<PAGE>
 
--------------------------------------------------------------------------------
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

[X]   Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
                             Exchange Act Of 1934

                  For the quarterly period ended June 30, 1997

                                       OR

[_]   Transition Report Pursuant To Section 13 Or 15(d) Of The Securities
                             Exchange Act Of 1934

               For the transition period from _______ to _______

                       Commission file number:  0-27310



                            RED BRICK SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)


                   DELAWARE                         77-0145392
        (State or other jurisdiction of         (I.R.S. Employer
         incorporation or organization)          Identification No.)


                                485 ALBERTO WAY
                          LOS GATOS, CALIFORNIA  95032
          (Address of principal executive offices, including zip code)

                                (408) 399-3200
               (Registrant's Telephone No., including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days:

        Yes    X                                No
             -----                                  -----

As of July 31, 1997  there were 11,969,104 shares of the Registrant's Common
Stock outstanding.
--------------------------------------------------------------------------------

                                       1
<PAGE>
 
                            RED BRICK SYSTEMS, INC.

                                     INDEX

<TABLE>
<CAPTION>


PART I.  FINANCIAL INFORMATION                                                                   PAGE
                                                                                                 ----
<S>                                                                                             <C>

Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets
         As of June 30, 1997 and December 31, 1996..........................................        3

         Condensed Consolidated Statements of Operations
         For the Three Months and Six Months Ended June 30, 1997 and 1996...................        4

         Condensed Consolidated Statements of Cash Flows
         For the Six Months Ended June 30, 1997 and 1996....................................        5

         Notes to Condensed Consolidated Financial Statements...............................        6

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations..............................................................        8


PART II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders................................       20

Item 5.  Other Events.......................................................................       20

Item 6.  Exhibits and Reports on Form 8-K...................................................       21

SIGNATURES..................................................................................       22
</TABLE>

                                       2
<PAGE>
 
PART I.   FINANCIAL INFORMATION

Item 1.  Financial Statements

                            RED BRICK SYSTEMS, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)
<TABLE>
<CAPTION>

                                                                         June 30,       December 31,
                                                                           1997            1996
                ASSETS  (unaudited)                                      --------         -------  
<S>                                                                     <C>              <C>  
Current assets:
        Cash and cash equivalents                                        $ 22,017         $14,552
        Short-term investments                                             17,330          20,599
        Accounts receivable, net                                            6,773          13,106
        Prepaid expenses and other current assets                           1,050           1,213
        Deferred tax assets                                                   850             850
                                                                         --------         -------  
                Total current assets                                       48,020          50,320
Property and equipment, net                                                 2,805           2,693
Deposits and other assets                                                     278             205
Deferred tax assets                                                           150             150
                                                                         --------         -------  
                        Total assets                                     $ 51,253         $53,368
                                                                         ========         =======
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
        Accounts payable                                                     $437            $316
        Accrued expenses                                                    4,409           2,565
        Accrued compensation                                                2,459           2,191
        Deferred revenue                                                    6,479           4,180
        Capital lease obligations due within one year                         573             760
                                                                         --------         -------  
                Total current liabilities                                  14,357          10,012
Capital lease obligations                                                     191             396
Minority interest                                                               2              36
Stockholders' equity:
        Common stock                                                            1               1
        Additional paid in capital                                         53,181          51,570
        Accumulated deficit                                               (16,402)         (8,507)
        Deferred compensation                                                  --             (36)
        Translation adjustment                                                  2               4
        Unrealized losses on marketable securities                             (4)             --
                                                                         --------         -------  
                                                                           36,778          43,032
        Notes receivable from stockholders                                    (75)           (108)
                                                                         --------         -------  
                Total stockholders' equity                                 36,703          42,924
                                                                         --------         -------  
                        Total liabilities and stockholders' equity        $51,253         $53,368
                                                                         ========         =======
</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements

                                       3
<PAGE>
 
                            RED BRICK SYSTEMS, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (in thousands, except per share data; unaudited)

<TABLE>
<CAPTION>

                                                                    Three Months Ended               Six Months Ended      
                                                                        June 30,                        June 30, 
                                                                 -----------------------         -----------------------
                                                                   1997           1996            1997            1996
                                                                 -------         -------         -------         -------

<S>                                                             <C>              <C>            <C>             <C> 
Revenues:
        Software license                                          $7,401          $6,461         $11,046         $11,746
        Maintenance and service                                    3,010           1,569           5,888           2,798
                                                                 -------         -------         -------         -------
                Total revenues                                    10,411           8,030          16,934          14,544
                                                                 -------         -------         -------         -------
Cost of revenues:
        Software license                                             308             198             690             462
        Maintenance and service                                    2,115             603           3,954           1,060
                                                                 -------         -------         -------         -------
                Total cost of revenues                             2,423             801           4,644           1,522
                                                                 -------         -------         -------         -------
                        Gross margin                               7,988           7,229          12,290          13,022
                                                                 -------         -------         -------         -------
Operating expenses:
        Sales and marketing                                        6,765           4,711          14,041           8,208
        Research and development                                   2,065           1,423           4,776           2,928
        General and administrative                                 1,176             742           2,156           1,301
        In-process technology                                         --             500              --             500
                                                                 -------         -------         -------         -------
                Total operating expenses                          10,006           7,376          20,973          12,937
                                                                 -------         -------         -------         -------
                        Income (loss) from operations             (2,018)           (147)         (8,683)             85

Interest and other income                                            521             445           1,027             764
Interest and other expense                                           (26)            (84)            (66)           (153)
                                                                 -------         -------         -------         -------
        Income (loss) before provision for income
         taxes and minority interest                              (1,523)            214          (7,722)            696

Provision for income taxes                                           105              22             205              70
                                                                 -------         -------         -------         -------
        Income (loss) before minority interest                    (1,628)            192          (7,927)            626

Minority interest                                                     95              --              32              --
                                                                 -------         -------         -------         -------
        Net income (loss)                                        $(1,533)        $   192         $(7,895)        $   626
                                                                 =======         =======         =======         =======
Net income (loss) per share                                      $ (0.13)        $  0.01         $ (0.69)        $  0.05
                                                                 =======         =======         =======         =======
Shares used to compute
net income (loss) per share                                       11,493          12,881          11,463          12,567
                                                                 =======         =======         =======         =======
</TABLE>

See accompanying notes to Condensed Consolidated Financial Statements

                                       4
<PAGE>
 
                            RED BRICK SYSTEMS, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (in thousands; unaudited)

<TABLE>
<CAPTION>

                                                                                           Six Months Ended
                                                                                                June 30,
                                                                                         -----------------------
                                                                                           1997           1996
                                                                                         --------       --------
<S>                                                                                     <C>            <C> 
Cash flows from operating activities:
        Net income (loss)                                                                $ (7,895)      $    626
        Adjustments to reconcile net income (loss) to net cash provided by
           (used in) operating activities:
                Depreciation                                                                  746            596
                Amortization                                                                   95             51
                Deferred tax benefit                                                           --             --
                Minority interest                                                             (34)            --
                Changes in assets and liabilities:
                        Accounts receivable                                                 6,333         (3,343)
                        Prepaid expenses and other current assets                             163           (312)
                        Accounts payable                                                      121           (416)
                        Accrued expenses and compensation                                   2,148          1,646
                        Deferred revenue                                                    2,299            974
                                                                                         --------       --------
                                Net cash provided by (used in) operating activities         3,976           (178)
                                                                                         --------       --------
Cash flows from investing activities:
        Purchases of short-term investments                                               (17,949)       (27,335)
        Proceeds from sales of short-term investments                                      21,218          8,443
        Acquisition of property and equipment                                                (953)          (910)
        Deposits and other assets                                                             (73)           (14)
                                                                                         --------       --------
                Net cash provided by (used in) investing activities                         2,243        (19,816)
                                                                                         --------       --------
Cash flows from financing activities:
        Proceeds from issuance of stock, net                                                1,611         33,798
        Payment on notes receivable                                                            33             --
        Payment on notes payable to stockholders                                               --            (25)
        Principle payments on capital lease obligations                                      (392)          (505)
        Unrealized gains (losses) on marketable securities                                     (4)             5
        Translation adjustment                                                                 (2)            --
                                                                                         --------       --------
                Net cash provided by financing activities                                   1,246         33,273
                                                                                         --------       --------

Net increase in cash and cash equivalents                                                   7,465         13,279
Cash and cash equivalents at beginning of period                                           14,552          2,998
                                                                                         --------       --------
Cash and cash equivalents at end of period                                               $ 22,017       $ 16,277
                                                                                         ========       ========
</TABLE>
     See accompanying notes to Condensed Consolidated Financial Statements

                                       5
<PAGE>
 
                            RED BRICK SYSTEMS, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)

1.   Basis of Presentation
     ---------------------

     The unaudited condensed consolidated financial statements included herein
reflect all adjustments, consisting only of normal recurring accruals,
which in the opinion of management are necessary to fairly present the Company's
consolidated financial position, results of operations, and cash flows for the
periods presented.  These financial statements should be read in conjunction
with the Company's audited consolidated financial statements included in the
Company's fiscal year 1996 Annual Report on Form 10-K.  The consolidated results
of operations for the three and six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for any subsequent period
or for the entire fiscal year ending December 31, 1997.  The December 31, 1996
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.

     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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates relate to the useful lives of fixed assets,
allowances for doubtful accounts and customer returns, other reserves, and
income tax valuation allowances. Actual results inevitably will differ from
those estimates, and such differences may be material to the financial
statements.


2.   Net Income (Loss) Per Share
     ---------------------------

     Net loss per share is computed using the weighted average number of common
shares outstanding during the period.

     Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of shares issueable upon the exercise
of stock options and warrants (using the treasury stock method).


3.   Red Brick Systems Australasia Pty. Ltd.
     --------------------------------------

     On July 1, 1996, the Company entered into an agreement with Productivity
Software Group Limited ("PSG") to form a joint venture to distribute the
Company's products and services in Australia and New Zealand.  The Company owns
approximately 50.1% of the voting stock of the joint venture and is
consolidating this entity.  The minority interest shown on the financial
statements represents PSG's proportionate share in the net assets and operating
activity of the Australian subsidiary.  Beginning in 1999, the Company may be
obligated to purchase the remaining stock owned by PSG at a pre-determined
price, not to exceed $5 million, based on 1998 revenue for the joint venture.

                                       6
<PAGE>
 
4.   Red Brick Japan Co., Ltd.
     -------------------------

     Red Brick Japan Co., Ltd., a wholly-owned subsidiary of Red Brick Systems,
Inc., was incorporated in Japan on January 16, 1997, for the purpose of
assisting the Company and its distributors in the licensing and sale of Red
Brick products and services in Japan.


5.   Recent Pronouncements
     ---------------------

     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options, warrants, convertible preferred stock, and common and common
equivalent shares will be excluded. The impact is expected to result in an
increase in primary earnings per share for the second quarter ended June 30,
1996 of $0.01 per share, and is expected to result in no change in primary loss
per share for the second quarter ended June 30, 1997. The impact of Statement
128 on the calculation of fully diluted earnings per share for these quarters is
not expected to be material.


6.   In-Process Technology
     ----------------------

     The Company acquired in-process technology associated with a $500,000
licensing arrangement during the second quarter of 1996. The acquired in-process
technology had not yet reached technological feasibility and did not have
alternative future uses.


7.   Repricing
     ---------

     In April 1997, the Company offered employees, excluding executive officers,
the option to exchange options to purchase 489,775 shares of Common Stock with
an aggregate exercise price of $10,782,088 for new options to purchase 489,775
shares with an exercise price of $6.00 per share. All options that are repriced
will vest beginning six months after the vesting start date under the original
terms of the option grant.

                                       7
<PAGE>
 
                            RED BRICK SYSTEMS, INC.

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     The discussion in this report contains forward-looking statements that
involve risks and uncertainties including, without limitation, statements made
in the sections entitled "Revenues" "Cost of Revenues", "Operating Expenses"
"Interest and Other Income and Interest Expense", "Provisions for Income Taxes",
"Minority Interest, Net Income and Net Income (Loss) Per Share", and "Liquidity
and Capital Resources" regarding the Company's revenues and associated costs and
expenses. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section below entitled
"Risk Factors That May Affect Future Results," as well as those risks discussed
in this section and elsewhere in this report.

RESULTS OF OPERATIONS

Revenues


                                Three Months Ended         Six Months Ended 
                                      June 30,                 June 30, 
                               -----------------------  -----------------------
                                 1997  Change    1996     1997  Change   1996 
                               ------- -------  ------  ------- ------- -------
Software license               $ 7,401   15%    $6,461  $11,046  (6%)   $11,746
Percentage of total revenues      71%             80%     65%             81%
Maintenance and service        $ 3,010   92%    $1,569  $ 5,888  110%   $ 2,798 
Percentage of total revenues      29%             20%     35%             19%
        Total revenues         $10,411   30%    $8,030  $16,934   16%   $14,544

     The Company's revenues are derived from (i) license fees for its software
products and (ii) fees for services complementing its products, including
software maintenance and support, training, consulting and development
agreements.  Fees for service revenues are charged separately from the Company's
software products. The Company recognizes revenue in accordance with the
American Institute of Certified Public Accountants Statement of Position 91-1 on
Software Revenue Recognition.  Revenue from software licensing is generally
recognized after execution of a licensing agreement and shipment of the product.
Maintenance revenue is recognized over the term of the maintenance period, which
is typically 12 months.  Consulting and training revenues are recognized at the
time the services are performed.  Revenue under software development agreements
is recognized using the percentage-of-completion method, based on the ratio that
incurred costs bear to total estimated costs.  The Company's license agreements
generally do not provide a right of return.  However, reserves are maintained
for potential credit losses.

     Software License Revenues.  The Company currently derives substantially all
     -------------------------
of its software license revenues from licenses of Red Brick Warehouse, a
relational database management system that is specifically designed for serving
data warehouse applications. Software license revenues decreased slightly for
the six months ended June 30, 1997. Software license revenues for the three
months ended June 30, 1997, increased over the year earlier period because of an
increase in 

                                       8
<PAGE>
 
licensing activity; however, in the three months ended March 31, 1997, software
license revenues were down significantly from the quarter ended December 31,
1996, because a number of transactions for which the Company expected to receive
orders during the first quarter of 1997 did not close.

     Maintenance and Service Revenues.  The growth in maintenance revenues for
     --------------------------------
the three and six month periods ended June 30, 1997, was primarily attributable
to the renewal of maintenance contracts after the initial one-year term, but the
licensing revenue was down. Service revenues increased as a result of additional
consulting and training engagements. The Company expects that prior growth rates
of the Company's maintenance and service revenues may not be sustainable in the
future.

     For the three and six month periods ended June 30, 1997, Pepsi Cola
Company accounted for 16% and 11% of total revenues, respectively. For the three
and six month periods ended June 30, 1996, no one customer accounted for 10% or
more of total revenues The Company expects that licenses of its products to a
limited number of customers and resellers will continue to account for a
significant percentage of revenue for the foreseeable future. There can be no
assurance that any customer or reseller will continue to license the Company's
products. The loss of a major customer or reseller or any reduction in orders by
such customers or resellers, including reductions due to market or competitive
conditions, would have a materially adverse effect on the Company's business,
financial condition, and results of operations.

     The Company's international revenues for the three and six month periods
ended June 30, 1997, were 14% and 17% of total revenues, respectively. The
Company's international revenues for the three and six month periods ended
June 30, 1996, were less than 10% of total revenues. The Company intends to
continue to expand its international operations and to enter additional
international markets.

COST OF REVENUES

                                 Three Months Ended        Six Months Ended
                                       June 30,                June 30,
                                ---------------------   ----------------------
                                 1997  Change   1996     1997  Change    1996
                                ------ ------  ------   ------ ------   ------
Software license                $  308  56%     $198    $  690  49%     $  462 
Percentage of total revenues      3%              2%      4%              3%
Maintenance and service         $2,115 251%     $603    $3,954 273%     $1,060
Percentage of total revenues      20%             8%     23%              7%
Total cost of revenues          $2,423 202%     $801    $4,644 205%     $1,522 
Percentage of total revenues      23%            10%     27%             10%

     Cost of Software License Revenues.  Cost of software license revenues
     ---------------------------------
consisted primarily of the cost of royalties paid to third-party vendors,
product media and duplication, shipping expenses, manuals and packaging
materials.

     Cost of Maintenance and Service Revenues.  Cost of maintenance and service
     ----------------------------------------
revenues consisted primarily of personnel-related costs incurred in providing
telephone support, consulting services, and training to customers.  Cost of
maintenance and service revenues for the three and six month periods ended June
30, 1997 increased over such costs for the same periods ended June 30, 1996, as
a result
                                       9
<PAGE>
 
of increased personnel-related costs as the Company continued to expand its
customer service and consulting organizations to support an expected increase in
sales. The Company believes that the cost of maintenance and service revenues
will increase in dollar amount and may increase as a percentage of total
revenues in the future as the Company continues to build its customer service
and consulting organizations.

Operating Expenses


                                Three Months Ended        Six Months Ended
                                       June 30,                June30,
                                ----------------------  ----------------------
                                  1997  Change   1996     1997  Change   1996
                                ------- -----   ------  ------- -----   ------
Sales and marketing             $ 6,765  44%    $4,711  $14,041  71%    $8,208 
Percentage of total revenues       65%            59%     83%             56%
Research and development        $ 2,065  45%    $1,423  $ 4,776  63%    $2,928 
Percentage of total revenues       20%            18%     28%             20%
General and administrative      $ 1,176  58%    $ 742   $ 2,156  66%    $1,301 
Percentage of total revenues       11%             9%     13%              9%
In-process technology           $    --   *     $ 500   $    --   *     $  500 
Percentage of total revenues                       6%                      3%
Total operating expenses        $10,006  36%    $7,376  $20,973  62%    $12,937
Percentage of total revenues       96%            92%    124%             89%*
----------------------------
*       Not meaningful

     Sales and Marketing.  Sales and marketing expenses consisted primarily of
     -------------------
personnel-related costs, including sales commissions, as well as promotional
expenses including advertising, public relations, seminars, and trade shows.
The increase in dollar amount in sales and marketing expenses was primarily due
to the expansion of the Company's sales operations and increased marketing
activities. The Company believes that such expenses will increase in dollar
amount and may increase as a percentage of total revenues in the future as the
Company expands its sales and marketing activities.

     Research and Development.  Research and development expenses consisted
     ------------------------
primarily of salaries and other personnel-related expenses, and depreciation of
development equipment. The increase in dollar amount in research and development
expenses was primarily attributable to the increased staffing of software
engineers required to expand and enhance the Company's product line and the
expensing of technology and software that had not met technological feasibility.
In accordance with SFAS No. 86, the Company capitalizes eligible computer
software costs upon the achievement of technological feasibility, subject to net
realizable value considerations. The Company has defined technological
feasibility as completion of a working model. As of June 30, 1997, such
capitalizable costs were insignificant. Accordingly, the Company has charged all
such costs to research and development expense in the accompanying consolidated
statements of operation. The Company believes that research and development
expenses will continue to increase in dollar amount and may increase as a
percentage of total revenues in the future.

     General and Administrative.  General and administrative expenses consisted
     --------------------------
primarily of personnel costs for finance and general management, as well as
insurance and professional expenses. The increase in dollar amount in general
and administrative expenses was primarily attributable to increased staffing and
professional fees necessary to manage and support the Company and to 

                                       10
<PAGE>
 
provide the infrastructure required for a public company. The Company believes
that its general and administrative expenses will continue to increase in dollar
amount in the future as the Company expands its administrative staff, adds
infrastructure, and incurs additional costs related to being a public company.

     Cost of in-process technology.  In the second quarter of 1996, the Company
     -----------------------------
acquired in-process technology associated with a $500,000 licensing arrangement.
The acquired in-process technology had not yet reached technological feasibility
and did not have alternative future uses.

INTEREST AND OTHER INCOME AND INTEREST EXPENSE


                                 Three Months Ended       Six Months Ended
                                       June 30,               June 30,
                                  ------------------    ---------------------
                                  1997 Change   1996     1997  Change    1996
                                  ----  ----    ----    ------  ----    -----
Interest and other income         $521   17%    $445    $1,027   34%    $ 764 
Percentage of total revenues        5%            6%       6%             5%
Interest expense                  $(26) (69%)   $(84)   $  (66) (57%)   $(153)
Percentage of total revenues       (0%)          (1%)     (0%)           (1%)

     Interest and other income primarily represented interest income
earned on the Company's cash, cash equivalents, and short-term investments.
Interest and other income primarily increased during the six month period ended
June 30, 1997 compared to the year earlier period because the funds were
invested for the full six months in 1997 and were invested for a shorter period
in 1996 following the Company's initial public offering on January 22, 1996.

PROVISION FOR INCOME TAXES

                                 Three Months Ended       Six Months Ended
                                      June 30,                June 30,
                                --------------------    --------------------
                                 1997  Change   1996    1997   Change   1996
                                -----   ----    ----    ----    ----    ----
Provision for income taxes      $105    377%    $22     $205    193%    $70 
Percentage of total revenues      1%              0%      1%              0%

     The income tax provision for the six month period ended June 30, 1997 of
$205,000 is attributable to current income taxes, and consists principally of
foreign withholding taxes and other foreign income taxes and state minimum
taxes.  No income tax benefit has been recognized for the loss incurred in the
first six months of 1997.  Although realization is not assured, the Company
continues to believe that it is "more likely than not" that it will generate
future taxable income sufficient to realize the benefit of the $1 million net
deferred tax asset previously recognized.  The amount of the net deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.  Management intends to evaluate
the realizability of the net deferred tax asset each quarter to assess the need
for the valuation allowance.

     The effective tax rate for the six month period ended June 30, 1996 was
10%, which differed from the federal statutory tax rate of 34%, primarily due to
the utilization of net operating loss carryforwards, offset by domestic
alternative minimum taxes and foreign taxes.

                                       11
<PAGE>
 
     As of December 31, 1996, the Company had federal and state net operating
loss carryforwards of approximately of $4.6 million and $2.5 million,
respectively, and federal and state research credit carryforwards of $430,000
and $290,000, respectively. Utilization of approximately $1.5 million of the net
operating loss carryforwards is limited to approximately $100,000 per year, due
to the ownership change provisions provided by the Tax Reform Act of 1986 and
similar state provisions. These carryforwards will expire from 1998 to 2009.

MINORITY INTEREST, NET INCOME, AND NET INCOME (LOSS) PER SHARE

<TABLE> 
<CAPTION> 

                                      Three Months Ended              Six Months Ended
                                             June 30,                     June30,
                                -----------------------------   -----------------------------
                                  1997       Change     1996      1997       Change     1996
                                -------     -------    ------   --------     ------     -----
<S>                             <C>           <C>      <C>      <C>            <C>      <C> 
Minority Interest               $    95         *       $ --     $    32         *       $ --  
Percentage of total revenues       1%                     *           0%                   *
Net income (loss)               $(1,533)        *       $192     $(7,895)        *       $626 
Percentage of total revenues      (15%)                   2%       (47%)                   4%
Net income (loss) per share     $ (0.13)        *       $0.01    $ (0.69)        *       $0.05 
----------------------
*       Not meaningful
</TABLE> 

     Net loss per share for the six month period ended June 30, 1997 was
primarily the result of the revenue shortfall for the three months ended March
31, 1997. As noted under "Software License Revenues," software license revenues
for the six month period ended June 30, 1997 decreased from the year earlier
period. In addition, as noted in "Risk Factors" below, the Company's expense
levels are relatively fixed and are based, in part, on expectations as to future
revenues. Consequently, since revenue fell below expectations, operating results
were adversely affected and net income was disproportionately affected because a
proportionately smaller amount of the Company's expenses varies with its
revenues.


LIQUIDITY AND CAPITAL RESOURCES

<TABLE> 
<CAPTION> 

                                                        June 30,      December 31,
                                                          1997  Change   1996
                                                        -------  -----  -------
<S>                                                    <C>       <C>   <C> 
Working capital                                         $33,663  (16%)  $40,308 
Cash and cash equivalents and short-term investments    $39,347   12%   $35,151
</TABLE> 

     Working capital decreased at June 30, 1997, compared to that at December
31, 1996, primarily due to a decrease in accounts receivable and short-term
investments and an increase in accrued expenses and deferred revenue, partially
offset by an increase in cash and cash equivalents.

                                       12
<PAGE>
 
                                                          Six Months Ended
                                                               June 30,
                                                        -----------------------
                                                         1997  Change    1996
                                                        ------ ------  --------
Cash provided by (used in) operating activities         $3,976    *    $   (178)
Cash provided by (used in) investing activities         $2,243    *    $(19,816)
Cash provided by financing activities                   $1,246 (96%)   $ 33,273 
------------------------
*       Not meaningful

     For the six months ended June 30, 1997, net cash provided by operating
activities resulted primarily from a decrease in accounts receivable and
increases in deferred revenue and accrued expenses and compensation, partially
offset by the net loss adjusted for noncash items.  For the six  months ended
June 30, 1996, net cash used in operating activities resulted primarily from an
increase in accounts receivable and a decrease in accounts payable, partially
offset by a decrease in accrued expenses and compensation, a decrease in
deferred revenue, and by net income.

     For the six months ended June 30, 1997 and 1996, the Company's investing
activities consisted of purchases of investment grade, interest-bearing
securities, offset by purchases of property and equipment.  Capital expenditures
were $953,000 in the six months ended June 30, 1997, compared to $910,000 in the
six months ended June 30, 1996. The Company expects that its capital
expenditures will remain constant or increase as the Company's employee base
grows. The Company's principal commitments consist primarily of leases on
facilities and equipment.

     The cash provided by financing activities during the six months ended June
30, 1997 was primarily from the issuance of common stock through the Company's
Employee Stock Purchase Plan. The cash provided by financing activities during
the six months ended June 30, 1996 was primarily from the initial public
offering.

     The Company has a $3,000,000 unsecured line of credit which expires April
30, 1998. Borrowings under this line bear interest at the lender's current
index. The credit agreement requires the Company to maintain certain financial
ratios, minimum working capital, and minimum tangible net worth. The agreement
also restricts the payment of dividends. At June 30, 1997, there were no
borrowings outstanding under this line of credit.

     The Company believes that its current cash balance, its credit facility,
and its cash flow provided by operations, if any, will be sufficient to meet its
anticipated working capital and capital expenditure requirements for at least
the next 12 months. Thereafter, the Company may find it necessary to obtain
additional debt or equity financing. There can be no assurance that, in the
event additional financing is required, the Company will be able to raise such
additional financing on acceptable terms or at all.

                                       13
<PAGE>
 
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

     The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.

     Potential Fluctuations in Quarterly Results; Seasonality.  The Company's
     --------------------------------------------------------
quarterly operating results have varied significantly in the past, and may vary
significantly in the future, depending on factors such as increased competition,
size and timing of significant orders, timing of new product announcements and
pricing policy changes by the Company and its competitors, market acceptance of
new and enhanced versions of the Company's products, changes in operating
expenses, changes in personnel, mix of direct and indirect sales, general
economic factors, and foreign currency exchange rates.  The Company currently
operates with virtually no order backlog because its software products typically
are shipped shortly after orders are received.  The Company derives a
substantial portion of its revenues from licenses of its Red Brick Warehouse, a
relational database management system that is specifically designed for serving
data warehouse applications and typically has a selling price in excess of
$100,000.  As a result, the timing of the receipt and shipment of a single order
can have a significant impact on the Company's revenues and results of
operations for a particular period.  In the first quarter of 1997, for example,
the Company received significantly fewer orders than expected, which had an
immediate adverse impact on operating results for the period.  Historically, the
Company has often recognized a substantial portion of its revenues in the last
month of a quarter, with these revenues frequently concentrated in the last two
weeks of a quarter.  As a result, product revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter, and
revenues for any future quarter are not predictable with any significant degree
of certainty.  Product revenues are also difficult to forecast because the
market for data warehouse software products is rapidly evolving, and the
Company's sales cycle, which may last many months, varies substantially from
customer to customer.  The Company's expense levels are relatively fixed and are
based, in part, on expectations as to future revenues.  Consequently, if revenue
levels fall below expectations, operating results will likely be adversely
affected, and net income (loss) may be disproportionately affected because a
proportionately smaller amount of the Company's expenses varies with its
revenues, as occurred during the quarter ended March 31, 1997.  In addition, the
Company expects that sales derived through indirect channels, which are harder
to forecast and have lower gross margins than direct sales, will increase as a
percentage of total revenues.  Due to all of the foregoing factors, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. As occurred during the quarter ended March 31, 1997 and as may
occur in some future quarters, the Company's operating results were and/or may
be below the expectations of public market analysts and investors.  Should this
occur, the price of the Company's Common Stock would be materially adversely
affected.

     The Company's business has experienced, and is expected to continue to
experience, significant seasonality, largely due to customer buying patterns.
In recent years, the Company has generally had stronger demand for its software
products during the quarters ending in June and December, and weaker demand in
the quarters ending in March and September.  The Company believes this pattern
will continue.

     Competition.  The market for the Company's products is intensely
     -----------
competitive and subject to rapid change. The Company primarily encounters
competition from large public companies, including Oracle, Informix, Sybase,
IBM, and NCR/Teradata. In addition, because there are relatively low barriers to
entry in the software market, the Company expects additional competition 

                                       14
<PAGE>
 
from other established and emerging companies if the data warehouse software
market continues to develop and expand. Most of the Company's competitors have
longer operating histories, significantly greater financial, technical,
marketing, and other resources, significantly greater name recognition, and a
larger installed base of customers. In addition, many of the Company's
competitors have well-established relationships with current and potential
customers of the Company, extensive knowledge of the relational database
industry, and are capable of offering a single vendor solution. As a result, the
Company's competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion, and sale of their products than can the
Company. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address customer needs. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. The Company also expects that
competition will increase as a result of software industry consolidations.
Increased competition is likely to result in price reductions, reduced gross
margins, and loss of market share, any of which could materially adversely
affect the Company's business, operating results, and financial condition. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not materially adversely affect its business, operating results
and financial condition.

     Limited Profitability; Accumulated Deficit; Future Operating Results
     --------------------------------------------------------------------
Uncertain. As of June 30, 1997, the Company had an accumulated deficit of $16.4
---------
million. The Company had a $1.5 million loss in the second quarter of 1997 and a
$6.4 million loss in the first quarter of 1997 with a $7.9 million loss for the
six month period ended June 30, 1997 and was only marginally profitable in 1996.
There can be no assurance that the Company will return to profitability on a
quarterly basis or on an annual basis. The Company began shipping its principal
product, Red Brick Warehouse, in December 1991. Future operating results will
depend on many factors, including the demand for the Company's products, the
level of product and price competition, the Company's success in expanding its
direct sales force and indirect distribution channels, the ability of the
Company to develop and market new products and control costs, and the percentage
of the Company's revenues derived from indirect channels, which have lower gross
margins than direct sales, and general economic conditions.

     Dependence on Continued Growth of the Data Warehouse Market. Although
     -----------------------------------------------------------
demand for data warehouse software has grown in recent years, the market is
still emerging. The Company's future financial performance will depend to a
large extent on continued growth in the number of organizations adopting data
warehouses and existing customers expanding their use of data warehouses. There
can be no assurance that the market for data warehouses will continue to grow.
If the data warehouse market fails to grow, or grows more slowly than the
Company currently anticipates, the Company's business, operating results, and
financial condition would be materially adversely affected.

     Product Concentration.  Substantially all of the Company's revenues have
     ---------------------
been attributable to sales of licenses of Red Brick Warehouse. These products
are currently expected to account for a significant part of the Company's
revenues for the foreseeable future. As a result, a decline in demand for, or
failure to achieve broad market acceptance of, Red Brick Warehouse as a result
of competition, technological change or otherwise, would have a materially
adverse effect on the business, operating results, and financial condition of
the Company. A decline in sales of Red Brick Warehouse would also have a
materially adverse effect on licensing of other Company products that may be
licensed to Red Brick Warehouse customers. The Company's future financial
performance 

                                       15
<PAGE>
 
will depend in part on the successful development, introduction, and customer
acceptance of new and enhanced versions of Red Brick Warehouse and other
products. There can be no assurance that the Company will continue to be
successful in marketing Red Brick Warehouse or any new or enhanced products.

     Dependence on New Products and Rapid Technological Change.  The market for
     ---------------------------------------------------------
the Company's software is characterized by rapid technological change, frequent
new product introductions, and evolving industry standards. The introduction by
others of products embodying new technologies and the emergence of new industry
standards can render the Company's existing products obsolete and unmarketable.
The life cycles of the Company's products are difficult to estimate. The
Company's future success depends on its ability to enhance its current products,
to develop and introduce new products that keep pace with technological
developments and emerging industry standards on a timely basis, and to address
the increasingly sophisticated needs of its customers. There can be no assurance
that the Company will be successful in developing and marketing product
enhancements or new products that respond to technological change or evolving
industry standards, that the Company will not experience difficulties that could
delay or prevent the successful development, introduction, and marketing of
these new products and product enhancements, or that the Company's new products
and product enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. Any potential new products or product
enhancements would likely be subject to significant technical risks. If the
Company experiences delays in the commencement of commercial shipments of new
products and enhancements, the Company could experience delays or loss of
product revenues. If the Company is unable, for technological or other reasons,
to develop and introduce new products or enhancements of existing products in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, operating results, and financial condition
will be materially adversely affected.

     Customer Concentration.  A relatively small number of customers and
     ----------------------
resellers account for a significant percentage of the Company's revenues. The
Company expects that licenses of its products to a limited number of customers
and resellers may continue to account for a high percentage of revenue for the
foreseeable future. There can be no assurance that any customer or reseller will
continue to purchase the Company's products. The loss of a major customer or
reseller or any reduction in orders by such customers or resellers, including
reductions due to market or competitive conditions, would have a materially
adverse effect on the Company's business, financial condition, and results of
operations.

     Risk of Product Defects.  Software products as complex as those offered by
     -----------------------
the Company may contain undetected errors or failures when first introduced or
when new versions are released. The Company has previously discovered software
errors in certain of its new products after their introduction. Although the
Company has not experienced materially adverse effects resulting from any such
errors to date, there can be no assurance that, despite testing by the Company
and by current and potential customers, errors will not be found in new versions
of Red Brick Warehouse or administration tools after commencement of commercial
shipments, resulting in loss of or delay in market acceptance, which could have
a materially adverse effect upon the Company's business, financial condition,
and results of operations.

     Dependence Upon Key Personnel; Need to Increase Sales and Technical
     -------------------------------------------------------------------
Personnel. The Company's future performance depends in a significant part upon
---------
the continued service of its key technical, sales, and senior management
personnel, none of whom is bound by an employment agreement. The loss of the
services of one of more of the Company's key employees in the future 

                                       16
<PAGE>
 
could have a materially adverse effect on the Company's business, operating
results, and financial condition. The Company's future success also depends on
its continuing ability to attract, train, and retain highly qualified technical,
sales, and managerial personnel. The Company may hire a number of additional
sales and technical personnel in 1997. Competition for such personnel is
intense, and there can be no assurance that the Company can retain its key
technical, sales, and managerial employees or that it can attract, assimilate,
or retain other highly qualified technical, sales, and managerial personnel in
the future. Because of the complexity of RDBMS technology and the differences
between OLTP and data warehouse systems, the Company has experienced in the
past, and expects to experience in the future, a time lag between the date
technical and sales personnel are hired and the date such personnel become fully
productive. Although the Company increased the size of its direct sales force
and its research and development groups in 1997 and 1996, the Company
experienced difficulty in recruiting a sufficient number of sales and technical
personnel during this period. If the Company is unable to hire such personnel on
a timely basis in the future, the Company's business, operating results, and
financial condition could be materially adversely affected.

     Management of Changing Business.  The Company experienced a period of
     -------------------------------
significant growth in its employee base and a growth in its revenue during 1996
and 1997 that placed a serious strain upon its management systems and resources.
The Company implemented and expanded upon a number of financial and management
controls, reporting systems, and procedures.  The Company's ability to compete
effectively and to manage future growth, if any, will require the Company to
continually improve its financial and management controls, reporting systems,
and procedures on a timely basis, implementing new systems as necessary, and
expanding, training, and managing its employee work force.  There can be no
assurance that the Company will be able to do so successfully.  The Company's
failure to do so could have a materially adverse effect upon the Company's
business, operating results, and financial condition.

     Expansion of Indirect Channels.  An integral part of the Company's strategy
     ------------------------------
is to further develop a channel of distributors, value added resellers (VARs),
application partners, and system integrators, and to increase the proportion of
the Company's customers licensed through this indirect channel. The Company is
currently investing, and intends to continue to invest, significant resources to
develop this channel, which could adversely affect the Company's operating
results if the Company's efforts do not generate significant license revenues.
There can be no assurance that the Company will be able to attract distributors,
VARs, application partners, and system integrators that will be able to market
the Company's products effectively and will be qualified to provide timely and
cost-effective customer support and service. The inability to recruit important
distributors, VARs, application partners, or system integrators could adversely
affect the Company's results of operations. In addition, if it is successful in
selling products through this channel, the Company's gross margins will be
negatively affected due to the lower unit prices the Company expects to receive
when selling through indirect channels.

     International Operations. The Company's international revenues in the six
     ------------------------
month period ended June 30, 1997 and 1996, accounted for 19% and less than 10%
of total revenues, respectively. The Company intends to continue to expand and
maximize the sales potential of its existing international operations and enter
additional international markets. This will require significant management
attention and financial resources, and could adversely affect the Company's
business, operating results, and financial condition. In order to expand
international sales successfully in 1997 and subsequent periods, the Company
believes it may need to restructure some of its existing international
operations, establish additional foreign operations, hire additional personnel,
and recruit additional international resellers and distributors. To the extent
that the Company is unable 

                                       17
<PAGE>
 
to do so in a timely manner, the Company's growth in international sales, if
any, will be limited, and the Company's business, operating results, and
financial condition could be materially adversely affected. In addition, there
can be no assurance that the Company will be able to maintain or increase
international market demand for the Company's products. Additional risks
inherent in the Company's international business activities generally include
unexpected changes in regulatory requirements, tariffs and other trade barriers,
costs of localizing products for foreign countries, lack of acceptance of
localized products in foreign countries, longer accounts receivable payment
cycles, difficulties in managing international operations, potentially adverse
tax consequences including restrictions on the repatriation of earnings, weaker
intellectual property protection, and the burdens of complying with a wide
variety of foreign laws. There can be no assurance that such factors will not
have a materially adverse effect on the Company's future international sales
and, consequently, the Company's results of operations.

     Limited Protection of Proprietary Technology; Risks of Infringement.  The
     -------------------------------------------------------------------
Company relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures, and contractual provisions to protect its
proprietary technology.  For example, the Company licenses rather than sells its
software and requires licensees to enter into license agreements, which impose
certain restrictions on licensees' ability to utilize the software.  In
addition, the Company seeks to avoid disclosure of its trade secrets, including,
but not limited to, requiring those persons with access to the Company's
proprietary information to execute confidentiality agreements with the Company
and restricting access to the Company's source code.  The Company seeks to
protect its software, documentation, and other written materials under trade
secret and copyright laws, which afford only limited protection.  The Company
presently has no patents or patent applications pending.  Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary.  Policing unauthorized use of the Company's
products is difficult, and while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy can be expected
to be a persistent problem.  In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to as great an extent as do the
laws of the United States.  There can be no assurance that the Company's means
of protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology. There can be no
assurance that third parties will not claim infringement by the Company with
respect to current or future products.  The Company expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the Company's industry segment grows and
the functionality of products in different industry segments overlaps.  Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays, or require the Company to enter into
royalty or licensing agreements.  Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all,
which could have a materially adverse effect upon the Company's business,
operating results and financial condition.

     The Company licenses Open Server and Open Client products from Sybase, a
competitor of the Company, pursuant to a non-exclusive, royalty bearing reseller
agreement, which expires in November 1997.  The Open Server and Open Client
products provide client/server access to the Company's data warehouse.  The
Company has developed alternative technology to replace the products currently
licensed from Sybase.  A fully functional replacement connectivity product, with
the release of Red Brick Warehouse version 5.0.12, achieved general availability
on July 7, 1997, for certain UNIX computer hardware platforms, and on July 24,
1997, for the Windows NT/Intel computer hardware platform.  The Company expects
that the replacement connectivity product will be generally available on all
currently supported hardware platforms before the expiration of the 

                                       18
<PAGE>
 
Sybase agreement in November 1997. The Company expects that this product will
eliminate its dependency on Sybase for connectivity products. There can be no
assurance that the Company's replacement connectivity product released to date
will operate as expected or that the replacement connectivity product will be
generally available on other computer hardware platforms currently supported by
the Company prior to expiration of the Sybase agreement in November 1997. The
occurrence of either of these events could have a materially adverse effect upon
the Company's business, operating results, and financial condition.

     Product Liability.  The Company's license agreements with its customers
     -----------------
typically contain provisions designed to limit the Company's exposure to
potential product liability claims.  Although the Company has not experienced
product liability claims to date, the license and support of products by the
Company may entail the risk of such claims.  A successful product liability
claim brought against the Company could have a materially adverse effect on the
Company's business, operating results, and financial condition.

     Potential Volatility of Stock Price.  The trading price of the Company's
     -----------------------------------
Common Stock is highly volatile, as was demonstrated during the six month period
ended June 30, 1997, and may be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts, and other events or factors. In
addition, the stock market has experienced volatility, often unrelated to
operating performance, that particularly affected market prices of equity
securities of many high technology companies. Market fluctuations may adversely
affect the market price of the Company's Common Stock. There can be no assurance
that prices and price/earnings ratios will be sustained.

                                       19
<PAGE>
 
PART II.    OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        (a)  The Company held its Annual meeting of Stockholders on May 21,
             1997.

        (b)  The Company's stockholders voted the following matters:

                (i)   Election of five directors. All directors proposed by
                      management were elected.
<TABLE> 
<CAPTION> 

        Name of                 Number of       # of Votes   # of Votes  Number of     # of Broker
        Nominee                 Votes For        Against      Withheld  Abstentions     Non-Votes
-----------------------         ---------       ---------    ---------   ---------       ---------
<S>                            <C>            <C>              <C>      <C>             <C>           
Christopher G. Erickson         7,849,846               0       80,704           0               0 
Thomas H. Bredt                 7,900,827               0       29,723           0               0 
Andrew K. Ludwick               7,900,827               0       29,723           0               0 
John F. Shoch                   7,887,307               0       43,243           0               0 
John E. Warnock                 7,886,827               0       43,723           0               0
</TABLE> 

                (ii)  Approval of an amendment to the 1995 Stock Option Plan to
                      change the limit on the maximum number of shares issuable
                      per person from 50% of the share pool over the term of the
                      1995 Plan to 100,000 per calendar year, with a higher
                      limit of 300,000 shares applicable in the year an
                      individual first commences service with the Company.
                      7,778,881 votes were cast in favor of the amendment,
                      70,946 votes were cast against, no votes were withheld,
                      there were 56,096 abstentions, and 24,627 broker non-
                      votes.

                (iii) Ratification of independent public auditors. The
                      Stockholders ratified the appointment of Ernst & Young as
                      the Company's independent public auditors for the fiscal
                      year ended December 31, 1997. 7,910,133 votes were cast in
                      favor of the appointment 7,550 votes were cast against,
                      zero were withheld, there were 12,867 abstentions, and no
                      broker non-votes.


ITEM 5. OTHER EVENTS

        On July 21, 1997, the Board of Directors of the Company adopted and
        approved Amended and Restated Bylaws of the Company. The Amended and
        Restated Bylaws of the Company differ from the Company's previous bylaws
        in two ways: (i) they eliminate the right of stockholders to call a
        stockholders' meeting; and (ii) they require timely prior notice for
        director nominations or other business that a stockholder wishes to
        properly bring before a meeting of stockholders.

                                       20
<PAGE>
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits:

              Exhibit 3.5:   Amended and Restated Bylaws of the Company

              Exhibit 11.1:  Statement Regarding Computation of Earnings Per
                             Share

              Exhibit 27:    Financial Data Schedule  (EDGAR version only)

         (b)  Reports on Form 8-K

              No Reports on Form 8-K were filed during the three months ended
              June 30, 1997. 

                                       21
<PAGE>
 
SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


Date:  August 13, 1997          RED BRICK SYSTEMS, INC.
                                (Registrant)



                        By:     /s/ Robert C. Hausmann
                                
                                Robert C. Hausmann
                                Vice President, Finance and Administration
                                (Duly authorized officer and principal
                                 financial and accounting officer)

                                       22