiple presentations and demonstrations of
Brio's products to management and users at customer sites as part of the direct
sales effort. Sales cycles typically range from three to nine months. The direct
sales force is compensated for sales made through indirect channel partners as
well as direct sales to ensure appropriate cooperation with Brio's VAR's,
resellers and distributors.  The direct sales force provides local partner
support and engages in joint sales efforts with partners while the channel sales
organization provides channel management.

  To date, Brio 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 support.
Brio generally offers such parties discounts on products and training, as well
as a cooperative marketing program and field level assistance from Brio's direct
and channel sales forces. Brio intends to leverage sales and marketing through
indirect channel partners that will distribute or resell Brio's products in
their respective markets. Revenues from VAR's, resellers and distributors
accounted for approximately 21% of total revenues for fiscal 1997, 24% of Brio's
total revenues in fiscal 1998 and 21% of Brio's total revenues for fiscal 1999.

  Brio intends to grow its direct sales organization.  Brio also intends to grow
its telesales operation in order to cover smaller organizations. In addition,
Brio will realign and grow its channel sales organization to develop new market
opportunities and continue to leverage and grow its existing network of VAR's,
resellers and distributors to expand its indirect distribution channel

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worldwide. Brio currently expects that it will fund such expansion out of its
working capital. Brio's agreements with its VARs generally provide VARs with a
right to resell a customized version of Brio's products in conjunction with
sales of the VAR's products or services. Brio typically offers its VAR's a
purchase discount as an incentive for the VAR's to sell Brio's products. Brio
does not typically grant exclusive sales territories to its distributors.

  Marketing. Brio is focused on building market awareness and acceptance of Brio
and its products as well as on developing strategic partnerships. Brio 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. Brio'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. Brio'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. Brio
has effectively used local, regional and Web-based seminars to assist prospects
in selecting enterprise business intelligence solutions, enterprise information
portal and enterprise reporting solutions. Brio 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. Brio's Web site has become an
effective lead generation program. Brio has invested in building a partner and
channel marketing function which helps to recruit, train, support and conduct
cooperative marketing with technology partners, system integrators, consultants,
resellers and VAR's. These programs help to foster strong relationships between
Brio 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.

  Brio's sales and marketing organization consisted of 254 full-time employees
as of March 31, 1999. The sales and marketing staff is based at Brio's corporate
headquarters in Palo Alto, California. Brio 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
Brio's success, and Brio intends to continue to make substantial investments in
research and development and related activities to maintain and enhance its
product lines. Brio 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 business to business analytic needs. Brio is organized into
Business Units comprised of product management, product marketing, engineering,
quality assurance and technical publications. As of March 31, 1999, Brio's
research and development organization consisted of 102 full-time employees.
Product requirements are based on customer feedback, technical support
experience, market analysis and technology trends.  Brio employs a professional
development methodology that constantly monitors customer satisfaction, quality,
cost and delivery schedules.

Customer and Technical Support

  Brio 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 and 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 Brio'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.  Customers purchasing maintenance are able to access hotline telephone
support.  Incoming customer calls are immediately logged into the support
database at the time of the call. Brio supplements its standard telephone
hotline support with a number of Web-based support services, including access to
frequently asked questions, a patch download area and an interface to Brio'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 Brio's products can attend regional user group conferences throughout the
year. To improve user access to explanatory materials, Brio 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 Brio operates is still developing, and is intensely
competitive, highly fragmented and characterized by rapidly changing technology
and evolving standards. Brio's current and potential competitors offer a variety
of software solutions and generally fall within several categories:

     .  vendors of business intelligence software such as Cognos, Business
        Objects, Seagate Software and Hummingbird;

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     .  vendors offering alternative approaches to delivering analysis
        capabilities to users, such as MicroStrategy, Computer Associates,
        Information Advantage and Actuate;
     .  vendors offering enterprise information portal software, such as
        Plumtree and Viador;
     .  database vendors that offer products which operate specifically with
        their proprietary database, such as Microsoft, IBM, Oracle and Arbor;
        and
     .  other companies that may in the future announce offerings of an
        enterprise business intelligence solution.

  Brio'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. Brio 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
Brio. 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 Brio. Brio 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 Brio'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 Brio's
prospective customers. Brio's current or future indirect channel partners may
establish cooperative relationships with current or potential competitors of
Brio, thereby limiting Brio'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 materially adversely affect
Brio's ability to obtain new licenses and maintenance and support renewals for
existing licenses, on terms favorable to Brio. Further, competitive pressures
may require Brio to reduce the price of its products, which could have a
material adverse effect on Brio's business, operating results and financial
condition. There can be no assurance that Brio will be able to compete
successfully against current and future competitors, and the failure to do so
could have a material adverse effect upon Brio's business, operating results and
financial condition.

  Brio competes on the basis of the following factors:

     .  completeness of product offering;
     .  product features;
     .  time to market;
     .  ease of use;
     .  product performance;
     .  product quality;
     .  analytical capabilities;
     .  scalability;
     .  open architecture;
     .  customer support; and
     .  price.

  Brio believes it presently competes favorably with respect to each of these
factors. However, Brio's market is still evolving and there can be no assurance
that Brio 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 Brio's business, operating results and financial condition.

Proprietary Rights

  Brio currently relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. Brio 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.

  Brio seeks to protect its software, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection.
Brio currently has one United States patent and one pending patent application.
This patent application may not result in the issuance of a patent.  Our issued
patent and any additional patents may not provide Brio

                                       9
<PAGE>

competitive advantages. Brio may not obtain any more patents. Others may develop
technologies that are similar or superior to our technology or design around our
patent or any other patent that Brio may come to own.

  Despite Brio's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of Brio's products or to obtain and use information
that Brio regards as proprietary. Policing unauthorized use of Brio's products
is difficult, and while Brio 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 Brio's proprietary rights as fully as do the laws of the United States.
There can be no assurance that Brio'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.

  Brio has entered into source code escrow agreements with a number of customers
and indirect channel partners requiring release of source code. Such agreements
provide that the contracting party will have a limited, non-exclusive right to
use the code subject to the agreement in the event that:

     .  there is a bankruptcy proceeding by or against Brio;
     .  if Brio ceases to do business; or
     .  in some cases, if Brio fails to meet its contractual obligations.

  The provision of source code escrows may increase the likelihood of
misappropriation by third parties.

  Brio expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in Brio's industry
segment grows and the functionality of products in different industry segments
overlaps. Any 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 Brio to enter into royalty or licensing agreements.

  Such royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. In the event of a successful claim of product
infringement against Brio and its failure or inability to license the infringed
or similar technology, Brio's business, operating results and financial
condition could be materially adversely affected.

  Finally, in the future Brio may rely upon software that it may license from
third parties, including software that may be integrated with Brio's internally
developed software and used in Brio's products to perform key functions. There
can be no assurance that these third-party software licenses will be available
on commercially reasonable terms. Brio's inability to obtain or maintain any
third-party 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 Brio's business,
operating results and financial condition.

                                       10
<PAGE>

Employees

  As of March 31, 1999, Brio had 485 employees, including 254 in sales and
marketing, 75 in services and support, 102 in research and development and 54 in
general and administrative functions. Brio believes its employee relations are
good. Brio'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. Brio has employment contracts with
only five members of its executive management personnel, and currently maintains
"key person" life insurance only on Yorgen Edholm, Brio's President and Chief
Executive Officer, and Katherine Glassey, Brio's Executive Vice President,
Business Intelligence Products and Chief Technology Officer. Brio does not
believe such insurance would adequately compensate it for the loss of either Mr.
Edholm or Ms. Glassey.

  Brio 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 Brio 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 Brio's business, operating results and financial condition. In
particular, Brio 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 Brio's sales force.

                      EXECUTIVE OFFICERS OF THE REGISTRANT

  The executive officers of Brio and their ages as of May 8, 2000 are as
follows:

<TABLE>
<CAPTION>
             Name                                Age                            Position(s)
             ----                                ---                            -----------
<S>                                              <C>   <C>
Yorgen H. Edholm..............................    44   President, Chief Executive Officer
Katherine Glassey.............................    42   Chief Technology Officer, Executive Vice President, Business
                                                       Intelligence Products and Director
Scott Chalmers................................    56   Executive Vice President, Worldwide Sales Operations
Tamara MacDuff................................    42   Chief Financial Officer and Executive Vice President, Finance and
                                                       Operations
John Schroeder................................    44   Executive Vice President, Products and Services
</TABLE>

  Yorgen H. Edholm is a co-founder of the Company and has been its President and
Chief Executive Officer 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 Industry 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 Chief
Technology Officer since January 1997 and has been a director since inception.
Ms. Glassey is also the Executive Vice President, Business Intelligence
Products. 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.

  Scott Chalmers joined Brio as Executive Vice President, Worldwide Sales in
August 1999 in connection with the Company's merger with SQRIBE Technologies
Corp., where Mr. Chalmers had served as vice president of sales since joining in
April 1998. Prior to SQRIBE, he was vice president of worldwide sales for
Visigenic Software, where he was responsible for all of the company's sales
activity, including direct and channel sales. Prior to that, he was with
Informix Software as vice president of U.S. sales. His previous experience also
includes sales management positions at AT&T and IBM. Mr. Chalmers holds a
master's degree in business administration from the University of California at
Los Angeles and a bachelor's degree from Oklahoma University.

                                       11
<PAGE>

  Tamara MacDuff joined Brio in 1992 and is currently the Chief Financial
Officer and Executive Vice President, Finance and Operations.  Prior to Brio,
she was a consultant with a public accounting firm providing business advisory
services.  Ms. MacDuff holds a bachelor's degree in finance with a minor in
accounting from San Jose State University.  Ms. MacDuff is also a Certified
Public Accountant.

  John Schroeder joined Brio as Executive Vice President, Products and Services
in August 1999 in connection with the Company's merger with SQRIBE Technologies
Corp. At SQRIBE, which he joined in 1996, Mr. Schroeder oversaw the development
of the company's enterprise reporting and information delivery architecture. Mr.
Schroeder has also held executive positions at Compuware Corp., where he was
general manager of the company's applications management products business, and
at Candle Corp., where he served as executive director responsible for systems
management products.  He holds a bachelor's degree in computer science from
Southern Illinois University.

Item 2. Properties.

  Brio's principal executive offices are located in Palo Alto, California where
Brio leases approximately 41,000 square feet under a lease that expires in
January 2004, approximately 12,000 square feet under a lease that expires in
October 2003 and approximately 30,000 square feet under a lease that expires in
March 2000. Brio also leases space (typically less than 4,000 square feet) in
various geographic locations primarily for sales and support personnel. Brio
believes that its current facilities are adequate to meet its needs through the
end of 1999, at which time Brio may need to lease additional space.

  In December 1999, Brio entered into a new lease agreement commencing on June
1, 2000 for its new corporate headquarters.  The lease expires in May 2010 and
calls for average monthly payments over the term of the lease of approximately
$378,000 per month.

  Brio was incorporated in California in February 1989 and was reincorporated in
Delaware in April 1998. Its principal executive offices are located at 3460 West
Bayshore Road, Palo Alto CA 94303. Its telephone number at that location is
(650) 856-8000.

Item 3. Legal Proceedings.

  On January 20, 1997, Business Objects, S.A. filed a complaint against Brio in
the U.S. District Court for the Northern District of California in San Jose,
alleging that certain of Brio's products (including at least the BrioQuery
Navigator, BrioQuery Explorer and BrioQuery Designer products) infringed at
least claims 1, 2, and 4 of U.S. Patent Number 5,555,403. On April 4, 1997, Brio
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 Brio is not infringing the patent and that patent is
invalid and enforceable. In December 1997, venue for the case was changed to the
Northern District of California in San Francisco. On July 30, 1999, Brio filed
an action against Business Objects, S.A. in the U.S. District Court for the
Northern District of California in San Jose, alleging that certain of Business
Objects, S.A. products infringe U.S. Patent Number 5,915,257. On September 9,
1999 Brio and Business Objects, S.A. executed a Memorandum of Understanding
settling Business Object's pending patent litigation against Brio involving a
patent number 5,555,403 for $10.0 million, payable in $1.0 million payments over
10 quarters with the first payment due September 30, 1999. As part of this
settlement, Business Objects, S.A. dismissed its pending lawsuit against Brio
involving patent number 5,555,403 and Brio dismissed its pending lawsuit against
Business Objects, S.A. involving patent number 5,915,257.

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

  Not applicable.

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

  The Company's Common Stock has been traded on the NASDAQ National Market under
the symbol "BRYO" since the Company's initial public offering on May 1, 1998. As
of April 1, 2000 the Company changed its symbol to "BRIO." 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.

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                                                            High           Low
                                                                                                            ----           ---
Fiscal year ended March 31, 1999:
<S>                                                                                                         <C>           <C>
First Quarter (ending June 30, 1998).............................................................           $19.06        $11.00
Second Quarter (ending September 30, 1998).......................................................           $13.88        $ 7.38
Third Quarter (ending December 31, 1998).........................................................           $18.25        $ 7.00
Fourth Quarter (ending March 31, 1999)...........................................................           $26.50        $14.38
</TABLE>

  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.

Item 6. Selected Financial Data.

  In August 1999, Brio completed its merger with SQRIBE Technologies Corp.
("SQRIBE") in a transaction accounted for as a pooling-of-interests. All prior
period consolidated financial statements have been restated for all periods
presented, in accordance with required pooling-of-interests accounting and
disclosures.  SQRIBE had a fiscal year that ended on December 31 of each year.
Restated historical consolidated financial statements combine the SQRIBE results
for the fiscal years ended December 31, 1998, 1997 and 1996 with Brio's results
for the years ended March 31, 1999, 1998 and 1997, respectively. In order to
conform SQRIBE's fiscal year to Brio's fiscal year, the results of operations
of SQRIBE for the three months ended March 31, 1999 have been reflected as an
adjustment to retained earnings as of that date, and the consolidated balance
sheet of Brio at March 31, 1999 includes the balance sheet of SQRIBE at March
31, 1999. Revenue, net loss and net loss applicable to common stock for SQRIBE
was $10.8 million, $1.8 million and $3.6 million, respectively, for the three
months ended March 31, 1999. See note 3 of Notes to Consolidated Financial
Statements for additional information.

  The selected historical 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, 1999, 1998 and 1997, and the selected consolidated balance sheet
data as of March 31, 1999 and 1998, are derived from, and are qualified by
reference to, the audited Consolidated Financial Statements of Brio appearing
elsewhere in this Report. The selected consolidated statements of operations
data for the years ended March 31, 1996 and 1995, and the selected consolidated
balance sheet data as of March 31, 1997, 1996 and 1995, are derived from the
audited Consolidated Financial Statements of Brio not included herein. The
historical results of operations presented are not necessarily indicative of
results to be expected for any subsequent period.

                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                                                           Years Ended March 31,
                                                                                           ---------------------
                                                                             1999        1998        1997      1996        1995
                                                                             ----        ----        ----      ----        ----
                                                                                   (In thousands, except per share data)
Consolidated Statements of Operations Data:
<S>                                                                       <C>         <C>         <C>        <C>         <C>
Total revenues.........................................................    $85,686    $ 51,895    $31,383     $15,945     $12,107
Income (loss) from operations..........................................     (1,767)    (15,694)    (8,618)     (7,869)      1,305
Net income (loss)......................................................        163     (15,723)    (8,624)     (8,066)      1,171
Net income (loss) applicable to common stock...........................       (753)    (15,723)    (8,624)     (8,066)      1,171
Basic net income (loss) per share......................................    $ (0.04)   $  (1.22)   $ (0.66)    $ (0.65)    $  0.09
Shares used in computing basic net income (loss) per share.............     19,984      12,871     13,018      12,374      12,451
Diluted net income (loss) per share....................................    $ (0.04)   $  (1.22)   $ (0.66)    $ (0.65)    $  0.09
Shares used in computing diluted net income (loss) per share...........     19,984      12,871     13,018      12,374      12,518
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments......................    $35,311    $  7,326    $ 4,020     $ 2,541     $ 3,449
Total assets...........................................................     68,260      29,423     17,947       9,558       8,255
Redeemable common stock................................................      3,110         344        516         516          --
Stockholders' equity (deficit).........................................     26,288      (1,264)       152         547       3,152
</TABLE>

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 "Risk Factors That May Affect Future Operating Results" below.

Overview

  Brio designs, develops, markets and supports enterprise business intelligence
software, which is software that enables organizations to maximize the value of
their corporate information through intuitive, interactive data access and
analysis. Brio had net losses applicable to common stock of $8.6 million in
fiscal 1997, $15.7 million in fiscal 1998 and $753,000 in fiscal 1999. Brio had
an accumulated deficit of approximately $37.5 million as of March 31, 1999. See
"Risk Factors That May Affect Future Operating Results" for a description of the
risks related to Brio's operating results fluctuating in future periods.

  In August 1999, Brio completed its merger with SQRIBE Technologies Corp.
(SQRIBE), a Delaware corporation.  SQRIBE develops, markets, licenses and
supports enterprise reporting software that enables organizations to improve the
quality and speed of decision-making.  Brio acquired all of the outstanding
shares of SQRIBE preferred and common stock in a tax-free, stock-for-stock
transaction for approximately 13.2 million shares of Brio common stock.  The
acquisition was accounted for as a pooling-of-interests.  In addition, Brio
assumed all outstanding stock options and warrants of SQRIBE. All prior period
consolidated financial statements have been restated, in accordance with
required pooling-of-interests accounting and disclosures.

  Brio's revenues consist of license fees for software products and fees for
services, 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 Brio's products. Brio
generally discontinues marketing older product versions when a new product
version is introduced. The products are typically licensed on a per user basis
with the price per user varying based on the selection of products licensed or
on a per computer server basis with the price varying based on the computing
power of the server. Additionally, Brio also sells larger enterprise-wide
implementations of their products through site licenses with the price per site
varying based on the selection of:

     . products licensed;

     . the number of authorized users or computer servers for each product at
       each site; and

     . the number of licensed sites.

                                       14
<PAGE>

  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. If vendor-
       specific objective evidence does not exist to allocate the total fee to
       all delivered and undelivered elements of the arrangement, revenue is
       deferred until such evidence does exist, or until all elements are
       delivered, whichever is earlier.

  If payments are subject to extended payment terms and are not deemed fixed or
determinable, Brio defers revenue until payments become due. If an acceptance
period is required, Brio recognizes revenue upon the earlier of customer
acceptance or the expiration of the acceptance period. Brio establishes
allowances for potential product returns and credit losses, which have been
insignificant to date. Brio charges fees for services separately from license
fees. Brio recognizes revenues from maintenance and support services, including
ongoing product support and periodic product updates, 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. Brio
recognizes revenues from training and consulting services when the services are
performed.

  To date, Brio has derived revenues from license fees principally from direct
sales of software products to end users through Brio's direct sales force.
Although Brio believes that such direct sales will continue to account for a
significant portion of revenues from license fees in the foreseeable future,
Brio has recently developed and intends to continue to develop reselling
relationships with value added resellers, resellers and distributors. Brio
expects that revenues from sales through value added resellers, resellers and
distributors will increase in the future as a percentage of revenues from
license fees. Revenues from value added resellers, resellers and distributors,
were 21% of total revenues for fiscal 1997, 24% of total revenues for fiscal
1998 and 21% for fiscal 1999. Brio'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
relationships with value added resellers, resellers and distributors. See
"Factors That May Affect Future Operating Results" for a description of the
risks related to Brio's sales strategy.

  Brio is also increasing its efforts to sell customers licenses to larger,
enterprise-wide implementations of Brio's products, rather than departmental or
local network sales, which may increase the complexity and length of the sales
cycle. Brio has, in the past and may in the future, choose to grant greater
pricing and other concessions, such as discounted training and consulting, for
sales of site licenses. See "Risk Factors That May Affect Future Operating
Results" for a description of the risks related to the sales cycle of Brio's
products.

  Brio has, to date, sold its products internationally through direct sales
offices in the United Kingdom, France, Germany, Japan and Australia, and
indirectly through established distribution relationships in more than 20
countries, including Belgium, Italy, The Netherlands and South Africa. Brio's
direct sales offices in the United Kingdom and Australia were formed through the
acquisition of distributors in those countries. Sales to customers outside of
the United States and Canada, including sales generated by Brio's foreign
subsidiaries, represented 11% of total revenues for fiscal 1997, 17% of total
revenues for fiscal 1998, and 18% of total revenues for fiscal 1999. A
substantial portion of Brio's international sales in the past have been
denominated and collected in foreign currencies and Brio believes that a portion
of its cost of revenues and operating expenses will continue to be incurred in
foreign currencies. To date, there have been no material effects of changes in
foreign currency exchange rates on revenues or operating expenses. During fiscal
1999, Brio incurred foreign currency transaction losses of $126,000 resulting
primarily from intercompany receivables from its foreign subsidiaries. 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 Brio'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 Brio
has not historically undertaken foreign exchange hedging transactions to cover
its potential foreign currency exposure, it may do so in the future. See "Risk
Factors That May Affect Future Operating Results" for a description of the risks
related to Brio's international sales strategy.

  Although Brio has experienced significant quarter-to-quarter revenue growth in
fiscal 1999, 1998 and 1997, the same rate of sequential quarterly revenue growth
may not be sustainable and profitability may not be attained in the future. Brio
currently intends to commit substantial financial resources to the following:

     .  research and development;

                                       15
<PAGE>

     .  customer support;
     .  sales and marketing, including the expansion of its direct sales force,
        third-party partnering relationships and its indirect channel sales
        organization;
     .  increased staffing and systems infrastructure to support Brio's
        expanding operations; and
     .  merger-related expenses and integration costs associated with the
        recently completed merger with SQRIBE.

  Brio expects that its operating expenses will increase significantly in fiscal
2000. See "Risk Factors That May Affect Future Operating Results."

Results of Operations

  The following table includes consolidated statements of operations data as a
percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                                                          Years Ended March 31,
                                                                                                          ---------------------
                                                                                                         1999     1998     1997
                                                                                                         ----     ----     ----
<S>                                                                                                     <C>      <C>      <C>
  Consolidated Statements of Operations Data:
  Revenues:
     License fees..................................................................................      68%      69%      74%
     Services......................................................................................      32       31       26
                                                                                                        ---      ---      ---
        Total revenues  ...........................................................................     100      100      100
  Cost of revenues:
     License fees  ................................................................................       3        4        7
     Services  ....................................................................................      12       10        6
                                                                                                       ----     ----     ----
        Total cost of revenues  ...................................................................      15       14       13
                                                                                                       ----     ----     ----
  Gross profit  ...................................................................................      85       86       87
  Operating expenses:
     Research and development  ....................................................................      16       19       18
     Sales and marketing  .........................................................................      57       68       71
     General and administrative  ..................................................................      12       15       25
     Stock compensation to principal stockholders..................................................      --       14       --
     In-process research and development  .........................................................       2       --       --
                                                                                                       ----     ----     ----
        Total operating expenses  .................................................................      87      116      114
                                                                                                       ----     ----     ----
  Loss from operations  ...........................................................................      (2)     (30)     (27)
  Interest and other income, net  .................................................................       3       --       --
                                                                                                       ----     ----     ----
  Net income (loss) before income taxes  ..........................................................       1      (30)     (27)
  Income taxes  ...................................................................................       1       --       --
                                                                                                       ----     ----     ----
  Net loss.........................................................................................      --      (30)     (27)
  Increase in redemption value of redeemable common stock..........................................      (1)      --       --
                                                                                                       ----     ----     ----
  Net loss applicable to common stock...............................................................    (1)%    (30)%    (27)%
                                                                                                        ====    ====     ====
</TABLE>

Fiscal Years Ended March 31, 1999, 1998 and 1997

Revenues

  Brio derives revenues from license fees and services, which include software
maintenance and support, training and system implementation consulting. Total
revenues increased by 65% from $31.4 million in fiscal 1997 to $51.9 million in
fiscal 1998 and by 65% to $85.7 million in fiscal 1999.

  Revenues by geographic location were as follows for fiscal 1999, 1998 and
1997:

<TABLE>
<CAPTION>
                                                                                               1999      1998      1997
                                                                                               ----      ----      ----
<S>                                                                                          <C>        <C>       <C>
Revenues by Geography:
  Domestic................................................................................    $70,097   $43,315   $28,013
  International...........................................................................     15,589     8,580     3,370
                                                                                              -------   -------   -------
     Total revenues.......................................................................    $85,686   $51,895   $31,383
                                                                                              =======   =======   =======
 </TABLE>

  Revenue from international sources increased by 155% from $3.4 million in
fiscal 1997 to $8.6 million in fiscal 1998 and by 82% to $15.6 million in fiscal
1999. The increase in fiscal 1998 was due to Brio establishing direct sales
offices in Australia, the

                                       16
<PAGE>

United Kingdom, Germany and France, which resulted in increases in both license
fees and services revenue in Europe and Asia. The increase in fiscal 1999 was
due to increased demand for Brio products in Europe and Asia as Brio continued
to expand direct and indirect sales efforts in these areas. See Note 4 of Notes
to Consolidated Financial Statements for additional information about revenues
in geographic areas.

  License Fees. Revenues from license fees increased by 54% from $23.2 million
in fiscal 1997 to $35.7 million in fiscal 1998 and by 63% to $58.3 million in
fiscal 1999. The increases were due to growing sales to new customers--
approximately $5.8 million of the increase in fiscal 1998 and approximately $8.1
million of the increase in fiscal 1999--and increased follow-on sales to
existing customers--approximately $6.7 million of the increase in fiscal 1998
and approximately $14.5 million of the increase in fiscal 1999.

  Services. Service revenues increased by 97% from $8.2 million in fiscal 1997
to $16.2 million in fiscal 1998 and by 70% to $27.4 million in fiscal 1999. The
increases were due to an increase in maintenance and support revenues--
approximately $5.1 million of the increase in fiscal 1998 and approximately $7.9
million of the increase in fiscal 1999--and an increase in training and
consulting revenues--approximately $2.9 million of the increase in fiscal 1998
and approximately $3.3 million of the increase in fiscal 1999--related to
increases in Brio'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. Cost of revenues from license fees decreased by 8% from $2.1
million in fiscal 1997 to $1.9 million in fiscal 1998 and increased by 34% to
$2.6 million in fiscal 1999. The increase in absolute dollars in fiscal 1999 was
primarily due to an increase in the number of licenses sold.  The decrease as a
percentage of total revenues 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 "shrink-wrapped" 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 "shrink-wrapped" product.

  Services. Cost of revenues from services consists primarily of personnel costs
and third-party consulting fees associated with providing software maintenance
and support, training and consulting services. Cost of revenues from services
increased by 157% from $2.0 million in fiscal 1997 to $5.1 million in fiscal
1998 and by 105% to $10.5 million in fiscal 1999. The increases were due
principally to increases in personnel and related costs resulting from Brio's
expansion of its support services in response to increased demand for
maintenance and support and training and consulting services--approximately $2.0
million of the increase in fiscal 1998 and approximately $3.6 million of the
increase in fiscal 1999--and increases in the use of outside consultants for
training and consulting services--approximately $1.1 million of the increase in
fiscal 1998 and approximately $1.8 million of the increase in fiscal 1999. Cost
of revenues from services may vary between periods due to the mix of services
provided by Brio'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 69% from $5.8 million in
fiscal 1997 to $9.8 million in fiscal 1998 and by 40% to $13.7 million in fiscal
1999. The increases from year to year were primarily due to increased personnel
and related costs required to continue to develop new products and enhance
existing products. Brio believes that significant investment for 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. Brio 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 58% from $22.2
million in fiscal 1997 to $35.2 million in fiscal 1998 and by 38% to $48.5
million in fiscal 1999. The increases were attributable to the costs associated
with the expansion of Brio'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, France,
Germany, Japan and Australia and through the expansion of the worldwide field
sales organization--approximately $7.1 million of the increase in fiscal 1998
and approximately $4.7 million of the increase in fiscal 1999--higher sales
commissions, bonuses and sales incentives associated with increased revenues--

                                       17
<PAGE>

approximately $3.4 million of the increase in fiscal 1998 and approximately $5.4
million of the increase in fiscal 1999--and increased domestic and international
marketing expenses, including marketing activities, personnel and related costs-
-approximately $2.4 million of the increase in fiscal 1998 and approximately
$3.2 million of the increase in fiscal 1999. The decrease as a percentage of
total revenues was generally attributable to increases in revenues for the
periods. Brio 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. These expenses are
currently intended to be funded by Brio's working capital. In particular, Brio
expects that sales compensation, travel and related expenses will increase
significantly as Brio continues to increase the number of its direct sales
personnel and its emphasis on direct field sales efforts. Nonetheless, Brio
expects sales and marketing expenses will continue to vary as a percentage of
total revenues.

  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 remained constant at $7.9 million
in 1997 and 1998 and increased by 34% to $10.5 million in fiscal 1999.
Substantially all of the increase in fiscal 1999 was due to increased personnel
and related costs of approximately $1.8 million, professional fees of
approximately $200,000 and approximately $700,000 for managing and supporting
Brio'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 Brio's administrative operations and
increased revenues. Brio expects that its general and administrative expenses
will increase in absolute dollars as Brio expands its staffing to support
expanded operations and continues its responsibilities as a public company. Brio
expects that such expenses will continue to vary as a percentage of total
revenues.

  Deferred Compensation. In connection with the granting of 1,369,368 stock
options to employees during fiscal 1998, with a weighted average exercise price
of $1.49 per share and a weighted average deemed fair market value of $1.91 per
share, Brio 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. In addition,
Brio granted 67,419 stock options to employees during fiscal 1999, at a weighted
average exercise price of $1.56 per share, with a weighted average deemed fair
market value of $4.27 per share and recorded 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 as $63,000 of compensation expense
and $188,000 of deferred compensation. Such amounts are presented as a
reduction of stockholders' equity and amortized ratably over the vesting
period of the applicable options. Approximately $105,000 was expensed during
fiscal 1998, approximately $129,000 was expensed during fiscal 1999 and the
balance will be expensed ratably over the next three years as the options
vest. See Note 8 of Notes to Consolidated Financial Statements for additional
information regarding deferred compensation.

  Stock Compensation to Principal Stockholders. In September 1997, SQRIBE
permitted certain stockholders controlling 97% of the then outstanding shares of
common stock, including an executive officer, to exchange one-third of their
shares of SQRIBE common stock for shares of SQRIBE Series B preferred stock on a
one-for-one basis.  These stockholders subsequently sold these shares to third-
party investors.  SQRIBE recognized compensation expense of $7.7 million related
to this exchange based on the difference between the fair values of the common
and preferred shares on the date of the exchange.

   Purchased In-Process Research and Development. In connection with the
acquisition of MerlinSoft, Inc. (MerlinSoft), Brio allocated $1.7 million of the
purchase price to in-process research and development projects. This allocation
represented the estimated fair value based on future cash flows that have been
adjusted by the projects' completion percentage. While Brio relied upon an
independent, third party appraisal of the acquired intangible assets, management
was primarily responsible for estimating their fair values.  At the acquisition
date, the development of these projects had not yet reached technological
feasibility due to issues involving the completion of scalability, performance
and security functions and the research and development in progress had no
alternative future uses. Accordingly, these costs were expensed as of the
acquisition date. The excess of the purchase price over identified intangible
assets was approximately $600,000.

  Brio used a third-party appraiser to assess and value the in-process research
and development. The value assigned to purchased in-process research and
development was determined by estimating the contribution of the purchased in-
process technology in developing a commercially viable product, estimating the
resulting net cash flows from the expected sales of such a product, and
discounting the net cash flows to their present value using an appropriate
discount rate.  The discount rate included a factor that took into account the
uncertainty surrounding the successful development of the acquired in-process
technology.  Valuation of development efforts in the future was excluded from
the research and development appraisal.

  The purchased in-process research and development consisted of two projects.
Both of these projects are aimed at the delivery of timely, in-depth,
sophisticated analytical applications. The first product will provide data
models for analysis in

                                       18
<PAGE>

specific industries and functional areas, metric libraries, a web-based client
and the ability for business users to manage application components ("Analysis
Product"). The second product will include in-depth modeling features for margin
analysis and what-if scenarios to determine the impact of various decisions and
parameters ("Modeling Product"). The research and development costs incurred by
MerlinSoft in the development of the Analysis Product were approximately $4,000
in 1997 and approximately $298,000 in 1998. The research and development costs
incurred by MerlinSoft in the development of the Modeling Product were
approximately $34,000 in 1998. At the date of acquisition, the research and
development costs to complete the Analysis Product were estimated by MerlinSoft
to be approximately $855,000 in fiscal 1999 and 2000. At the date of
acquisition, the research and development costs to complete the Modeling Product
project were estimated by MerlinSoft to be approximately $933,000 in fiscal 1999
and 2000. Management believes it is on schedule with the Analysis and Modeling
Products and expects successful completion of the projects.

  The development technologies were evaluated in the context of Interpretation 4
of SFAS No. 2 and SFAS No. 86, where appropriate.  In accordance with these
provisions, research and development projects were evaluated individually to
determine if technological feasibility had been achieved and if there was any
alternative future use.  Such evaluation consisted of a specific review of the
efforts, including the overall objectives of the project, progress toward the
objectives and uniqueness of developments to these objectives.  The issue of
alternative future use was addressed in discussions with the management of Brio.
This process included on-site management interviews and review of technical
data.

  Once completed, the technologies under development could only be economically
used for the specific and intended purpose. The architecture, design, software
code, interfaces, features and functions of the technologies being developed are
for specific purposes, and if Brio fails in its efforts, no alternative economic
value will result from its efforts. If the projects fail, the economic
contribution expected to be made by the research and development will not
materialize.

  Revenue growth rates for MerlinSoft were estimated based on a detailed
forecast prepared by management, which took into account input from finance,
marketing, and engineering representatives of Brio and MerlinSoft. Revenue
growth rates beyond 2000 were based on industry growth expectations. Selling,
general and administrative expenses and profitability estimates were determined
based on management forecasts as well as an analysis of comparable company's
margin expectations.  The projections utilized in the transaction pricing and
purchase price allocation analysis exclude the potential synergistic benefits
related specifically to Brio's ownership.

  Due to the relatively early stage of the development and reliance on future,
unproven products and technologies, the cost of capital (discount rate) for
MerlinSoft was estimated using venture capital rates of return. Due to the
nature of the forecast and the risks associated with the projected growth and
profitability of the development projects, a discount rate of 25 to 30 percent
was used to discount cash flows from the in-process projects.

  Brio believes that the foregoing assumptions used in the forecasts were
reasonable at the time of the acquisition. No assurance can be given, however,
that the underlying assumptions used to estimate sales, development costs or
profitability, or the events associated with such projects, will transpire as
estimated. For these reasons, actual results may vary from projected results.

  Remaining development efforts for MerlinSoft's research and development
include various phases of development, programming and testing. Funding for such
projects is expected to be obtained from internally generated sources.

  As evidenced by the continued support of the development of the in-process
technology, and derivative products, management believes Brio has a reasonable
chance of successfully completing the research and development programs.
However, as with all of Brio's software development efforts, there is risk
associated with the completion of the MerlinSoft research and development
projects, and there is no assurance that technological or commercial success
will be achieved.

  If the development of the in-process technology, and derivative products, is
unsuccessful, the sales and profitability of Brio may be adversely affected in
future periods. Commercial results are also subject to uncertain market events,
and risks, which are beyond Brio's control, such as trends in technology,
changes in government regulation, market size and growth, and product
introduction or other actions by competitors.

  As of May 2000, MerlinSoft's results have not differed significantly from the
forecast assumptions. Brio's research and development expenditures since the
acquisition have not differed materially from expectations. Revenue contribution
from the acquired technology falls within an acceptable range of the forecast
assumptions. The risks associated with the research and development are still
considered high and no assurance can be made that upcoming products will meet
market expectations.

                                       19
<PAGE>

Interest and Other Income, Net

  Interest and other income, net, is comprised primarily of interest income and
foreign currency transaction gains or losses and realized gains or losses from
the sale of investments, net of interest expense. Interest expense is comprised
of interest incurred on Brio's bank line of credit. Interest and other income,
net, increased from $48,000 in fiscal 1997 to $75,000 in fiscal 1998 and to $2.7
million in fiscal 1999. The increase in interest and other income, net, in
fiscal 1998 is attributable to a decrease in the amount of borrowings on Brio's
line of credit.  The increase in interest and other income, net, in fiscal 1999
is due to an increase in interest income resulting from larger cash balances
associated with the closing of Brio's initial public offering in May 1998,
offset by foreign currency transaction losses of approximately $126,000. See
Note 2 of Notes to Consolidated Financial Statements for a description of
foreign currency transactions and Brio's policy related to accounting for short-
term investments.

Provision for Income Taxes

  The provision for income taxes of $747,000 in fiscal 1999, $104,000 in fiscal
1998 and $54,000 in fiscal 1997, respectively, consisted primarily of Federal
and state alternative minimum taxes as the Company utilized net operating loss
carryforwards to offset current income taxes generated from domestic
operations.

  At March 31, 1999, Brio had combined Federal and state net operating loss
carryforwards of $3,266,000, which expire at various dates through 2018. Brio
believes that, based on a number of factors, there is sufficient uncertainty
regarding the realizability of carryforwards and credits that a valuation
allowance has been recorded against the net deferred tax asset to the extent the
net deferred asset exceeds current and prior year's regular tax. These factors
include a history of operating losses, recent increases in expense levels to
support Brio's growth, the competitive nature of Brio's market and the lack of
predictability of revenue. Management will continue to assess the realizability
of the tax benefits available to Brio 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.

Recent Accounting Pronouncements

  In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." SFAS No. 130 was adopted by Brio in its fiscal year beginning April 1,
1998. The adoption of SFAS No. 130 did not have a material effect on Brio's
consolidated financial statements.

  In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 was adopted by Brio in
its fiscal year beginning on April 1, 1998. SFAS No. 131 establishes standards
for disclosures about operating segments, products and services, geographic
areas and major customers. The adoption of SFAS No. 131 did not have a material
effect on Brio's consolidated financial statements.

  In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 which superseded SOP 91-1, "Software
Revenue Recognition." SOP 97-2 was effective for transactions entered into in
Brio's fiscal years beginning April 1, 1998. Brio adopted SOP 97-2 for all
transactions entered into beginning April 1, 1998. The adoption of SOP 97-2 did
not have a material effect on Brio's consolidated financial position or the
timing of Brio's revenue recognition, or cause changes to its revenue
recognition policies.

  In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. Management
believes the adoption of SFAS No. 133 will not have a material effect on Brio's
financial statements.

  In December 1999, the Securities and Exchange Commission issed Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements."  SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition in financial statements.  Brio will
adopt SAB 101, as required, in the first quarter of fiscal 2001.  Management
believes the adoption of SAB 101 will not have a material effect on Brio's
financial statements.

                                       20
<PAGE>

Liquidity and Capital Resources

  As of March 31, 1999, Brio had cash, cash equivalents and short-term
investments of $35.3 million. In addition, Brio maintains a bank line of credit.
The line provides for up to $10.0 million in borrowings, with interest at the
bank's prime rate. Borrowings under the accounts receivable line of credit are
limited to 80% of eligible accounts receivable. The line of credit is
collateralized by substantially all of Brio's assets, including Brio's
intellectual property, accounts receivable and property and equipment to the
extent required to secure the line. As of March 31, 1999, the line of credit
required Brio to comply with various covenants, including quarterly requirements
to maintain a minimum quick ratio and minimum tangible net worth. As of March
31, 1999, Brio was in compliance with all covenants and no amounts were
outstanding under the line.  In December 1999, Brio renewed the line of credit.
Under the renewal, the line was increased to $15.0 million and Brio is required
to comply with a net income covenant, excluding non-recurring operating charges,
of $1. The line expires on December 31, 2000.

  As part of the Company's merger with SQRIBE, Brio acquired a $2.5 million bank
line of credit. Borrowings under the line bear interest at the bank's prime rate
plus 0.5%, are limited to 80% of eligible receivables and are secured by
substantially all of the assets of the assumed company. Brio also acquired a
$1.0 million equipment purchase line of credit. Amounts borrowed under this line
bear interest at prime plus 0.75% and convert to a note repayable over 30 months
beginning in December 1999. The borrowing arrangement requires the acquired
company to comply with certain covenants.  As of March 31, 1999, the acquired
company was not in compliance with the covenants, however a waiver was obtained
from the bank.  As of March 31, 1999, $2.0 million was outstanding under the
receivables line and a $500,000 letter of credit was issued to support a
facilities lease. In August 1999, Brio repaid the $2.0 million outstanding under
the line of credit.  The letter of credit is currently in effect for the
facilities lease.

  Net cash used in operating activities was $4.3 million in fiscal 1997 and $1.1
million in fiscal 1998. Net cash generated by operating activities was $3.8
million in fiscal 1999. The decrease in fiscal 1998 was due primarily to
favorable changes in the balances of operating assets and liabilities. The
increase in fiscal 1999 was primarily due to a $15.0 million decrease in net
loss applicable to common stock, offset by $10.1 million of unfavorable changes
in the balances of operating assets and liabilities.

  Net cash used in investing activities was $3.0 million in fiscal 1997,
consisting of approximately $2.9 million for the purchase of property and
equipment and approximately $95,000 for a one-time payment in connection with
the acquisition of Brio's Australian subsidiary. Net cash used in investing
activities was $3.1 million in fiscal 1998, consisting of purchases of property
and equipment. Net cash used in investing activities was $20.1 million in fiscal
1999, consisting primarily of $13.9 million for the purchase of short-term
investments, net, approximately $4.1 million for the purchase of property and
equipment and approximately $2.2 million for the purchase of MerlinSoft, net of
cash acquired.

  Net cash provided by financing activities was $8.8 million in fiscal 1997,
$7.3 million in fiscal 1998 and $30.1 million in fiscal 1999, consisting
primarily of proceeds from private sales of preferred stock and proceeds from
the exercise of preferred stock warrants--approximately $8.1 million in fiscal
1997 and approximately $5.8 million in fiscal 1998--periodic borrowings, net of
repayments, on the bank line of credit--approximately $642,000 in fiscal 1997
and approximately $1.2 million in fiscal 1998--and proceeds from the issuance of
common stock to employees under various incentive stock plans and the net
proceeds from Brio's initial public offering--approximately $33.3 million in
fiscal 1999.

Year 2000 Readiness

   Computer systems have traditionally used a two-digit field to designate a
year. This format will not recognize the century date change that will take
place at the end of 1999. Such systems will recognize the year 2000 as 1900, not
at all, or some year other than 2000. The inability to recognize the proper date
can and will cause systems to process information incorrectly, resulting in
system failures or other serious business problems.  Brio did not experience any
significant system failures as the result of the Year 2000 problem.


             RISK FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

  We desire to take advantage of the "Safe Harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and of Section 21B and Rule 3b-6 under
the Securities and Exchange Act of 1934.  Specifically, we wish to alert readers
that the following important factors, as well as other factors including,
without limitation, those described elsewhere in reports we have filed with the
SEC and incorporated into this quarterly report on Form 10-Q by reference, could
in the future affect, and in the past have affected, our actual results and
could cause our results for future periods to differ materially from those
expressed in

                                       21
<PAGE>

any forward-looking statements made by or on behalf of us. We assume no
obligation to update these forward-looking statements.

   Because our plans to achieve profitability in the future require us to grow
our work force, improve our infrastructure and acquire and develop new
technologies, failure to successfully do so could lower our operating results
and cause our stock price to decrease. If we cannot execute our growth strategy,
our stock price could decrease. Successfully achieving our growth strategy
depends upon the combined company's ability to:

     .  expand, train and manage our work force;
     .  continue to attract, retain and motivate qualified personnel; and
     .  develop or acquire new businesses, products and technologies.

  In addition, if we cannot manage an expanding work force, improve our
reporting systems and customer service infrastructure and manage the integration
of acquired businesses, products or technologies, we will be unable to continue
manage the growth of our operations, which could harm our business and financial
results.

  Brio has a history of net losses, and may not be profitable in the future.
Brio has a history of net losses, and cannot provide any assurance that we will
experience revenue growth or profitability on a quarterly or annual basis in the
future. In particular, Brio incurred net losses applicable to common stock of
$8.6 million in fiscal 1997, $15.7 million in fiscal 1998 and $753,000 in fiscal
1999. As of March 31, 1999, Brio had stockholders' equity of approximately $26.3
million.

  Brio anticipates increased operating expenses and a reduced rate of revenue
growth in the future. Brio currently expects to increase its expenses, and our
operating results will be harmed if increased revenues do not accompany these
increased expenses. Brio may not sustain same rate of sequential quarterly
revenue growth it has experienced in the past in future periods. In addition,
Brio will likely increase its operating expenses significantly in fiscal 2001.
Brio currently intends to commit substantial financial resources to research and
development, customer support and sales and marketing, including the continued
expansion of its domestic and international direct sales force, third-party
partnering relationships and Brio's domestic and international indirect channel
sales organization. Brio also expects to increase staffing and systems
infrastructure in order to support expanding operations.

  Our prospects for increased future revenues must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in a
similar stage of development, particularly companies in rapidly evolving
markets. To address these risks, the company must:

     .  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.

  Brio may not be able to achieve these goals.

  If Brio and SQRIBE do not effectively integrate their technologies, operations
and personnel, the combined company will not realize the expected financial and
marketing benefits of the merger.  Brio expects the merger to result in improved
cross-selling opportunities, increased market presence and an enhanced product
line. To achieve these benefits, Brio must effectively integrate technologies,
operations and personnel in a timely and efficient manner. If this cannot be
done, the combined company may not realize the expected benefits from the
merger. In particular, if the integration is not successful:

     . the combined company may lose personnel;
     . the combined company may not be able to retain SQRIBE's customer base to
       the extent expected; and
     . the process of integrating operations could cause an interruption of the
       combined company's ongoing business activities.

  Any of these factors could hurt the combined company's operating results.  In
addition, the costs of the merger could exceed management's expectations and the
attention and effort devoted to the integration of the two companies will
significantly divert management's attention from other important issues, either
of which could harm the combined company's business, results of operations or
financial condition.

                                       22
<PAGE>

  Brio's quarterly operating results will likely fluctuate based on factors
beyond our control. Brio 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 its control. Among other things, Brio's
operating results have fluctuated in the past due to:

     .  the timing of product enhancements and new product announcements;
     .  the lengthy sales cycle of its products;
     .  market acceptance of and demand for its products;
     .  capital spending patterns of its customers;
     .  customer order deferrals in anticipation of enhancements or new
        products;
     .  its 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.

  In addition, the announcement or introduction of new products by Brio or its
competitors or any change in industry standards may cause customers to defer or
cancel purchases of existing products. Furthermore, the introduction of products
with reliability, quality or compatibility problems could result in reduced
orders, delays in collecting accounts receivable and additional service costs.
Accordingly, Brio's results of operations may also fluctuate in the future due
to a number of additional factors, including but not limited to those discussed
above, as well as:

     .  the number and significance of product enhancements and new product
     .  announcements by competitors;
     .  changes in customer buying patterns related to the year 2000 issue;
     .  changes in pricing policies by Brio and its competitors;
     .  Brio's ability to develop, introduce and market new and enhanced
        versions of its products on a timely basis;
     .  customer order deferrals in anticipation of enhancements or new products
        offered by competitors;
     .  nonrenewal of service agreements, software defects and other product
        quality problems;
     .  the mix of direct and indirect sales;
     .  currency fluctuations; and
     .  general economic conditions.

  Due to these factors, quarterly revenue and operating results are difficult to
forecast and may not meet expectations.

  Seasonality may affect Brio's results. Brio has experienced seasonality due to
customer capital spending patterns and the general summer slowdown in sales.
Brio expects to continue to experience seasonality as a result of these factors.
This seasonality could materially hurt results of operations, particularly for
the quarters ending June 30 or September 30.

  If Brio's operating results do not meeting financial analysts' expectations,
our stock price may decline. In the future, our reported or anticipated
operating results may fail to meet or exceed the expectations of securities
analysts or investors. In that event, Brio's common stock price could be
materially reduced.

  Because Brio depends on a direct sales force, any failure by Brio to attract
and retain adequate sales personnel could slow its sales and increase its
expenses, causing significant financial and operational risks. Brio may not be
able to attract and retain adequate sales personnel, despite the expenditure of
significant resources to do so, and the failure to do so could materially harm
its ability to sell its products at expected levels. Because turnover tends to
slow sales efforts until replacement personnel can be recruited and trained,
failure to retain sales personnel could seriously hamper its business, operating
results and financial condition. Competition for personnel with a sufficient
level of expertise and experience for direct sales positions is intense,
particularly among competitors who may have substantially greater resources than
the combined company or greater resources dedicated to hiring direct sales
personnel. In addition, Brio has experienced significant turnover of its sales
force.

  Brio's success depends on key personnel who may not continue to work for it.
The loss of the services of any of the key personnel or the inability to attract
or retain qualified personnel in the future could harm Brio's business,
operating results and financial condition. The success of Brio will depend to a
significant degree upon the continued contributions of key management,
engineering, sales and marketing personnel, many of whom would be difficult to
retain or replace if they leave Brio. Because competition for qualified
personnel is intense, Brio may not be successful in attracting and retaining the
personnel it seeks.

                                       23
<PAGE>

  Brio has recently experienced difficulties in hiring highly qualified sales
and engineering personnel, and may continue to have difficulty in attracting
employees in those categories. Brio has employment contracts with only three
members of its executive management personnel. Brio currently maintains "key
person" life insurance only on Yorgen Edholm, its President and Chief Executive
Officer, and Katherine Glassey, its Executive Vice President, Business
Intelligence Products and Chief Technology Officer. Brio does not believe its
current insurance would adequately compensate it for the loss of either Mr.
Edholm or Ms. Glassey.

  Because the sales cycle for Brio's products is long, the timing of sales is
difficult to predict and Brio's quarterly revenues and earnings may fluctuate
significantly. Based in part on the lengthy sales cycle for Brio's products,
quarterly revenues and operating results could vary significantly in the future.
The sales cycle associated with the purchase of Brio's products is typically
three to nine months in length and subject to a number of significant risks over
which Brio has little or no control, including customers' budgeting constraints
and internal acceptance review procedures. Sales transactions may be delayed
during the customer acceptance process because Brio must provide a significant
level of education to prospective customers regarding the use and benefits of
its products. Further, to the extent that potential customers divert resources
and attention to issues associated with the year 2000 issue, Brio's sales cycle
could be further lengthened. Additionally, the sales cycle for Brio'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, if
Brio's international operations expand, the average sales cycle for its products
is expected to lengthen. In addition, Brio anticipates that an increasing
portion of its revenue could be derived from larger orders, in which case the
timing of receipt and fulfillment of those orders could cause material
fluctuations in operating results, particularly on a quarterly basis.

  Because Brio expects to achieve revenue growth and increased margins through
indirect sales channels, Brio's failure to develop and manage indirect sales
channels could limit its sales growth and financial performance. Brio may not be
able to continue to attract and retain additional indirect channel partners that
will be able to market its products effectively and provide timely and cost-
effective customer support and services. Brio may not be able to manage
conflicts within its indirect channel or that its focus on increasing sales
through the indirect channels will not divert management resources and attention
from direct sales. In addition, Brio's agreements with indirect channel partners
do not restrict the channel partners from distributing competing products, and
in many cases may be terminated by either party without cause. The ability of
Brio to achieve revenue growth and improved operating margins on product sales
in the future will depend in large part upon its success in expanding and
maintaining indirect channels worldwide. Indirect channels include value added
resellers, resellers and distributors.

  To date, Brio has sold its products principally through its direct sales and
service organizations and, to a lesser extent, through the indirect channel.
Revenues from Brio's indirect channel were 21% of total revenues for fiscal
1997, 24% of total revenues for fiscal 1998 and 21% of total revenues for fiscal
1999.

  Brio's strategy of acquiring new businesses and technologies involves
integration and transaction completion risks. As part of our business strategy,
we expect to enter into business combinations and acquisitions. Acquisition
transactions are accompanied by a number of risks, including:

     .  the difficulty of assimilating the operations and personnel of the
        acquired companies;
     .  the potential disruption of our ongoing business and distraction of
        management;
     .  the difficulty of incorporating acquired technology or content and
        rights into our products;
     .  the correct assessment of the relative percentages of in-process
        research and development expense which can be immediately written off as
        compared to the amount which must be amortized over the appropriate life
        of the asset;
     .  the failure to successfully develop an acquired in-process technology
        could result in the impairment of amounts currently capitalized as
        intangible assets;
     .  unanticipated expenses related to technology integration;
     .  the maintenance of uniform standards, controls, procedures and policies;
     .  the impairment of relationships with employees and customers as a result
        of any integration of new management personnel; and
     .  the potential unknown liabilities associated with acquired businesses.

  We may not be successful in addressing these risks or any other problems
encountered in connection with such acquisitions.

  Brio is in a highly competitive industry and some of its competitors may be
more successful in attracting and retaining customers. The market in which Brio
operates is highly competitive. Brio expects that competition will continue to
intensify. Increased competition could result in:

                                       24
<PAGE>

     .  price reductions;
     .  fewer customer orders;
     .  reduced gross margins;
     .  longer sales cycles; and
     .  loss of market share.

  Brio 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 Brio's
existing products.

  Current and potential competitors offer a variety of software solutions and
generally fall within several categories:

     .  vendors of business intelligence software such as Cognos, Business
        Objects and Seagate Software;
     .  vendors offering alternative approaches to delivering analysis
        capabilities to users, such as Informatica, MicroStrategy, Sterling
        Software/Information Advantage and Actuate;
     .  vendors offering enterprise information portal software, such as
        Plumtree and Viador;
     .  database vendors that offer products which operate specifically with
        their proprietary database, such as Microsoft, IBM, Oracle and Hyperion;
        and
     .  other companies that may in the future announce offerings of an
        enterprise business intelligence solution.

  These 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 Brio. Brio expects
additional competition as other established and emerging companies enter into
the business intelligence software market and new products and technologies are
introduced. Brio will compete on the basis of the following factors:

     .  completeness of product offering;
     .  product features;
     .  time to market;
     .  ease of use;
     .  product performance;
     .  product quality;
     .  analytical capabilities;
     .  scalability;
     .  open architecture;
     .  customer support; and
     .  price.

  Brio's failure to compete favorably in these areas could limit its ability to
attract and retain customers, which could have a material adverse affect on our
results of operations.

  Market consolidation may create more formidable competitors. Alliances among
current and new competitors may emerge and rapidly gain significant market
share. The failure of Brio to compete successfully against current and future
competitors could materially harm its business, operating results and financial
condition by driving down prices and reducing revenue growth. 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 Brio's prospective customers.
Current or future indirect channel partners of Brio may establish cooperative
relationships with current or potential competitors, thereby limiting Brio's
ability to sell its products through particular distribution channels. Such
competition could have a material adverse effect on Brio's ability to obtain new
licenses, and maintenance and support renewals for existing licenses, on
favorable terms. Further, competitive pressures may require Brio to reduce the
price of its products, which could have a material adverse effect on its
revenues, profitability and business condition.

  Brio's plans to expand internationally expose Brio to risks related to
managing international operations, currency exchange rates, tariffs and other
difficulties related to foreign operations. A key component of Brio's strategy
is its planned expansion into additional international markets. If the
international revenues generated by these expanded operations are not adequate
to offset the expense of establishing and maintaining these foreign operations,
Brio's business, operating results and financial condition

                                       25
<PAGE>

could be materially harmed. In addition to the uncertainty as to Brio's ability
to expand its international presence, there are risks inherent in doing business
on an international level, including:

     .  technical difficulties associated with product localization in foreign
        countries;
     .  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
     .  potentially adverse tax consequences.

  Each of these factors could adversely impact the success of Brio's
international operations and, consequently, on Brio's business, operating
results and financial condition. In particular, Brio's international sales are
generally denominated and collected in foreign currencies, and Brio has not
historically undertaken foreign exchange hedging transactions to cover potential
foreign currency exposure. Brio incurred losses on foreign currency translations
resulting from intercompany receivables from foreign subsidiaries in an amount
of approximately $227,000 in fiscal 1998 and approximately $126,000 in fiscal
1999.

  Brio's future success will depend upon successful product development in the
face of changing customer requirements and rapid technological change. Brio's
failure to develop and introduce new products and product enhancements on a
timely basis that meet changing customer requirements and technological changes
could result in reduced demand for or market acceptance of Brio's products,
which could hurt Brio's business, operating results and financial condition.
Brio's products incorporate a number of advanced technologies, including
proprietary data analysis engines, a distributed architecture, as well as Web
access and delivery technology. Brio 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.

  Brio may not successfully respond to changing technology, identify new product
opportunities or develop and bring new products to market in a timely and cost-
effective manner. In the past Brio has experienced delays in software
development. In particular, development efforts in the UNIX server environment
are complex, and in the past Brio has encountered delays in developing products
for this environment. Brio may experience delays in connection with current or
future product development activities.

  Because Brio's future success will depend upon successful product development
in the face of evolving industry standards, failure to introduce new products
could hurt its growth and profitability. Brio's failure to introduce new
products or product enhancements on a timely basis that are compatible with
industry standards could delay or hinder demand for or market acceptance of its
products, which could hurt Brio's growth and profitability.

  The market may not accept Brio's products, which would reduce revenues, growth
and profitability. Brio is focusing its selling efforts increasingly on larger,
enterprise-wide implementations of its products, and Brio expects these sales to
constitute an increasing portion of any of its future revenue growth. Failure of
a significant market for enterprise business intelligence products to develop,
or failure of enterprise-wide implementations of Brio's products to achieve
broad market acceptance, could materially harm Brio's business, operating
results and financial condition. To date, Brio's selling efforts have resulted
in limited enterprise-wide implementations of its products. Brio believes that
most companies currently are not yet aware of the benefits of enterprise-wide
business intelligence solutions or of its products and capabilities, nor have
most companies deployed business intelligence solutions on an enterprise-wide
basis. Brio's efforts to promote market awareness of its products and the
problems its products address may not be sufficient to build market awareness of
the need for enterprise business intelligence or acceptance of Brio's products.

  The year 2000 problem could cause Brio's software products to malfunction and
Brio's customers to cease their purchasing of Brio's products. Brio's computer
systems and applications could fail or create erroneous results unless corrected
so that they can process data related to the year 2000 and beyond. Brio relies
on its systems, applications and devices in operating and monitoring all major
aspects of its business, including financial systems, customer services,
infrastructure, networks and telecommunications equipment. Brio also relies,
directly and indirectly, on external systems of business enterprises including

                                       26
<PAGE>

customers, suppliers, creditors, financial organizations and governmental
entities, both domestic and international, for accurate exchange of data.
Although Brio did not experience significant system failures as the result of
the Year 2000, it is continuing to identify the impact of year 2000 issues on
its internal systems and determine whether it can resolve these issues without
disruption of its business and without incurring significant expense.

  In addition, even though Brio's internal systems were not materially affected
by the year 2000 issue, Brio could be affected through disruption in the
operation of the enterprises with which it interacts.  No issues have been
identified to-date, however, Brio 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 like those
offered by Brio, which could have a material adverse effect on Brio's business,
operating results and financial condition.

  See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for a discussion of the impact of the year 2000 problem on Brio's
operations.

  Product defects could adversely affect Brio's operating results. As a result
of their complexity, Brio's software products may contain undetected errors,
failures or viruses. Brio or its customers may discover errors in new products
or enhancements after commencement of commercial shipments, resulting in loss of
revenues, delay in market acceptance or damage to Brio's reputation, which could
have a material adverse effect upon Brio's business, operating results and
financial condition. Further, Brio's license agreements with customers typically
contain provisions designed to limit Brio's exposure for potential claims based
on errors or malfunctions of Brio's products.

  The limitation of liability provisions contained in Brio's license agreements
may not be effective under the laws of all jurisdictions. Brio's sale and
support of its products entail the risk of warranty claims, and Brio's insurance
against product liability risks may not be adequate to cover a potential claim.
A product liability claim brought against Brio could have a material adverse
effect on its business, operating results and financial condition.

  Brio has one issued patent and one pending patent application.  Brio's
intellectual property protection may not be adequate to prevent competitors from
entering its markets or developing competing products. Brio's limited
intellectual property protection may allow competitors to enter its market or
develop competing products, resulting in competitive harm to Brio. The methods
used by Brio to protect its proprietary rights afford only limited protection.
Brio currently relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. Brio currently has one U.S. patent and one
pending application and this patent application may not result in the issuance
of a patent. Our issued patent and any additional patents issued to us may be
invalidated, circumvented or challenged, and the rights granted under these
patents may not provide Brio competitive advantages.  Brio may not obtain any
more patents. Others may develop technologies that are similar or superior to
Brio's technology or design around our patent or any other patent that Brio may
come to own.

  Despite Brio's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of Brio's products or to obtain and use information
that Brio regards as proprietary. Policing unauthorized use of Brio's products
is difficult, and while Brio is unable to determine the extent to which piracy
of its software products exists, Brio expect software piracy to be a persistent
problem. In addition, the laws of some foreign countries do not protect
proprietary rights as fully as do the laws of the U.S. Brio's means of
protecting its proprietary rights in the U.S. or abroad may not be adequate, and
competitors may independently develop similar technology.

Investment Risks

  Brio's common stock has a limited trading history and a volatile price. There
has only been a public market for Brio's common stock since April 30, 1998, and
an active public market may not continue. The market price of the shares of
Brio's common stock is likely to be highly volatile and may be significantly
affected by a number of factors, including:

     .  actual or anticipated fluctuations in our operating results;
        announcement of business partnerships;
     .  technological innovations or new product introductions by us or our
        competitors;
     .  changes of estimates of our future operating results by securities
        analysts;
     .  developments with respect to copyrights or proprietary rights; or
     .  general market conditions.

                                       27
<PAGE>

  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 Brio's common
stock. In the past, 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. Such litigation may occur in the future with
respect to Brio, and could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon Brio's business, operating results and financial condition.

  Anti-takeover provisions may adversely effect Brio's stock price and make it
more difficult for a third party to acquire Brio. Provisions of Brio's charter
documents may have the effect of delaying or preventing a change in control of
Brio or its management, which could have a material adverse effect on the market
price of Brio common stock. These include 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.

  In addition, the Brio 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
Brio common stock will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that Brio may issue 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 Brio's outstanding voting stock, thereby delaying, deferring or preventing a
change in control of Brio. Brio has no present plan to issue shares of preferred
stock.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

  Brio's exposure to market risk for changes in interest rates relates primarily
to Brio's investment portfolio. Brio maintains an investment policy which
ensures the safety and preservation of its invested funds by limiting default
risk, market risk, and reinvestment risk. As of March 31, 1999, Brio had $21.0
million of cash and cash equivalents with a weighted average variable rate of
3.9% and $14.3 million of short-term investments with a weighted average
variable rate of 5.1%.

  Brio mitigates default risk by attempting to invest in high credit quality
securities and by constantly positioning its portfolio to respond appropriately
to a significant reduction in a credit rating of any investment issuer or
guarantor. The portfolio includes only marketable securities with active
secondary or resale markets to ensure portfolio liquidity and maintains a
prudent amount of diversification.

  Brio currently has no cash flow exposure due to rate changes for long-term
debt obligations. Brio has entered into borrowing agreements to support general
corporate purposes including capital expenditures and working capital needs,
should the need arise. Brio currently has no short-term or long-term debt
outstanding.

  Brio conducts business on a global basis in international currencies. As such,
it is exposed to adverse or beneficial movements in foreign currency exchange
rates. Brio may enter into foreign currency forward contracts to minimize the
impact of exchange rate fluctuations on certain foreign currency commitments and
balance sheet positions. The realized gains and losses on these contracts are
deferred and offset against realized and unrealized gains and losses when the
transaction occurs. At March 31, 1999 there were no outstanding foreign currency
exchange contracts.

                                       28
<PAGE>

Item 8. Financial Statements and Supplementary Data

                             BRIO TECHNOLOGY, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                                                                                   <C>
Report of Independent Public Accountants...........................................................................    30

Consolidated Balance Sheets........................................................................................    31

Consolidated Statements of Operations..............................................................................    32

Consolidated Statements of Stockholders' Equity (Deficit)..........................................................    33

Consolidated Statements of Cash Flows..............................................................................    34

Notes to Consolidated Financial Statements.........................................................................    35
</TABLE>

                                       29
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Brio Technology, Inc.:

  We have audited the accompanying consolidated balance sheets of Brio
Technology, Inc. (a Delaware corporation) and subsidiaries as of March 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
March 31, 1999. These financial statements and the schedule referred to 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999, in conformity with accounting principles generally accepted in the
United States.

  Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements 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 the 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 21, 2000

                                       30
<PAGE>

                             BRIO TECHNOLOGY, INC.

                          CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                           March 31,
                                                                                                           ---------
                                                                                                       1999        1998
                                                                                                       ----        ----
<S>                                                                                                  <C>         <C>
                                              ASSETS
Current Assets:
  Cash and cash equivalents.......................................................................   $ 21,026    $  7,326
  Short-term investments..........................................................................     14,285          --
  Accounts receivable, net of allowance of $1,394 and $997........................................     20,674      14,741
  Inventories.....................................................................................        376         361
  Deferred income taxes...........................................................................      2,095          75
  Prepaid expenses and other current assets.......................................................      1,458       1,385
                                                                                                     --------    --------
        Total current assets......................................................................     59,914      23,888
Property and Equipment, net.......................................................................      6,540       4,912
Other Assets......................................................................................      1,806         623
                                                                                                     --------    --------
                                                                                                     $ 68,260    $ 29,423
                                                                                                     ========    ========
                                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
  Current maturities of notes payable.............................................................   $  2,000    $  3,616
  Accounts payable................................................................................      4,251       3,123
  Accrued liabilities--
     Payroll and related benefits.................................................................      5,902       4,031
     Other........................................................................................      5,716       3,428
  Deferred revenue, current.......................................................................     18,666      14,479
                                                                                                     --------    --------
        Total current liabilities.................................................................     36,535      28,677
Notes Payable, net of current maturities..........................................................         --         189
Noncurrent Deferred Revenue.......................................................................      2,194       1,321
Other Noncurrent Liabilities......................................................................        133         156
                                                                                                     --------    --------
        Total liabilities.........................................................................     38,862      30,343
                                                                                                     --------    --------
Redeemable common stock...........................................................................      3,110         344
Commitments and Contingencies (Notes 5 and 9)
Stockholders' Equity (Deficit):
  Convertible preferred stock, no par value, aggregate liquidation
    preference of $15,850 at March 31, 1998:
    Authorized--None at March 31, 1999, and 5,625,000 shares at March 31, 1998
    Issued and outstanding--5,466,172 shares at March 31, 1998....................................         --          --
  Convertible preferred stock, $0.001 par value, aggregate liquidation
    preference of $19,560 at March 31, 1999:
    Authorized--4,992,189 shares at March 31, 1999 and  1998
    Issued and outstanding--4,610,597 shares at March 31, 1999 and 1998...........................          5           5
  Preferred stock, $0.001 par value:
    Authorized--2,000,000 shares at March 31, 1999, none issued and outstanding...................         --          --
  Common stock, $0.001 par value:
    Authorized--60,000,000 shares at March 31, 1999
    Issued and outstanding--21,298,493 shares at March 31, 1999 and 11,132,940 shares at
    March 31, 1998................................................................................         21          11
  Additional paid-in capital......................................................................     66,180      32,456
  Notes receivable from stockholders..............................................................     (1,820)       (292)
  Deferred compensation...........................................................................       (456)       (459)
  Accumulated components of comprehensive income (loss)...........................................       (132)        155
  Accumulated deficit.............................................................................    (37,510)    (33,140)
                                                                                                     --------    --------
        Total stockholders' equity (deficit)......................................................     26,288      (1,264)
                                                                                                     --------    --------
                                                                                                     $ 68,260    $ 29,423
                                                                                                     ========    ========
</TABLE>

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.

                                       31
<PAGE>

                             BRIO TECHNOLOGY, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                             Years Ended March 31,
                                                                                             ---------------------
                                                                                          1999       1998        1997
                                                                                          ----       ----        ----
<S>                                                                                     <C>        <C>         <C>
Revenues:
  License fees.......................................................................   $58,282    $ 35,731     $23,190
  Services...........................................................................    27,404      16,164       8,193
                                                                                        -------    --------     -------
     Total revenues..................................................................    85,686      51,895      31,383
                                                                                        -------    --------     -------

Cost of revenues:
  License fees.......................................................................     2,582       1,929       2,097
  Services...........................................................................    10,468       5,101       1,988
                                                                                        -------    --------     -------
     Total cost of revenues..........................................................    13,050       7,030       4,085
                                                                                        -------    --------     -------
Gross profit.........................................................................    72,636      44,865      27,298
                                                                                        -------    --------     -------

Operating expenses:
  Research and development...........................................................    13,732       9,830       5,818
  Sales and marketing................................................................    48,470      35,162      22,221
  General and administrative.........................................................    10,548       7,860       7,877
  Stock compensation to principal stockholders.......................................        --       7,707          --
  In-process research and development................................................     1,653          --          --
                                                                                        -------    --------     -------
     Total operating expenses........................................................    74,403      60,559      35,916
                                                                                        -------    --------     -------
Loss from operations.................................................................    (1,767)    (15,694)     (8,618)
Interest and other income, net.......................................................     2,677          75          48
                                                                                        -------    --------     -------
Net income (loss) before income taxes................................................       910     (15,619)     (8,570)
Provision for income taxes...........................................................       747         104          54
                                                                                        -------    --------     -------
Net income (loss)....................................................................       163     (15,723)     (8,624)
Increase in redemption value of redeemable common stock..............................      (916)         --          --
                                                                                        -------    --------     -------
Net loss applicable to common stock..................................................   $  (753)   $(15,723)    $(8,624)
                                                                                        =======    ========     =======
Basic net loss per share.............................................................   $ (0.04)   $  (1.22)    $ (0.66)
                                                                                        =======    ========     =======
Shares used in computing basic net loss per share....................................    19,984      12,871      13,018
                                                                                        =======    ========     =======
</TABLE>


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

                                       32
<PAGE>

                             BRIO TECHNOLOGY, INC.

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                     (In thousands, except share amounts)
<TABLE>
<CAPTION>


                                                                                                                    Notes
                                                                 Convertible                                      Receivable
                                                     Compre-   Preferred Stock         Common Stock      Additional  From   Deferred
                                                     hensive   ---------------         ------------       Paid-in    Stock-  Compen-
                                                      Loss     Shares    Amount     Shares     Amount    Capital    holders   sation
                                                     -------   ------    ------     ------     ------    -------    -------   ------
<S>                                                  <C>      <C>         <C>     <C>           <C>       <C>        <C>       <C>
BALANCE, MARCH 31, 1996 ..........................            4,280,287     $2    12,346,075    $ 12       $9,326    $   --   $  --
   Issuance of Series B preferred stock, net ....             2,117,147     --            --      --        5,993        --      --
   Issuance of preferred stock upon exercise of
   warrants......................................               634,821      1            --      --        2,099        --      --
   Exercise of common stock options for cash ....                    --     --       130,007      --           88        --      --
   Exercise of common stock options for notes
   receivable....................................                    --     --       553,500       1          331      (332)     --
   Repurchase of restricted shares ..............                    --     --       (30,417)     --          (18)       18      --
   Stock compensation arrangement ...............                    --     --            --      --          110        --      --
   Net loss applicable to common stock ..........   $(8,624)         --     --            --      --           --        --      --
   Cumulative translation adjustment ............       (62)         --     --            --      --           --        --      --
                                                    --------   --------    ---    ----------    ----       ------    ------    ----
                                                    $(8,686)
                                                    ========
BALANCE, MARCH 31, 1997 ............................          7,032,255      3    12,999,165      13       17,929      (314)     --
   Issuance of Series C preferred stock, net ......             852,269     --            --      --        5,844        --      --
   Conversion of common stock to Series B preferred
   stock...........................................           2,115,439      2    (2,115,439)     (2)       7,707        --      --
   Conversion of redeemable common stock to Series
   B preferred stock...............................              76,806     --            --      --          172        --      --
   Exercise of common stock options for cash ......                  --     --       190,993      --          205        --      --
   Exercise of common stock options for notes
   receivable......................................                  --     --        57,701      --           35       (35)     --
   Exercise of common stock warrant for cash ......                  --     --        10,000      --            6        --      --
   Repurchase of restricted shares ................                  --     --        (9,480)     --           (6)       --      --
   Repayment of notes receivable from
   stockholders....................................                  --     --            --      --           --        57      --
   Deferred compensation ..........................                  --     --            --      --          580        --    (580)
   Amortization of deferred compensation ..........                  --     --            --      --           --        --     105
   Termination of shares granted under incentive
   stock plans.....................................                  --     --            --      --          (16)       --      16
   Net loss applicable to common stock ............ $(15,723)        --     --            --      --           --        --      --
   Cumulative translation adjustment ..............      217         --     --            --      --           --        --      --
                                                     --------  --------    ----   ----------    ----       ------    ------    ----
                                                    $(15,506)
                                                    =========

BALANCE, MARCH 31, 1998 ...........................          10,076,769      5    11,132,940      11       32,456      (292)   (459)
   Conversion of preferred stock to common stock...          (5,466,172)    --     5,466,172       5           (5)       --      --
   Exercise of common stock options for cash ......                  --     --       329,203       1          515        --      --
   Exercise of common stock options for notes
   receivable......................................                  --     --     1,232,589       1        1,640    (1,641)     --
   Issuance of common stock pursuant to Employee
   Stock Purchase Plan.............................                  --     --       105,137      --          737        --      --
   Issuance of common stock during initial public
   offering, net...................................                  --     --     3,085,000       3       30,421        --      --
   Repurchase of restricted shares ................                  --     --       (52,548)     --          (54)       54      --
   Stock compensation arrangements ................                  --     --            --      --          390        --    (188)
   Repayment of notes receivable from
   stockholders....................................                  --     --            --      --           --        59      --
   Amortization of deferred compensation ..........                  --     --            --      --           --        --     129
   Termination of shares granted under incentive
   stock plans.....................................                  --     --            --      --          (62)       --      62
   Income tax benefit from stock options
   exercised.......................................                  --     --            --      --          142        --      --
   Adjustment to conform Sqribe Technologies, Corp.
   fiscal year-end.................................                  --     --            --      --           --        --      --
   Net income applicable to common stock ..........  $(753)          --     --            --      --           --        --      --
   Cumulative translation adjustment ..............    (23)          --     --            --      --           --        --      --
   Unrealized loss on investments .................   (264)          --     --            --      --           --        --      --
                                                     -----     --------  -----    ----------    ----       ------    ------    ----
                                                    $(1,040)
                                                    =======
BALANCE, MARCH 31, 1999 .........................             4,610,597     $5    21,298,493     $21       $66,180  $(1,820)  $(456)
                                                              =========  =====    ==========    ====       =======  ========  ======


<CAPTION>

                                                               Accumulated                                   Total
                                                               Components of          Accumu-             Stockholders'
                                                               Comprehensive           lated                  Equity
                                                                  Loss                 Deficit              (Deficit)

<S>                                                          <C>                      <C>                 <C>
BALANCE, MARCH 31, 1996 ............................         $       --              $     (8,793)   $        547
    Issuance of Series B preferred stock, net ......                 --                        --           5,993
    Issuance of preferred stock upon exercise of
    warrants........................................                 --                        --           2,100
    Exercise of common stock options for cash ......                 --                        --              88
    Exercise of common stock options for notes
    receivable......................................                 --                        --              --
    Repurchase of restricted shares ................                 --                        --              --
    Stock compensation arrangement .................                 --                        --             110
    Net loss applicable to common stock ............                 --                    (8,624)         (8,624)
    Cumulative translation adjustment ..............                (62)                       --             (62)
                                                                   ----                   --------          -----

BALANCE, MARCH 31, 1997 ............................                (62)                  (17,417)            152
    Issuance of Series C preferred stock, net ......                 --                        --           5,844
    Conversion of common stock to Series B preferred
    stock...........................................                 --                        --           7,707
    Conversion of redeemable common stock to Series
    B preferred stock...............................                 --                        --             172
    Exercise of common stock options for cash ......                 --                        --             205
    Exercise of common stock options for notes
    receivable......................................                 --                        --              --
    Exercise of common stock warrant for cash ......                 --                        --               6
    Repurchase of restricted shares ................                 --                        --              (6)
    Repayment of notes receivable from stockholders                  --                        --              57
    Deferred compensation ..........................                 --                        --              --
    Amortization of deferred compensation ..........                 --                        --             105
    Termination of shares granted under incentive
    stock plans.....................................                 --                        --              --
    Net loss applicable to common stock ............                 --                   (15,723)         (15,723)
    Cumulative translation adjustment ..............                217                        --              217
                                                                  -----                   -------          -------
BALANCE, MARCH 31, 1998 ............................               155                    (33,140)          (1,264)
    Conversion of preferred stock to common stock ..                --                         --               --
    Exercise of common stock options for cash ......                --                         --              516
    Exercise of common stock options for notes
    receivable......................................                --                         --               --
    Issuance of common stock pursuant to Employee
    Stock Purchase Plan.............................                --                         --              737
    Issuance of common stock during initial public
    offering, net...................................                --                         --           30,424
    Repurchase of restricted shares ................                --                         --               --
    Stock compensation arrangements ................                --                         --              202
    Repayment of notes receivable from stockholders                 --                         --               59
    Amortization of deferred compensation ..........                --                         --              129
    Termination of shares granted under incentive
    stock plans.....................................                --                         --               --
    Income tax benefit from stock options exercised                 --                         --              142
    Adjustment to conform Sqribe Technologies, Corp.
    fiscal year-end.................................                --                     (3,617)          (3,617)
    Net income applicable to common stock ..........                --                       (753)            (753)
    Cumulative translation adjustment ..............               (23)                        --              (23)
    Unrealized loss on investments .................              (264)                        --             (264)
                                                                 ------                  --------          -------
BALANCE, MARCH 31, 1999 ............................             $(132)                  $(37,510)         $26,288
                                                                 ======                  =========         =======
</TABLE>

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

                                     33

<PAGE>

                             BRIO TECHNOLOGY, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                          Years Ended March 31,
                                                                                                          ---------------------
                                                                                                       1999        1998        1997
                                                                                                       ----        ----        ----
<S>                                                                                                  <C>         <C>         <C>
Cash Flows from Operating Activities:
Net loss applicable to common stock...............................................................   $   (753)   $(15,723)  $(8,624)

Adjustments to reconcile net loss to cash provided by (used in) operating activities--
  Depreciation and amortization...................................................................      2,378       1,303       728
  Amortization of long-term assets................................................................        150          14         6
  Adjustment to conform Sqribe Technologies Corp. fiscal year-end.................................     (1,767)         --        --
  Increase in redemption value of redeemable common stock.........................................        916          --        --
  In-process research and development.............................................................      1,653          --        --
  Gain on sale of business........................................................................       (692)         --        --
  Loss on disposal of property and equipment......................................................         52           8        95
  Provision for returns and doubtful accounts.....................................................        823         732       719
  Stock compensation..............................................................................        202       7,707       110
  Deferred compensation amortization..............................................................        129         105        --
  Changes in operating assets and liabilities, net of acquired business--
    Accounts receivable...........................................................................     (6,756)     (7,444)   (3,838)
    Inventories...................................................................................        (15)       (257)       48
    Deferred taxes................................................................................     (1,915)        (75)       --
    Prepaid expenses and other assets.............................................................       (915)        644    (1,706)
    Accounts payable and accrued liabilities......................................................      5,218       3,780     4,795
    Deferred revenue..............................................................................      5,060       8,100     3,347
                                                                                                     --------    --------    ------
     Net cash provided by (used in) operating activities..........................................      3,768      (1,106)   (4,320)
                                                                                                     --------    --------    -------

Cash Flows from Investing Activities:
Purchases of property and equipment...............................................................     (4,058)     (3,095)   (2,867)
Purchases of short-term investments...............................................................    (15,490)         --        --
Sales of short-term investments...................................................................      1,633          --        --
Acquisition of business, net of cash acquired.....................................................     (2,203)         --        --
Cash payment for DataBasics acquisition...........................................................         --          --       (95)
                                                                                                     --------    --------    -------

     Net cash used in investing activities........................................................    (20,118)     (3,095)   (2,962)
                                                                                                     --------    --------    -------

Cash Flows from Financing Activities:
Proceeds from notes payable.......................................................................      2,000       4,950     2,093
Repayments under notes payable....................................................................     (3,805)     (3,766)   (1,451)
Proceeds from issuance of preferred stock, net....................................................         --       5,844     5,993
Proceeds from exercise of preferred stock warrants................................................         --          --     2,100
Proceeds from issuance of common stock, net.......................................................     33,318         205        88
Income tax benefit of option exercises............................................................        142          --        --
Proceeds from repayment of notes receivable from stockholders.....................................         59         457        --
Issuance of note to stockholder...................................................................     (1,641)       (400)       --
                                                                                                     --------    --------   -------
     Net cash provided by financing activities....................................................     30,073       7,290     8,823
                                                                                                     --------    --------   -------
Net increase in cash and cash equivalents.........................................................     13,723       3,089     1,541
Effect of exchange rate changes on cash...........................................................        (23)        217       (62)
Cash and cash equivalents, beginning of period....................................................      7,326       4,020     2,541
                                                                                                     --------    --------   -------
Cash and cash equivalents, end of period..........................................................   $ 21,026    $  7,326   $ 4,020
                                                                                                     ========    ========   =======

Supplemental disclosure of cash flow information:
     Cash paid for interest.......................................................................   $     75    $    171   $   110
                                                                                                     ========    ========   =======
     Cash paid for income taxes...................................................................   $  2,575    $     33   $     1
                                                                                                     ========    ========   =======
Noncash investing and financing activities:
     Conversion of common stock into preferred stock..............................................   $     --    $  7,707   $    --
                                                                                                     ========    ========   =======
     Conversion of redeemable common stock into preferred stock...................................   $     --    $    172   $    --
                                                                                                     ========    ========   =======
     Stock issued for notes, net of cancellations.................................................   $  1,587    $     35   $   314
                                                                                                     ========    ========   =======
</TABLE>


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

                                       34
<PAGE>

                             BRIO TECHNOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 1999

1. ORGANIZATION AND OPERATIONS:

  Brio Technology, Inc. (Brio), was incorporated in California in 1989 and
reincorporated in Delaware in April 1998 (see Note 8). Brio designs, develops,
markets and supports software products that enable organizations to rapidly
implement enterprise business intelligence solutions. Brio'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.

  Brio is subject to a number of risks associated with companies in a similar
stage of development, including rapid technological growth, dependence on key
personnel and the sales force, 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 Brio and its
wholly-owned 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 Brio's subsidiaries is the local currency.
Accordingly, Brio applies the current rate method to translate the subsidiaries'
financial statements into U.S. dollars. Translation adjustments are included in
accumulated components of comprehensive loss in stockholders' equity (deficit)
in the accompanying consolidated financial statements. Transaction gains and
losses, which have not been material to date, are included in interest and other
income (expense), net, in the accompanying consolidated statements of
operations.

 Cash and Cash Equivalents

  Brio considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. At March 31, 1998 and 1999, Brio
held its cash in checking and money market accounts.

 Short-Term Investments

  Management determines the appropriate classifications of investments in debt
and equity securities at the time of purchase. All of Brio's investments are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses reported in accumulated
components of comprehensive loss in stockholders' equity (deficit) in the
accompanying consolidated financial statements. The fair value of Brio's
available-for-sale securities is based on quoted market prices at the balance
sheet dates. Realized gains and losses and declines in value judged to be other-
than-temporary on available-for-sale securities are included in interest and
other income (expense), net, in the accompanying consolidated statements of
operations. The cost of securities sold is based on the specific identification
method. Interest on securities classified as available-for-sale is included in
interest and other income (expense), net, in the accompanying consolidated
statements of operations.

                                       35
<PAGE>

                             BRIO TECHNOLOGY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  A summary of the fair value of Brio's available-for-sale investment portfolio
  follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                             March 31, 1999
                                                                                                             --------------
<S>                                                                                                         <C>
      Corporate debt securities and commercial paper.....................................................       $14,463
      Government debt securities.........................................................................         8,631
                                                                                                                -------
         Total...........................................................................................        23,094
      Less: Cash equivalents.............................................................................         8,809
                                                                                                                -------
         Total short-term investments....................................................................       $14,285
                                                                                                                =======
</TABLE>

  There were no investments in debt and equity securities at March 31, 1998.

 Inventories

  Brio'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.

 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 amortized 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,
                                                                                                       ---------
                                                                                                  1999           1998
                                                                                                  ----           ----
<S>                                                                                               <C>            <C>
   Computer equipment and software.........................................................       $ 8,757        $ 5,836
   Furniture and fixtures..................................................................         2,402          1,488
   Leasehold improvements..................................................................           503            280
                                                                                                  -------        -------
                                                                                                   11,662          7,604
   Less: Accumulated depreciation and amortization.........................................        (5,122)        (2,692)
                                                                                                  -------        -------
                                                                                                  $ 6,540        $ 4,912
                                                                                                  =======        =======
</TABLE>

 Revenue Recognition

  Effective April 1, 1998, Brio adopted Statement of Position (SOP) 97-2,
"Software Revenue Recognition." SOP 97-2 provides guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions.
The adoption of SOP 97-2 did not have a material impact on Brio's consolidated
financial position or the timing of Brio's revenue recognition, or cause changes
to its revenue recognition policy.

  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 the earlier of the date when payments become due or the date
payment is received. If an acceptance period is required, revenue is recognized
upon the earlier of customer acceptance or the expiration of the acceptance
period.

                                       36
<PAGE>

                             BRIO TECHNOLOGY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  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, 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 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.

 Comprehensive Loss

  In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130,
"Reporting Comprehensive Income," which was adopted by Brio in the quarter ended
June 30, 1998. SFAS No. 130 requires companies to report a new, additional
measure of income on the statement of operations or to create a new financial
statement that has the new measure of income on it. "Comprehensive income
(loss)" includes foreign currency translation gains and losses and other
unrealized gains and losses that have been previously excluded from net income
(loss) and reflected in equity instead. Brio has reported the components of
comprehensive loss on its consolidated statements of stockholders' equity
(deficit).

 Computation of Basic Net Loss Per Share

  Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. No diluted net loss per share information is
presented as Brio has incurred net losses in all periods presented. Potential
common shares from conversion of preferred stock, stock options and warrants and
contingently issuable shares have been excluded from the calculation of diluted
net loss per share as they are antidilutive. Potential common shares of
6,956,000, using the treasury stock method, were not included in the computation
of diluted net loss per share for the year ended March 31, 1999, because Brio
incurred a loss in this period and, therefore, the effect would be antidilutive.

 Recent Accounting Pronouncements

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 is effective for Brio'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. Brio is organized and operates
as one operating segment: the design, development, marketing and support of a
suite of business intelligence software solutions. Brio sells its products
domestically and internationally. See Note 4 regarding international sales.

  In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. Management
believes the adoption of SFAS No. 133 will not have a material effect on Brio's
financial statements.

                                       37
<PAGE>

                             BRIO TECHNOLOGY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  In December 1999, the Securities and Exchange Commission issed Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements."  SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition in financial statements.  Brio will
adopt SAB 101, as required, in the first quarter of fiscal 2001.  Management
believes the adoption of SAB 101 will not have a material effect on Brio's
financial statements.


3. ACQUISITIONS:

  SQRIBE

  On February 23, 1999, Brio entered into a definitive merger agreement with
SQRIBE Technologies Corp. (SQRIBE). Under the terms of the agreement, upon
closing of the transaction, Brio stockholders would hold approximately 55% of
Brio, with former SQRIBE stockholders holding approximately 45%.

  In August 1999, Brio completed its merger with SQRIBE. SQRIBE develops,
markets, licenses and supports enterprise reporting software that enables
organizations to improve the quality and speed of decision making. Brio acquired
all of the outstanding shares of SQRIBE preferred and common stock in a tax-
free, stock-for-stock transaction for approximately 13.2 million shares of Brio
common stock. The acquisition was accounted for as pooling-of-interests. In
addition, Brio assumed all outstanding stock options and warrants of SQRIBE. All
prior period consolidated financial statements were restated, in accordance with
required pooling-of-interests accounting and disclosures. SQRIBE had a fiscal
year that ended on December 31 of each year. The consolidated financial
statements combine the SQRIBE results for the fiscal years ended December 31,
1998, 1997 and 1996 with Brio's results for the years ended March 31, 1999,
1998 and 1997, respectively. In order to conform SQRIBE's fiscal year to
Brio's fiscal year, the results of operations of SQRIBE for the three months
ended March 31, 1999 have been reflected as an adjustment to retained earnings
as of that date, and the consolidated balance sheet of Brio at March 31, 1999
includes the balance sheet of SQRIBE at March 31, 1999. Revenue, net loss and
net loss applicable to common stock for SQRIBE was $10.8 million, $1.8 million
and $3.6 million, respectively, for the three months ended March 31, 1999.
Reconciliation of the consolidated financial statements with previously
reported separate company performance is presented below (in thousands):

<TABLE>
<CAPTION>
                                                                        Years Ended March 31,
                                                          ----------------------------------------------
                                                               1999             1998           1997
                                                               ----             ----           ----
<S>                                                      <C>              <C>            <C>
Total Revenues
  Brio ...............................................    $   46,524       $   26,772     $   13,386
  SQRIBE .............................................        39,162           25,123         17,997
                                                          ----------------------------------------------
Combined and restated ................................    $   85,686       $   51,895     $   31,383
                                                          ==============================================

Net income (loss)
  Brio ...............................................    $     (887)      $   (8,072)    $   (5,965)
  SQRIBE .............................................         1,050           (7,651)        (2,659)
                                                          ----------------------------------------------
Combined and restated ................................    $      163       $   15,723     $   (8,624)
                                                          ==============================================

Net income (loss) applicable to common stock
  Brio ...............................................    $     (887)      $   (8,072)    $   (5,965)
  SQRIBE .............................................           134           (7,651)        (2,659)
                                                          ----------------------------------------------
Combined and restated ................................    $     (753)      $  (15,723)    $   (8,624)
                                                          ==============================================
</TABLE>

  Merlinsoft

  In October 1998, Brio acquired all of the outstanding stock of MerlinSoft,
Inc. (MerlinSoft), a California corporation, for cash. The total purchase price
was $2.2 million, and the acquisition was accounted for as a purchase. In
connection with the acquisition, net intangibles of $2.3 million were acquired.
The results of operations of MerlinSoft and the estimated fair value of the
assets acquired and liabilities assumed are included in Brio's financial
statements from the date of acquisition. Intangibles arising from the
acquisition are being amortized on a straight-line basis over three years. While
Brio relied upon a third party appraisal of the acquired intangible assets,
management was primarily responsible for estimating their fair values.
Management estimates that $1.7 million of the purchased intangibles represented
purchased in-process research and development that had not yet reached
technological feasibility and had no alternative future use. The excess of the
purchase price over identified assets was approximately $600,000.

  The purchased in-process research and development consisted of two projects.
Both of these projects are aimed at the delivery of timely, in-depth,
sophisticated analytical applications. The first product will provide data
models for analyses in specific industries and functional areas, metric
libraries, a web-based client, and the ability for business users to manage
application components ("Analysis Product"). The second product will include in-
depth modeling features for margin analysis and what-if scenarios to determine
the impact of various decisions and parameters ("Modeling Product"). The
research and development costs incurred by MerlinSoft in the development of the
Analysis Product were approximately $4,000 in 1997 and approximately $298,000 in
1998. The research and development costs incurred by MerlinSoft in the
development of the Modeling Product were approximately $34,000 in 1998. At the
date of acquisition, the research and development costs to complete the Analysis
Product were estimated by MerlinSoft to be approximately $855,000 in fiscal 1999
and 2000. At the date of acquisition, the research and development costs to
complete the Modeling Product project were estimated by MerlinSoft to be
approximately $933,000 in fiscal 1999 and 2000. Management believes it is on
schedule with the Analysis and Modeling Products and expects successful
completion of the projects.

  If these projects are not successfully developed, the operating results and
financial condition of Brio may be adversely affected. Additionally, the value
of other intangible assets acquired may become impaired. Comparative pro forma
information has not been presented as the operations of MerlinSoft were not
material to Brio's consolidated financial statements.

                                       38
<PAGE>

                             BRIO TECHNOLOGY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
  Other

  On July 1, 1996, Brio purchased DataBasics, one of Brio'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 Brio. Sales to DataBasics for the year ended March 31, 1996
were $121,000. Comparative pro forma information related to this acquisition has
not been presented as the prior operations of the acquired company were
immaterial.

  On April 1, 1996, Brio purchased Brio Technology Ltd. from Management
Decisions (MD), one of Brio's distributors in the United Kingdom. Brio 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 Brio.
Sales to MD for the year ended March 31, 1996 were $39,100. Comparative pro
forma information related to this acquisition has not been presented as the
prior operations of the acquired company were immaterial.

4. SIGNIFICANT CONCENTRATIONS:

  Financial instruments that potentially subject Brio to concentrations of
credit risk consist principally of accounts receivable. Brio performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral.

  Brio markets its products in the United States and Canada and in other foreign
countries through its domestic sales personnel and its foreign subsidiaries.
Revenues by geographic area were as follows:

<TABLE>
<CAPTION>
                                                                                               1999    1998    1997
                                                                                               -----   -----   -----
<S>                                                                                            <C>     <C>     <C>
   United States and Canada.................................................................     82%     83%     89%
   Europe, the Middle East and Africa.......................................................     13%     12%      8%
   Asia Pacific and the rest of the world...................................................      5%      5%      3%
</TABLE>

  No one country in either of these areas comprised more than 10% of total
revenues for fiscal 1999, 1998 and 1997. None of Brio's international operations
have material items of long-lived assets.

5. COMMITMENTS:

  Brio leases various facilities under operating leases which expire on various
dates through May 2010. Brio also leases office equipment under various non-
cancelable operating leases with terms which expire through July 2003. Future
minimum lease payments relating to these agreements are as follows (in
thousands):

<TABLE>
<CAPTION>
  Fiscal Year
  -----------
<S>                                                                                                              <C>
   2000.......................................................................................................       $ 4,619,707
   2001.......................................................................................................         6,679,597
   2002.......................................................................................................         5,507,300
   2003.......................................................................................................         5,273,801
   2004.......................................................................................................         5,365,577
   Thereafter.................................................................................................        29,304,792
                                                                                                                     -----------
                                                                                                                     $56,750,774
                                                                                                                     ===========
</TABLE>

  In December 1999, Brio entered into a new lease agreement commencing on June
1, 2000 for its new corporate headquarters.  The lease expires in May 2010 and
calls for average monthly payments over the term of the lease of approximately
$378,000 per month.  The payments due under this lease are included in the
future minimum lease payments above.

  Rent expense for the years ending March 31, 1999, 1998 and 1997 was
$3,533,000, $2,260,000 and $1,110,000, respectively.

                                       39
<PAGE>

                             BRIO TECHNOLOGY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. NOTES PAYABLE:

  At March 31, 1999, Brio had a $10.0 million accounts receivable-based line of
credit agreement.  Interest on borrowings under the accounts receivable line
accrue at the bank's prime rate (7.75% at March 31, 1999). Borrowings under the
accounts receivable line of credit were limited to 80% of eligible accounts
receivable. The line of credit is collateralized by substantially all of Brio's
assets, including Brio's intellectual property, accounts receivable and property
and equipment. As of March 31, 1999, the line of credit required Brio to comply
with various covenants.   As of March 31, 1999, Brio was in compliance with all
covenants and no amounts were outstanding under the line.  In December 1999,
Brio renewed the line of credit.  The line was increased to $15.0 million and
the covenants require Brio to comply with a net income covenant, excluding non-
recurring operating charges, of $1. The line expires on December 31, 2000.

  As part of the merger with SQRIBE, Brio assumed a $2.5 million bank line of
credit. Borrowings under the line bear interest at the bank's prime rate plus
0.5%, are limited to 80% of eligible receivables and are secured by
substantially all of the assets of SQRIBE. Brio also acquired a $1.0 million
equipment purchase line of credit. Amounts borrowed under this line bear
interest at prime plus 0.75% and convert to a note repayable over 30 months
beginning in December 1999. The borrowing arrangement requires SQRIBE to comply
with certain covenants.  As of March 31, 1999, SQRIBE was not in compliance with
the covenants, however a waiver was obtained from the bank.  As of March 31,
1999, $2.0 million was outstanding under the receivables line and a $500,000
letter of credit has been issued to support a facilities lease. In August 1999,
Brio repaid the $2.0 million outstanding under the line of credit.  The letter
of credit is currently in effect for the facilities lease.

7. REDEEMABLE COMMON STOCK:

  As part of the merger with SQRIBE, Brio assumed an agreement, dated in June
1995, whereby 270,000 shares of SQRIBE common stock was sold for total proceeds
of $516,000.  Under the arrangement, the holder had the right to put these
shares to SQRIBE at fair market value beginning in June 1999 if SQRIBE was not a
public entity at that time.  Under certain circumstances, SQRIBE had the right
to effect this redemption through the issuance of an unsecured note bearing
interest at 8% per annum.  This right was not exercised.  In September 1997,
one-third of these shares (90,000) were converted to Series B preferred shares,
which do not have such redemption rights.  At March 31, 1998, the estimated fair
value of SQRIBE's common stock did not exceed the per share carrying value of
these shares.  At March 31, 1999, the estimated redemption value of the common
stock subject to this put right was $3,110,000.  In August 1999, these shares
were converted into 153,612 shares of Brio common stock.

8. STOCKHOLDERS' EQUITY:

 Preferred Stock

  As part of the merger with SQRIBE, Brio assumed the following preferred stock
as of March 31, 1999 (adjusted for the acquisition):

<TABLE>
<CAPTION>
                                                                                                          Shares
                                                                                                          ------
                                                                                               Designated      Outstanding
                                                                                               ----------      -----------
<S>                                                                                           <C>            <C>
   Series A................................................................................      2,418,352         2,418,352
   Series B................................................................................      2,573,837         2,192,245
                                                                                                 ---------         ---------
         Total                                                                                   4,992,189         4,610,597
                                                                                                 =========         =========
</TABLE>

  As part of the merger with SQRIBE, Brio assumed an agreement, dated September
1997, whereby certain SQRIBE stockholders controlling 97% of the then
outstanding shares of common stock, including an executive officer, exchanged
one-third of their common shares for Series B preferred stock on a one-for-one
basis. This exchange was made to facilitate the sale of stock by these
stockholders to third-party investors, who wished to purchase preferred stock
in SQRIBE, and was not done in contemplation of the merger with Brio. SQRIBE
recognized compensation expense during 1997 of approximately $7.7 million
related to this exchange based on the difference between the fair value of the
common and preferred shares as of that date.

                                       40
<PAGE>

                             BRIO TECHNOLOGY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Significant terms of the outstanding preferred stock are as follows:

     .  Each share of preferred stock is convertible into one share of common
        stock, at any time, at the option of the holder (subject to adjustment
        for events of dilution). Conversion is mandatory in the event of the
        closing of a firm underwritten public offering under the Securities Act
        of 1933, at a converted price of at least $3.31 and $5.27 per common
        share for Series A and Series B, respectively, with an aggregate
        offering price of at least $10,000,000. In the event the per share price
        of the offering (as defined) is less than $17.00 per share, the Series A
        stockholders will receive common shares equal to $3.31 per share in
        value, as converted, in addition to their normal conversion amounts.

     .  Each share has voting rights equivalent to the number of shares of
        common stock into which it is convertible.

     .  In the event of merger, liquidation, dissolution or winding up of the
        Company, preferred stockholders are entitled to receive $3.31 per share,
        as converted, for Series A and $5.27 per share, as converted, for Series
        B, prior to any distribution to the common stockholders. Alternatively,
        the preferred stockholders may choose to convert and receive their pro
        rata distribution as common stockholders, except that, if such amount is
        less than $17.00 per share, the Series A stockholders will first receive
        $3.31 per share, as converted, and then share pro rata with the other
        common stockholders.

 Common Stock

  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). On May 1, 1998, the offering was consummated and all of the then
currently outstanding convertible preferred stock converted to 5,466,172
shares of common stock upon the closing of the IPO.

  In April 1998, Brio's board of directors approved a one-for-two reverse stock
split of its preferred and common stock. All preferred stock, common stock and
per share amounts have been adjusted retroactively to give effect to the reverse
stock split.

  In April 1998, Brio's board of directors approved the reincorporation of Brio
in Delaware in connection with Brio's IPO which was consummated May 1, 1998.
Upon reincorporation, Brio issued new shares with a par value of $0.001 per
share to all preferred and common stockholders.

  As of March 31, 1999, Brio had reserved shares of its common stock for future
issuance as follows:

<TABLE>
<S>                                                                                                             <C>
      Conversion of outstanding preferred stock..............................................................        4,610,597
      Employee stock purchase plan...........................................................................          619,441
      Exercise of stock options..............................................................................        6,378,728
      Other option and warrant agreements....................................................................           36,696
                                                                                                                    ----------
         Total shares reserved...............................................................................       11,645,462
                                                                                                                    ==========
</TABLE>

  During fiscal 1997, certain employees funded the purchase of common stock
under the 1992 Stock Option Plan with fully secured notes payable to Brio.

  As part of the merger with SQRIBE, Brio assumed an agreement, dated in fiscal
1998, that permitted certain SQRIBE employees to accelerate the exercisability
of their options to purchase 1,444,327 shares of SQRIBE stock covered by their
option agreements in exchange for full recourse promissory notes totaling
$1,641,000. The notes bear interest at 7% and are due in 2003. Repayment of
the notes accelerate in the event of termination of employment. The shares
purchased under the agreement have been pledged as partial security for the
notes. SQRIBE has the right to repurchase these shares at the original sale
price based on the vesting schedule in the original option agreements. During
fiscal 1999, 32,003 shares of stock, as converted, were repurchased and the
related note from a terminated employee was cancelled as permitted under the
arrangement. At March 31, 1999, 476,920 equivalent Brio shares were subject to
repurchase at a weighted average price of $1.07, as converted.

                                       41
<PAGE>

                             BRIO TECHNOLOGY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 Stock Options

  As of March 31, 1999, Brio had 1,158,467 shares of common stock reserved for
issuance under the 1992 Stock Option Plan (the "Plan"). Under the Plan, the
Board of Directors may grant options to purchase Brio's common stock to
employees, directors, or consultants at an exercise price of not less than 100%
of the fair value of Brio's common stock. 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.

  Brio's 1998 Stock Option Plan (the "1998 Plan") was adopted by Brio's Board of
Directors in February 1998. As of March 31, 1999, Brio had 2,574,075 shares of
common stock reserved for issuance under the 1998 Plan. The shares reserved for
issuance under the 1998 Plan increase annually on the first day of Brio'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 Brio's
common stock to employees, directors or consultants at an exercise price of not
less than 100% of the fair value of Brio'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
Brio'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.

  Brio's 1998 Directors' Stock Option Plan (the "Directors' Plan") was adopted
by Brio'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, 1999, 35,000 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 non-employee director of Brio 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 non-
employee directors of Brio 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 Brio'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.

  As part of the merger with SQRIBE, Brio assumed SQRIBE's 1995 Stock Option
Plan as amended and restated (SQRIBE's Plan).  SQRIBE's Plan reserved 2,346,186
equivalent Brio shares of common stock for the grant of incentive or
nonstatutory stock options.  Incentive and nonstatutory stock options must be
granted at not less than fair market value (85% of fair market value for
nonstatutory options) on the date of grant.  Stock options generally have
vesting terms of four years and are exercisable for a period not to exceed ten
years from the date of issuance.

                                       42
<PAGE>

                             BRIO TECHNOLOGY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Option activity under the Plans is as follows:

<TABLE>
<CAPTION>
                                                                                                                        Weighted
                                                                                      Shares                             Average
                                                                                     Available            Options        Exercise
                                                                                     for Grant          Outstanding       Price
                                                                                     ---------          -----------      --------
<S>                                                                                <C>                  <C>               <C>
Outstanding--March 31, 1996                                                           3,556,842         1,083,167          $1.06
  Authorized...............................................................             400,000                --             --
  Restricted shares repurchased............................................              30,417                --             --
  Options granted..........................................................          (3,406,856)        3,406,856           1.27
  Options exercised........................................................                  --          (683,507)          0.62
  Options canceled.........................................................           1,305,045        (1,305,045)          1.99
                                                                                     ----------        ----------          -----
Outstanding--March 31, 1997................................................           1,885,448         2,501,471           1.04
  Restricted shares repurchased............................................               9,480                --             --
  Options granted..........................................................          (2,733,253)        2,733,253           1.80
  Options exercised........................................................                  --          (248,694)          1.00
  Options canceled.........................................................           1,731,036        (1,731,036)          1.27
                                                                                     ----------        ----------          -----
Outstanding--March 31, 1998................................................             892,711         3,254,994           1.56
  Authorized...............................................................           3,740,267                --             --
  Restricted shares repurchased............................................              52,548                --             --
  Options granted..........................................................          (3,106,173)        3,106,173           7.46
  Options exercised........................................................                  --        (1,561,792)          1.38
  Options canceled.........................................................             397,629          (397,629)          4.31
                                                                                     ----------        ----------          -----
Outstanding--March 31, 1999                                                           1,976,982         4,401,746          $5.53
                                                                                     ==========        ==========          =====
</TABLE>


  Certain unvested options have been exercised and are subject to repurchase by
Brio until such shares vest. As of March 31, 1999, 400,980 shares were subject
to the right of repurchase at a weighted average exercise price of $1.35.

  A summary of options outstanding and exercisable as of March 31, 1999, is as
follows:

<TABLE>
<CAPTION>
                                                                                 As of March 31, 1999
                                                                                 --------------------
                                                                     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-$0.60                             287,444       2.48         $ 0.60       169,928     $ 0.60
                       $1.17-$1.76                           1,319,690       7.01           1.26       676,149       1.27
                       $2.00-$6.00                           1,236,383       8.22           4.52        79,133       3.63
                       $7.38-$8.00                             678,837       4.35           7.98        83,316       8.00
                       $8.06-$9.56                             332,182       5.32           9.12         2,401       9.19
                       $9.63-$12.56                            293,065       5.58          11.47        22,684      12.56
                      $12.88-$23.38                            222,396       5.11          18.19         2,022      16.84
                      $24.00-$24.00                             14,999       4.78          24.00            --         --
                      $24.50-$24.50                              1,750       4.84          24.50            --         --
                      $25.56-$25.56                             15,000       4.80          25.56            --         --
                      -------------                          ---------       ----         ------     ---------     ------
                       $0.60-$25.56                          4,401,746       6.31         $ 5.47     1,035,633     $ 2.18
                      =============                          =========                               =========
</TABLE>

  Brio's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
Brio's Board of Directors in February 1998. As of March 31, 1999, Brio had
619,441 shares of common stock reserved for issuance under the Purchase Plan.
The shares reserved for issuance under the Purchase Plan increase annually on
the first day of Brio'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 Brio's
common stock on the first day or the last day of each six-month offering period.

                                       43
<PAGE>

                             BRIO TECHNOLOGY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Brio accounts for its stock option and employee stock purchase plans (the
"Plans") under APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Had compensation expense for these Plans been determined consistent with SFAS
No. 123, "Accounting for Stock Based Compensation," Brio's net loss applicable
to common stock would have increased to the following pro forma amounts (in
thousands, except per share information):

<TABLE>
<CAPTION>
                                                                                           Years Ended March 31,
                                                                                           ---------------------
                                                                                       1999         1998        1997
                                                                                       ----         ----        ----
      Net loss applicable to common stock:
<S>                                                                                  <C>         <C>          <C>
         As reported.......................................................           $  (753)    $(15,723)    $(8,624)
         Pro forma.........................................................           $(2,777)    $(16,342)    $(8,816)
      Basic net loss per share:
         As reported.......................................................           $ (0.04)    $  (1.22)    $ (0.66)
         Pro forma.........................................................           $( 0.14)    $  (1.27)    $ (0.68)
</TABLE>

  The weighted average grant date fair value of options granted during fiscal
1999, 1998 and 1997, was $4.47, $0.56 and $0.24, 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 1998 and
1997: risk-free interest rates ranging from 5.36 to 6.73 percent; expected
dividend yields of zero percent; expected lives of 3 to 4 years from the grant
date; and expected volatility of 0.01 percent. In 1999, the assumptions were:
risk-free interest rates ranging from 4.33 to 5.73 percent; expected dividend
yield of zero percent; expected lives of 3.14 years from the grant date; and
expected volatility of 100.9%.

  During fiscal 1999, Brio issued 105,137 shares under the Purchase Plan. The
weighted average grant date fair value of each purchase right issued under the
Purchase Plan during fiscal 1999 was $4.76. The fair value of the purchase
rights granted in fiscal 1999 was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.24%; expected dividend yield of zero percent; expected life
of one-half year; and expected volatility of 100.9%.

 Other Option and Warrant Agreements

  As part of the merger with SQRIBE, Brio assumed certain warrant agreements
that granted rights to purchase 617,650 shares of SQRIBE Series A preferred
stock at $3.40 per share and 3,000 shares of SQRIBE common stock at $3.50 per
share.  These rights were issued in connection with certain financing
transactions in 1995.  Warrants to purchase 617,650 shares of SQRIBE Series A
preferred stock at $3.40 per share were exercised in 1996.  As of March 31,
1999, the remaining 3,000 warrants, which expire in 2001, were still
outstanding.  Upon completion of the merger in August 1999, the remaining
warrants were converted to 2,560 equivalent warrants for Brio common stock at a
converted price of $4.10 per share.

  As part of the merger with SQRIBE, Brio assumed a severance agreement with an
officer, dated in 1996, whereby the officer was granted the right to purchase
10,000 shares of SQRIBE common stock at $2.00 per share if the fair market value
of SQRIBE's stock did not exceed certain specified targets by December 31, 1999.
SQRIBE accrued $110,000, the estimated fair value of the arrangement, as
severance expense in 1996.  As of December 31, 1999, the specified targets
discussed above were met and, accordingly, the right to purchase the shares
expired.

  As part of the merger with SQRIBE, Brio assumed a warrant agreement, dated in
fiscal 1998, that granted rights to a consulting firm to purchase 30,000 shares
of SQRIBE common stock at $6.00 per share.  These warrants expire in 2008.  An
expense of $106,000 was recorded for the fair value of these warrants when they
were issued.  Upon the completion of the merger in August 1999, the remaining
warrants were converted to 25,602 equivalent warrants for Brio common stock at a
converted price of $7.03 per share.

 Deferred Compensation

  In connection with the granting of 1,369,368 stock options to employees during
the fiscal year ended March 31, 1998, with a weighted average exercise price of
$1.49 per share and a weighted average deemed fair market value of $1.91 per
share, Brio recorded deferred compensation of $580,000, representing the
difference between the deemed value of the common stock for

                                       44
<PAGE>

                             BRIO TECHNOLOGY, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 (deficit)
and amortized ratably over the vesting period of the applicable options.
Approximately $129,000 and $105,000 was expensed during the fiscal year ended
March 31, 1999 and 1998, respectively, and the balance will be expensed ratably
over the next three years as the options vest.

9. CONTINGENCIES:

  On January 20, 1997, Business Objects, S.A. filed a complaint against Brio in
the U.S. District Court for the Northern District of California in San Jose,
alleging that certain of Brio's products (including at least the BrioQuery
Navigator, BrioQuery Explorer and BrioQuery Designer products) infringed at
least claims 1, 2, and 4 of U.S. Patent Number 5,555,403. On April 4, 1997, Brio
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 Brio is not infringing the patent and that patent is
invalid and enforceable. In December 1997, venue for the case was changed to
Northern District of California in San Francisco, California. On July 30, 1999,
Brio filed an action against Business Objects, S.A. in the U.S. District Court
for the Northern District of California in San Jose, alleging that certain of
Business Objects, S.A. products infringe U.S. Patent Number 5,915,257. On
September 9, 1999 Brio and Business Objects, S.A. executed a Memorandum of
Understanding settling Business Object's pending patent litigation against Brio
involving a patent number 5,555,403 for $10.0 million, payable in $1.0 million
payments over 10 consecutive quarters, with the first payment due September 30,
1999.  Of the $10.0 million settlement, $9.1 million represents the net present
value of the 10 quarterly payments and the remaining $900,000 represents
interest that will be recognized over the payment term using the effective
interest rate method.  As part of this settlement, Business Objects, S.A.
dismissed its pending lawsuit against Brio involving patent number 5,555,403 and
Brio dismissed its pending lawsuit against Business Objects, S.A. involving
patent number 5,915,257.

10. INCOME TAXES:

  Brio 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 Brio'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 provision for income taxes consisted of the following components (in
thousands):

<TABLE>
<CAPTION>
                                                                 Years Ended March 31,
                                                     ---------------------------------------------
                                                         1999            1998            1997
                                                         ----            ----            ----
<S>                                                  <C>              <C>             <C>
Current
   State ........................................    $      364       $       54      $        4
   Federal ......................................         1,967               75               0
   Foreign ......................................           100               50              50
                                                     ---------------------------------------------
        Total current ...........................         2,431              179              54

Deferred
   State ........................................    $        0                0      $        0
   Federal ......................................        (1,684)             (75)              0
   Foreign ......................................             0                0               0
                                                     ---------------------------------------------
        Total deferred ..........................        (1,684)             (75)              0
Total provision for income taxes ................    $      747        $     104      $       54
                                                     =============================================
</TABLE>

  The provision for income taxes differs from the statutory U.S. Federal income
tax rate primarily due to state taxes, the utilization of net operating loss
carryforwards, alternative minimum taxes and the net change in the valuation
allowance and foreign losses for which no tax benefit has been provided.

  Brio had a net deferred tax asset at March 31, 1999 and 1998 as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                                         1999       1998
                                                                                                         ----       ----
<S>                                                                                                    <C>        <C>
   Allowance for sales returns and doubtful accounts................................................   $   255    $   220
   Accumulated depreciation.........................................................................       (27)        12
   Accrued expenses and other.......................................................................     8,494      3,220
   Intangible assets amortized for tax..............................................................       673         --
   Federal and state credits........................................................................       367        307
   Capitalized research and development.............................................................       277        246
   Net operating losses.............................................................................     1,137      3,890
       Gain on sale of business.....................................................................      (300)        --
       Change in accounting method for tax purposes.................................................        --       (217)
                                                                                                       -------    -------
                                                                                                        10,876      7,678
   Valuation allowance..............................................................................    (8,781)    (7,603)
                                                                                                       -------    -------
   Net deferred income tax asset....................................................................   $ 2,095    $    75
                                                                                                       =======    =======
</TABLE>

                                       45
<PAGE>

  At March 31, 1999, Brio had combined Federal and state net operating loss
carryforwards of $3,266,000, which expire at various dates through 2019. Brio
believes that, based on a number of factors, there is sufficient uncertainty
regarding the realizability of carryforwards and credits that a valuation
allowance has been recorded against the net deferred tax asset to the extent the
net deferred asset exceeds current and prior year's regular tax. These factors
include a history of operating losses, recent increases in expense levels to
support Brio's growth, the competitive nature of Brio's market and the lack of
predictability of revenue. Management will continue to assess the realizability
of the tax benefits available to Brio 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.

                                       46
<PAGE>

                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                                Balance at   Charged to                 Balance
                                                                                Beginning    Costs and                   at End
Description                                                                     of Period     Expenses    Deductions   of Period
-----------                                                                     ----------   ----------   ----------   ----------
                                                                                                 (In thousands)
Year ended March 31, 1997:
<S>                                                                             <C>          <C>          <C>          <C>
Allowance for returns and doubtful accounts  ................................     $372,000     $719,000     $467,000   $  624,000
Year ended March 31, 1998:
Allowance for returns and doubtful accounts  ................................     $624,000     $732,000     $359,000   $  997,000
Year ended March 31, 1999:
Allowance for returns and doubtful accounts  ................................     $997,000     $823,000     $426,000   $1,394,000
</TABLE>

                                       47
<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
Brio filed a definitive proxy statement (the "Proxy Statement") for its Annual
Meeting of Stockholders held on August 3, 1999 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.


                                    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.

       23.1   Consent of Independent Public Accountants

       24.1   Power of Attorney (see page 49)

       27.1   Financial Data Schedule

                                       48
<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.



                                   By:    /s/ Yorgen H. Edholm
                                      ------------------------------
                                              Yorgen H. Edholm
                                      President, Chief Executive Officer
                                      and Direcor (Principal Executive Officer)

Date:  May 10, 2000

                               POWER OF ATTORNEY

  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Yorgen H. Edholm and Tamara L. MacDuff, 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/A, 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 Officer and Director            May 10, 2000
   --------------------------                         (Principal Executive Officer)
       Yorgen H. Edholm

   /s/ Tamara L. MacDuff                              Chief Financial Officer and Executive Vice                 May 10, 2000
   --------------------------                         President, Finance and Operations  (Principal
       Tamara L. MacDuff                              Financial and Accounting Officer)


   /s/ Katherine Glassey Edholm                       Chief Technical Officer and Director                       May 10, 2000
   ----------------------------
       Katherine Glassey Edholm

   /s/ Ofir Kedar                                     Chairman of the Board of Directors                         May 10, 2000
   --------------------------
       Ofir Kedar

                                                      Director
   --------------------------
       Bernard J. Lacroute

                                                      Director
   --------------------------
       J. Michael Cline

                                                      Director
   --------------------------
       Charlie Federman

   /s/ E. Floyd Kvamme                                Director                                                   May 10, 2000
   --------------------------
       E. Floyd Kvamme
</TABLE>

                                       49
<PAGE>

                               INDEX TO EXHIBITS

Exhibit
Number
------
 23.1   Consent of Independent Public Accountants

 24.1   Power of Attorney (see page 49)

 27.1   Financial Data Schedule