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

                            ------------------------

                                   FORM 10-Q

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

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

                       COMMISSION FILE NUMBER: 000-26223

                            ------------------------

                        TUMBLEWEED COMMUNICATIONS CORP.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                    <C>
              DELAWARE                              94-3336053
   (State of other jurisdiction of               (I.R.S. Employer
   incorporation or organization)               Identification No.)
</TABLE>

                               700 SAGINAW DRIVE
                             REDWOOD CITY, CA 94063
          (Address of principal executive offices, including zip code)

                                 (650) 216-2000
              (Registrant's telephone number, including area code)

                            ------------------------

    INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/  NO / /

    THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF NOVEMBER 7, 2000 WAS
29,440,889.

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<PAGE>
                   SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

    This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, which are subject to the "safe harbor"
created by those sections. The forward-looking statements concern future events,
including, but not limited to, implementing its business strategy; attracting
and retaining customers; obtaining and expanding market acceptance of the
products and services it offers; forecasts of Internet usage and the size and
growth of relevant markets; rapid technological changes in its industry and
relevant markets; and competition in its market. Discussions containing such
forward-looking statements may be found in "Management's Discussion and Analysis
of Financial Condition and Results of Operations." In some cases,
forward-looking statements can be identified by terminology such as "may,"
"will," "should," "could," "predicts," "potential," "continue," "expects,"
"anticipates," "future," "intends," "plans," "believes," "estimates," and
similar expressions. These forward-looking statements involve certain risks and
uncertainties that could cause actual results, levels of activity, performance,
achievements and events to differ materially from those implied by such
forward-looking statements. These forward-looking statements are made as of the
date of this Quarterly Report on Form 10-Q. Tumbleweed disclaims any obligation
to update these statements or to explain the reasons why actual results may
differ. The risks and uncertainties under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Risks and
Uncertainties That You Should Consider Before Investing in Tumbleweed" contained
herein, among other things, should be considered in evaluating Tumbleweed's
prospects and future financial performance.

                                       2
<PAGE>
                        TUMBLEWEED COMMUNICATIONS CORP.
                                     INDEX

<TABLE>
<CAPTION>
                                                                        PAGE NO.
                                                                        ---------
<S>       <C>                                                           <C>
PART I    FINANCIAL INFORMATION

Item 1:   FINANCIAL STATEMENTS

          Condensed Consolidated Balance Sheets as of September 30,
            2000 (unaudited) and December 31, 1999....................      4

          Condensed Consolidated Statements of Operations for the
            three and nine months ended September 30, 2000 and 1999
            (unaudited)...............................................      5

          Condensed Consolidated Statements of Cash Flows for the nine
            months ended September 30, 2000 and 1999 (unaudited)......      6

          Notes to Condensed Consolidated Financial Statements
            (unaudited)...............................................      7

Item 2:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS.................................     12

Item 3:   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
            RISK......................................................     29

PART II   OTHER INFORMATION

Item 1:   Legal Proceedings...........................................     30

Item 2:   Changes in Securities and Use of Proceeds...................     30

Item 6:   Exhibits....................................................     31

Signatures............................................................     32
</TABLE>

                                   TRADEMARKS

    Tumbleweed-Registered Trademark-, WorldSecure-Registered Trademark- and
Worldtalk-Registered Trademark- are registered trademarks and Integrated
Messaging Exchange-TM-, IME-TM-, Messaging Management System (MMS)-TM-,
WorldSecure/Mail-TM-, Secure Inbox-TM-, Secure Envelope-TM-, Tumbleweed IME
Platform-TM-, Tumbleweed IME Applications-TM-, IME Statements-TM-, IME
Developer-TM-, IME Messenger-TM-, IME Personalize-TM-, and IME Alert-TM- are
trademarks of Tumbleweed Communications Corp.

                                       3
<PAGE>
PART I--FINANCIAL INFORMATION

ITEM 1--FINANCIAL STATEMENTS

                        TUMBLEWEED COMMUNICATIONS CORP.
                                AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                   2000            1999
                                                              --------------   -------------
                                                               (UNAUDITED)
<S>                                                           <C>              <C>
                                           ASSETS
Current Assets:
  Cash and cash equivalents.................................     $  89,472       $ 60,544
  Accounts receivable.......................................        19,315          5,182
  Prepaid expenses and other current assets.................         2,970          3,574
                                                                 ---------       --------
    Total current assets....................................       111,757         69,300
                                                                 ---------       --------
Property and equipment, net.................................        12,068          3,485
Purchased intangibles.......................................         5,763             --
Goodwill....................................................        71,471            135
Other assets................................................         1,589          2,763
                                                                 ---------       --------
    Total assets............................................     $ 202,648       $ 75,683
                                                                 =========       ========
                            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................     $   4,409       $  2,878
  Current installments of long-term debt....................           580            840
  Accrued liabilities.......................................        16,375          6,398
  Deferred revenue..........................................         2,872          2,579
                                                                 ---------       --------
    Total current liabilities...............................        24,236         12,695
                                                                 ---------       --------
Long-term debt, excluding current installments..............           574          1,017
Other long-term liabilities.................................           450            258
                                                                 ---------       --------
    Total liabilities.......................................        25,260         13,970
                                                                 ---------       --------

Commitments and contingencies
Minority interest...........................................           555             --
                                                                 ---------       --------

Stockholders' equity:
  Common stock..............................................            29             26
  Additional paid-in capital................................       293,911        132,167
  Deferred compensation expense.............................        (8,078)        (5,283)
  Accumulated other comprehensive (loss) income.............          (273)            53
  Accumulated deficit.......................................      (108,756)       (65,250)
                                                                 ---------       --------
    Total stockholders' equity..............................       176,833         61,713
                                                                 ---------       --------
    Total liabilities and stockholders' equity..............     $ 202,648       $ 75,683
                                                                 =========       ========
</TABLE>

                                       4
<PAGE>
                        TUMBLEWEED COMMUNICATIONS CORP.
                                AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 THREE MONTHS
                                                                     ENDED           NINE MONTHS ENDED
                                                                 SEPTEMBER 30,         SEPTEMBER 30,
                                                              -------------------   -------------------
                                                                2000       1999       2000       1999
                                                              --------   --------   --------   --------
<S>                                                           <C>        <C>        <C>        <C>
Revenue:
  License...................................................  $  7,607   $ 3,081    $ 18,596   $  8,165
  Services..................................................     2,499       999       5,961      2,054
  Transaction fees..........................................     2,328       318       4,577        524
                                                              --------   -------    --------   --------
    Revenue from continuing product lines...................    12,434     4,398      29,134     10,743
  Discontinued product line.................................        --       273          --      1,472
                                                              --------   -------    --------   --------
      Total revenue.........................................    12,434     4,671      29,134     12,215
Cost of revenue:
  License...................................................       514       248       1,085        490
  Services..................................................     2,992     1,246       7,816      3,011
  Transaction fees..........................................        53        24          97         44
                                                              --------   -------    --------   --------
      Total cost of revenue.................................     3,559     1,518       8,998      3,545
                                                              --------   -------    --------   --------
Gross profit................................................     8,875     3,153      20,136      8,670
                                                              --------   -------    --------   --------
Operating expenses:
Research and development (1)................................     4,205     2,296      10,220      6,167
Sales and marketing (2).....................................    10,777     5,428      27,712     12,749
General and administrative (3)..............................     2,911     2,006       6,899      3,921
Stock compensation..........................................     1,864     1,115       4,321      2,388
Amortization of goodwill, intangibles and in-process
  research and development..................................     5,401        --       5,491         --
Merger related and restructuring expenses...................        --        --      10,803         --
                                                              --------   -------    --------   --------
      Total operating expenses..............................    25,158    10,845      65,446     25,225
                                                              --------   -------    --------   --------
      Operating loss........................................   (16,283)   (7,692)    (45,310)   (16,555)
Other income, net...........................................       991       956       2,061      1,251
                                                              --------   -------    --------   --------
      Net loss before provision for taxes...................   (15,292)   (6,736)    (43,249)   (15,304)
      Provision for taxes...................................        95       136         333        211
      Minority interest.....................................       (30)       --         (76)        --
                                                              --------   -------    --------   --------
      Net loss..............................................  $(15,357)  $(6,872)   $(43,506)  $(15,515)
                                                              ========   =======    ========   ========
Other comprehensive income (loss)--translation adjustment...       (42)        5        (326)       (35)
                                                              --------   -------    --------   --------
  Comprehensive loss........................................  $(15,399)  $(6,867)   $(43,832)  $(15,550)
                                                              ========   =======    ========   ========
Net loss per share--basic and diluted.......................  $  (0.55)  $ (0.37)   $  (1.67)  $  (1.41)
                                                              ========   =======    ========   ========
Weighted average shares--basic and diluted..................    27,872    18,442      26,261     11,041
                                                              ========   =======    ========   ========
</TABLE>

--------------------------

(1) Exclusive of non-cash compensation expense of $455 and $317 for the three
    months ended September 30, 2000 and 1999, respectively, and $917 and $751
    for the nine months ended September 30, 2000 and 1999, respectively.

(2) Exclusive of non-cash compensation expense of $904 and $623 for the three
    months ended September 30, 2000 and 1999, respectively, and $2,686 and
    $1,313 for the nine months ended September 30, 2000 and 1999, respectively.

(3) Exclusive of non-cash compensation expense of $505 and $175 for the three
    months ended September 30, 2000 and 1999, respectively, and $718 and $324
    for the nine months ended September 30, 2000 and 1999, respectively.

                                       5
<PAGE>
                        TUMBLEWEED COMMUNICATIONS CORP.
                                AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Cash flow from operating activities:
Net loss....................................................  $(43,506)  $(15,515)
Adjustments to reconcile net loss to net cash used in
  operating activities:
Compensation expense for grant of non-employee stock options
  and warrant issuances.....................................       411        321
Amortization of deferred stock compensation expense.........     3,910      2,419
Depreciation and amortization...............................     1,605        902
Amortization of debt discount...............................       516       (788)
Minority interest...........................................       (76)        --
Amortization of goodwill, intangibles and in-process
  research and development..................................     5,491         --
Changes in operating assets and liabilities:
  Accounts receivable.......................................   (12,628)      (322)
  Prepaid expenses and other current assets.................      (728)    (1,323)
  Accounts payable and liabilities..........................    10,370      3,559
  Deferred revenue..........................................        24       (614)
                                                              --------   --------
    Net cash used in operating activities...................   (34,611)   (11,361)
                                                              --------   --------
Cash flows from investing activities:
  Purchase of property and equipment........................    (5,925)    (2,330)
  Proceeds from the sale of short-term investments..........        --      2,166
  Acquisitions, net of cash acquired........................   (14,817)      (683)
  Proceeds from the sale of Interface product lines.........     1,906         --
  Other assets..............................................        --       (717)
                                                              --------   --------
    Net cash used in investing activities...................   (18,836)    (1,564)
                                                              --------   --------
Cash flows from financing activities:
  Increase in borrowings....................................        --      2,781
  Repayments of borrowings..................................    (1,509)    (1,288)
  Proceeds from issuance of preferred stock and warrants,
    net.....................................................        --     18,639
  Proceeds from issuance of common stock and warrants,
    net.....................................................    77,603     55,768
  Issuance of common stock upon exercise of stock options...     6,607      1,275
                                                              --------   --------
    Net cash provided by financing activities...............    82,701     77,175
                                                              --------   --------
Effect of exchange rate fluctuations on cash................      (326)       (35)
Net (decrease) increase in cash and cash equivalents........    28,928     64,215
Cash and cash equivalents, beginning of period..............    60,544      4,556
                                                              --------   --------
Cash and cash equivalents, end of period....................  $ 89,472   $ 68,771
                                                              ========   ========
Supplemental disclosures of cash flow information:
  Cash paid during the period for interest..................  $     58   $     92
                                                              ========   ========
Noncash investing and financing activities:
  Deferred compensation expense associated with stock option
    activity................................................  $  7,335   $  7,272
                                                              ========   ========
  Equity issued in connection with the Interface
    acquisition.............................................  $ 71,969         --
                                                              ========   ========
</TABLE>

                                       6
<PAGE>
                        TUMBLEWEED COMMUNICATIONS CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)  BASIS OF PRESENTATION

    The condensed consolidated financial statements as of September 30, 2000 and
for the three and nine months ended September 30, 2000 and 1999 are unaudited
and reflect all adjustments (consisting of normal recurring accruals) which are,
in the opinion of management, necessary for fair presentation of Tumbleweed's
financial position and operating results for the interim periods presented.

    The accompanying condensed consolidated financial statements include the
accounts of Tumbleweed Communications Corp. ("Tumbleweed"), Tumbleweed's wholly
owned subsidiary Worldtalk Communications Corp. ("Worldtalk"), and Tumbleweed's
wholly owned subsidiary in the United Kingdom, in addition to the United
Kingdom's wholly owned subsidiaries in France, Germany, Australia, the
Netherlands and Sweden.

    In addition, Tumbleweed's consolidated financial statements also include the
six months results of Tumbleweed Communications K.K. ("TKK"), as of
September 30, 2000, for the nine months ended September 30, 2000. TKK was a
wholly owned subsidiary in Japan until August 31, 1999 when TKK sold 200 shares
of its common stock representing a 50% ownership interest in TKK. As such, the
results of TKK for the period from September 1, 1999 through March 31, 2000 were
accounted for on the equity method of accounting rather than the consolidation
method. On May 15, 2000, Tumbleweed repurchased 5% of the outstanding shares of
the jointly owned Japanese subsidiary, increasing Tumbleweed's ownership
position to 55%. As a result, Tumbleweed owns a controlling interest of the
Japanese subsidiary and began accounting for the Japanese subsidiary under the
consolidation method effective April 1, 2000. On August 29, 2000, Tumbleweed
repurchased an additional 25% of the outstanding shares of the jointly owned
Japanese subsidiary, increasing Tumbleweed's ownership position to 80%. No pro
forma financial information has been presented due to the insignificance of the
TKK stock repurchase. All significant intercompany accounts and transactions
have been eliminated in consolidation.

    With the completion of the Interface acquisition, included in Tumbleweed's
consolidated financial statements are the Interface Balance Sheet figures as of
September 30, 2000, and the operating activity for the period from September 1,
2000 through September 30, 2000.

(2)  BUSINESS COMBINATIONS

    On January 31, 2000, Tumbleweed completed its acquisition of Worldtalk.
Under the terms of the merger agreement, each Worldtalk share of common stock
converted into 0.26 shares of Tumbleweed's common stock. A total of 3,798,398
shares of Tumbleweed's common stock were exchanged for 14,609,374 shares of
Worldtalk common stock. The business combination has been accounted for as a
pooling of interests and, accordingly, Tumbleweed's historical financial
statements have been restated to include the accounts and results of operations
of Worldtalk.

                                       7
<PAGE>
                        TUMBLEWEED COMMUNICATIONS CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2)  BUSINESS COMBINATIONS (CONTINUED)
    The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below (in thousands).

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED   NINE MONTHS ENDED
                                            SEPTEMBER 30, 1999   SEPTEMBER 30, 1999
                                            ------------------   ------------------
                                               (UNAUDITED)          (UNAUDITED)
<S>                                         <C>                  <C>
Revenue:
  Tumbleweed..............................       $ 1,685               $  3,386
  Worldtalk...............................         2,986                  8,829
                                                 -------               --------
    Combined..............................       $ 4,671               $ 12,215
                                                 =======               ========
Net loss:
  Tumbleweed..............................       $(4,969)              $(11,022)
  Worldtalk...............................        (1,903)                (4,493)
                                                 -------               --------
    Combined..............................       $(6,872)              $(15,515)
                                                 =======               ========
</TABLE>

    As a result of the acquisition of Worldtalk, Tumbleweed recorded a pre-tax
charge of $10.8 million for restructuring and merger related expenses during the
three months ended March 31, 2000. The $10.8 million restructuring and merger
related expenses consisted of the following (in thousands):

<TABLE>
<S>                                                           <C>
Investment banker's fees....................................  $ 7,525
Legal fees..................................................    1,347
Severances..................................................    1,146
Accounting and printer fees.................................      485
Other.......................................................      300
                                                              -------
                                                              $10,803
                                                              =======
</TABLE>

    On September 1, 2000, Tumbleweed completed the acquisition of Interface
Systems, Inc. ("Interface"). Pursuant to the merger agreement, each outstanding
share of Interface common stock was converted into the right to receive 0.264
shares of Tumbleweed's common stock upon the closing of the merger. As of the
closing date of the acquisition, there were 4,731,856 shares of Interface common
stock outstanding, which in turn were converted into 1,249,210 shares of
Tumbleweed common stock. Tumbleweed also assumed all outstanding options and
warrants of Interface. As of September 1, 2000, there were options and warrants
to purchase of 886,018 shares of Interface common stock. The transaction is
being treated as a purchase for accounting purposes. Accordingly, Tumbleweed
expensed $2.0 million of acquired in-process research and development, and
recorded unearned compensation and goodwill and other intangibles of $66.4
million to be amortized over periods ranging from one to three years. We have
divested the Interface businesses other than L2i. These businesses comprised a
substantial majority of the historical operating results of Interface.

(3)  NET LOSS PER SHARE

    Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. Under the provisions of
SFAS No. 128, basic net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted

                                       8
<PAGE>
                        TUMBLEWEED COMMUNICATIONS CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3)  NET LOSS PER SHARE (CONTINUED)
average number of common shares outstanding during the period. Diluted net loss
per share is computed by dividing the net loss for the period by the weighted
average number of common and potential common shares outstanding during the
period if their effect is dilutive. Potential common shares comprise outstanding
shares of common stock issued to certain officers but subject to ratable
repurchase by Tumbleweed if such officers do not remain employees through
August 1999, and incremental common and preferred shares issuable upon the
exercise of stock options and warrants and upon the conversion of Series A,
Series B, and Series C preferred stock. The potential common shares issuable
under stock options and the potential warrants to purchase common shares have
been excluded from the determination of diluted net loss per share for all
periods because the effect of such shares would have been anti-dilutive.

(4)  STOCKHOLDERS' EQUITY

    On August 1, 2000, Tumbleweed completed a primary and secondary public
offering of 3,000,000 shares of its common stock at a price of $56.00 per share.
Of the 3,000,000 shares of common stock, 1,500,000 primary shares were sold by
Tumbleweed and 1,500,000 secondary shares were sold by stockholders of
Tumbleweed. Tumbleweed did not receive any of the proceeds from shares sold by
its stockholders. Net proceeds of $77.6 million from the offering of primary
shares will be used for working capital and other general corporate purposes. In
addition, Tumbleweed may use a portion of the net proceeds to acquire
complementary products, technologies or businesses.

    Deferred compensation expense is recorded in connection with the grant of
certain stock options to non-employees and employees at exercise prices less
than the deemed fair value on the grant date. During the three months ended
September 30, 2000, we recorded aggregate deferred stock compensation expense of
$5.3 million. The deferred compensation for the three months ended
September 30, 2000, is a combination of $2.3 million related to the Interface
acquisition and $3.0 million resulting from the volatility of Tumbleweed's stock
price combined with certain stock options granted to employees with exercise
prices below the market value on the date of grant. The deferred stock
compensation expense is being amortized on an accelerated basis over the vesting
period of the options, which is generally four years.

(5)  SEGMENT INFORMATION

    Tumbleweed has adopted the provisions of SFAS No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for the reporting by public business enterprises of information about
operating segments, products and services, geographic areas, and major
customers. The method for determining what information to report is based on the
way that management organizes the operating segments within Tumbleweed for
making operating decisions and assessing financial performance.

    Tumbleweed's chief operating decision-maker is considered to be the Chief
Executive Officer. The CEO reviews financial information presented on a
consolidated basis accompanied by disaggregated information about revenue by
geographic region for purposes of making operating decisions and assessing
financial performance. The consolidated financial information reviewed by the
CEO is identical to the information presented in the accompanying consolidated
statement of operations. Therefore, Tumbleweed operates in a single operating
segment.

                                       9
<PAGE>
                        TUMBLEWEED COMMUNICATIONS CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(5)  SEGMENT INFORMATION (CONTINUED)
    Revenue information regarding operations in the different geographic regions
is as follows (in thousands):

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED     NINE MONTHS ENDED
                                             SEPTEMBER 30,         SEPTEMBER 30,
                                          -------------------   -------------------
                                            2000       1999       2000       1999
                                          --------   --------   --------   --------
<S>                                       <C>        <C>        <C>        <C>
North America...........................  $ 9,466     $3,649    $19,964    $ 8,914
Europe..................................    1,901        704      5,990      2,269
Asia....................................    1,067        318      3,180      1,032
                                          -------     ------    -------    -------
    Total...............................  $12,434     $4,671    $29,134    $12,215
                                          =======     ======    =======    =======
</TABLE>

    Revenue aggregating 15% for the three months ended September 30, 2000, was
generated from one customer. There were no customers representing 15% or more of
total revenue for the three months ended September 30, 1999, or the nine months
ended September 30, 2000 and 1999.

(6)  RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
To date, Tumbleweed has not entered into any derivative financial instruments or
hedging activities.

    In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101.
The SAB summarized certain of the SEC Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB No. 101, as amended by SAB No. 101B, and any resulting change in accounting
principle that a registrant would have to report, will be adopted no later than
Tumbleweed's fiscal quarter ending December 31, 2000. Tumbleweed does not expect
the application of SAB No. 101 to have a material effect on its financial
position or results of operations, nor do we expect to report a change in
accounting principle resulting from its application.

(7)  CONTINGENCIES

    On July 7, 2000, three complaints were filed by David H. Zimmer,
Congressional Securities, Inc. and other plaintiffs against Interface and
various additional defendants, including Interface's President and Chief
Executive Officer, Robert A. Nero and Fiserv Correspondent Services, Inc., in
the United States District Court for the Southern District of New York. The
three cases contain substantially similar allegations of false and misleading
representations by various defendants allegedly designed to inflate Interface's
stock price. The complaints seek relief under the federal securities laws on
behalf of purported classes of persons who purchased, held, or sold shares of
Interface stock, and under various other causes of action. Recently, all three
of the complaints were amended.

    Tumbleweed intends vigorously to defend these lawsuits and seek their
dismissal. On September 27, 2000, Tumbleweed filed (i) a motion to strike or
dismiss for failure to meet the certification requirements of the Private
Securities Litigation Reform Act, (ii) a motion to dismiss for failure to state
a claim, and (iii) a motion to dismiss because of improper venue, or in the
alternative,

                                       10
<PAGE>
                        TUMBLEWEED COMMUNICATIONS CORP.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7)  CONTINGENCIES (CONTINUED)
motion to transfer the lawsuits to the Eastern District of Michigan. Plaintiffs'
responsive filings are due on November 20, 2000. Although Tumbleweed believe
these actions to be without merit, no prediction of the ultimate outcome can be
made at this time and the outcome may harm our business. In addition, Tumbleweed
cannot fully assess the merits of the lawsuits at this time and, in any event,
the costs in defending these complaints could harm future operating results.

                                       11
<PAGE>
ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

    Tumbleweed is a leading provider of advanced messaging solutions for
business communications. Tumbleweed's products and services enable businesses to
extend existing networks and applications, creating secure online channels for
interactive, business-critical communication. Tumbleweed Integrated Messaging
Exchange, or Tumbleweed IME, is a platform and set of applications for creating
secure communications channels between a business and its customers, partners
and suppliers. Tumbleweed Messaging Management System, or Tumbleweed MMS, is a
comprehensive solution that extends internal e-mail systems to the Internet
through centralized management, policy enforcement, filtering and archiving.
Used together, Tumbleweed IME and Tumbleweed MMS automatically apply security
policies and redirect sensitive e-mail for secure, trackable delivery.

    On January 31, 2000, we completed the acquisition of Worldtalk
Communications Corporation ("Worldtalk"), a leading provider of Internet
security and policy management solutions that enable organizations to define and
manage electronic mail and web security usage policies to manage the risks and
liabilities associated with Internet communications. The business combination
has been accounted for as a pooling of interests and, accordingly, Tumbleweed's
historical financial statements have been restated to include the accounts and
results of operations of Worldtalk. Except as otherwise indicated, the terms
"Tumbleweed," "we" and "our" refer to Tumbleweed and its subsidiaries, including
Worldtalk, in this discussion.

    On September 1, 2000, Tumbleweed completed the acquisition of Interface
Systems, Inc. ("Interface"). Interface's Legacy to internet (L2i) products and
services simplify the process of transforming and using data found in legacy
computer systems into electronic content that is easy to distribute and use
online. The L2i products adapt legacy print streams and other data types to the
Internet and intelligently convert them into formats such as Portable Document
Format, HyperText Markup Language or eXtensible Markup Language for use online.
The combination of L2i with Tumbleweed IME will give our customers a
comprehensive, end-to-end solution for electronic statement presentment.

    Tumbleweed's revenue consists of (i) license revenue, (ii) services revenue
and (iii) transaction revenue. License revenue consists of initial license fees
and the sale of distribution rights. License revenue typically is recognized
upon the later of customer acceptance or software shipment. Revenue from the
sale of distribution rights is recognized upon the execution of a distribution
agreement. Services revenue consists of consulting fees and support and
maintenance fees. Consulting fees related to installation are recognized upon
acceptance of the installation, and time and material billing while all other
consulting fees are recognized based on percentage of completion. Support and
maintenance fees are paid for ongoing customer support as well as for the right
to receive future upgrades of our products during the term of the maintenance
agreement. Revenue from support and maintenance is recognized ratably over the
period the support is provided. Transaction revenue is based on the volume of
transactions by our customers, and the related revenue is recognized based on
payment schedules and transaction reports from our customers. A number of our
contracts include minimum transaction volume requirements. In these cases, the
minimum guaranteed revenue is recognized when fees are due and payable during
those months where transaction volume does not exceed the designated minimums.

    The composition of the top 5 customers changes from quarter to quarter. For
the nine months ended September 30, 2000 and 1999, our top five customers
contributed 18% and 28% of total revenue, respectively.

    A substantial portion of Tumbleweed's revenue relates to international
customers or operations. Most of Tumbleweed's contracts are denominated in U.S.
dollars. However, in the future, an increasing number of contracts may be
denominated in foreign currencies. Tumbleweed currently does not have

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hedging or similar arrangements to protect us against foreign currency
fluctuations. Therefore, we increasingly may be subject to currency
fluctuations, which could harm our operating results in future periods. On
May 15, 2000, we repurchased from Hikari 5% of the outstanding stock of
Tumbleweed KK ("TKK"), for a price of approximately $700,000. As a result,
Tumbleweed owns a controlling interest of the Japanese subsidiary and began
accounting for the Japanese subsidiary under the consolidation method effective
April 1, 2000. On August 29, 2000, Tumbleweed repurchased an additional 25% of
the outstanding shares of the jointly owned Japanese subsidiary, increasing
Tumbleweed's ownership position to 80%.

    Tumbleweed's future net income and cash flow may be adversely affected by
limitations on its ability to apply net operating losses for federal income tax
reporting purposes against taxable income in future periods, including
limitations due to ownership changes, as defined in Section 382 of the Internal
Revenue Code, arising from issuances of its stock.

    On August 1, 2000, Tumbleweed completed a primary and secondary public
offering of 3,000,000 shares of its common stock at a price of $56.00 per share.
Of the 3,000,000 shares of common stock, 1,500,000 primary shares were sold by
Tumbleweed and 1,500,000 secondary shares were sold by stockholders of
Tumbleweed. Tumbleweed will not receive any of the proceeds from shares sold by
its stockholders. Net proceeds of $77.6 million from the offering of primary
shares will be used for working capital and other general corporate purposes. In
addition, Tumbleweed may use a portion of the net proceeds to acquire
complementary products, technologies or businesses.

RESULTS OF OPERATIONS

THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999

    REVENUE.  Revenue is comprised of license revenue, services revenue and
transaction fees revenue. Total revenue from continuing product lines for the
three months ended September 30, 2000 increased 183% to $12.4 million from $4.4
million (excluding revenue of $273,000 from discontinued product lines) for the
same three months in 1999. Total revenue from continuing product lines for the
nine months ended September 30, 2000 increased 171% to $29.1 million from $10.7
million (excluding $1.5 million from discontinued product lines) for the same
nine months in 1999. Total revenue from continuing product lines increased in
both periods due to increases in license revenue and services revenue and
transaction fees revenue.

    License revenue for the three months ended September 30, 2000 increased 147%
to $7.6 million from $3.1 million for the same three months in 1999. License
revenue for the nine months ended September 30, 2000 increased 128% to $18.6
million from $8.2 million for the same nine months in 1999. License revenue
increased due to bringing new customers into production and to additional
license fees paid by existing customers.

    Services revenue for the three months ended September 30, 2000 increased
150% to $2.5 million from $1.0 million for the same three months in 1999.
Services revenue for the nine months ended September 30, 2000 increased 190% to
$6.0 million from $2.1 million for the same nine months in 1999. The increase in
services revenue was due to an increase in contract development work by our
professional services organization, and, to a lesser extent, increases in
maintenance fees.

    Transaction fees revenue for the three months ended September 30, 2000
increased 632% to $2.3 million from $318,000 for the same three months in 1999.
Transaction fees revenue for the nine months ended September 30, 2000 increased
773% to $4.6 million from $524,000 for the same nine months in 1999. The
increase in transaction fees revenue resulted from transaction fee payments made
by new customers who launched IME-based services as well as the increasing
revenue related to transaction fee payments from existing customers.

    Total revenue from the Tumbleweed IME product line for the three months
ended September 30, 2000 increased 236% to $5.7 million from $1.7 million for
the same three months in 1999. Total

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revenue from the Tumbleweed IME product line for the nine months ended
September 30, 2000 increased 364% to $15.7 million from $3.4 million for the
same nine months in 1999. These increases were due to increases in license,
services and transaction fees revenue. License revenue from the IME product line
for the three months ended September 30, 2000 increased 229% to $2.7 million
from $828,000 for the same three months in 1999. License revenue from the IME
product line for the nine months ended September 30, 2000 increased 343% to $8.5
million from $1.9 million for the same nine months in 1999. The increases in
license revenue were due to bringing new customers into production and to
additional license fees paid by existing customers. Services revenue from the
IME product line for the three months ended September 30, 2000 increased 157% to
$1.4 million from $539,000 for the same three months in 1999. Services revenue
from the IME product line for the nine months ended September 30, 2000 increased
270% to $3.5 million from $947,000 for the same nine months in 1999. The
increases in services revenue were due to an increase in contract development
work by our professional services organization, and, to a lesser extent,
increases in maintenance fees. Transaction fees revenue from the IME product
line for the three months ended September 30, 2000 increased 384% to $1.5
million from $319,000 for the same three months in 1999. Transaction fees
revenue from the IME product line for the nine months ended September 30, 2000
increased 609% to $3.7 million from $524,000 for the same nine months in 1999.
The increases in transaction fees revenue resulted from minimum transaction fee
payments made by new customers who launched IME based services.

    Total revenue from the Tumbleweed MMS product line for the three months
ended September 30, 2000 increased 142% to $6.5 million from $2.7 million for
the same three months in 1999 (excluding revenue of $272,000 from discontinued
products). Total revenue from the Tumbleweed MMS product line for the nine
months ended September 30, 2000 increased 79% to $13.2 million from $7.4 million
for the same nine months in 1999 (excluding revenue of $1.5 million from
discontinued products). These increases were due to increases in license,
services and transaction fees revenue. License revenue from the MMS product line
for the three months ended September 30, 2000 increased 114% to $4.8 million
from $2.3 million for the same three months in 1999. License revenue from the
MMS product line for the nine months ended September 30, 2000 increased 60% to
$10.0 million from $6.3 million for the same nine months in 1999. The increases
in license revenue were due to bringing new customers into production. Services
revenue from the MMS product line for the three months ended September 30, 2000
increased 107% to $953,000 from $460,000 for the same three months in 1999.
Services revenue from the MMS product line for the nine months ended
September 30, 2000 increased 108% to $2.3 million from $1.1 million for the same
nine months in 1999. The increases in services revenue were due to an increase
in contract development work by our professional services organization, and to a
lesser extent, increases in maintenance fees and training. Transaction fees for
the three and nine months ended September 30, 2000 were $786,000 and $856,000,
respectively, compared to $0 in the three and nine months ended September 30,
1999.

    Due to the September 1, 2000, closing date for the Interface acquisition by
Tumbleweed, there is no historical comparisons for the L2i revenue. Total
revenue from the Tumbleweed L2i product line for the three and nine months ended
September 30, 2000 was $222,000.

    COST OF REVENUE.  Cost of revenue is comprised of license cost, services
cost and transaction fees cost. License cost is primarily comprised of royalties
paid to third parties for software licensed by Tumbleweed for inclusion in our
products. Services cost is comprised primarily of personnel and overhead costs
related to customer support and contract development projects. Transaction fees
cost is primarily comprised of royalties paid to third parties for software
licensed by us for inclusion in our products and hardware and band-width costs
associated with hosting IME servers for some customers. Total cost of revenue
for the three months ended September 30, 2000 increased 134% to $3.6 million
from $1.5 million for the same three months in 1999. Total cost of revenue for
the nine months ended September 30, 2000 increased 154% to $9.0 million from
$3.5 million for the same nine months in 1999. The increase in total cost of
revenue corresponds to increased revenues.

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    License cost for the three months ended September 30, 2000 increased 107% to
$514,000 from $248,000 for the same three months in 1999. License cost for the
nine months ended September 30, 2000 increased 121% to $1.1 million from
$490,000 for the same nine months in 1999. License costs increased due to
increased sales of products containing software licensed from third parties.

    Services cost for the three months ended September 30, 2000 increased 140%
to $3.0 million from $1.2 million for the same three months in 1999. Services
cost for the nine months ended September 30, 2000 increased 160% to $7.8 million
from $3.0 million for the same nine months in 1999. The increase was primarily
due to increased personnel costs supporting an increase in new contract
development projects and increases in facilities-related expenses.

    Transaction fees cost for the three months ended September 30, 2000
increased 121% to $53,000 from $24,000 for the same three months in 1999.
Transaction fees cost for the nine months ended September 30, 2000 increased
120% to $97,000 from $44,000 for the same September months in 1999. The
increases in transaction fees cost resulted from royalties due on transaction
fees revenue and, to a lesser extent, depreciation expense and connectivity
costs incurred in generating transaction revenue.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses are
comprised of engineering and related costs associated with the development of
Tumbleweed applications, quality assurance and testing. Research and development
expenses for the three months ended September 30, 2000 increased 83% to $4.2
million from $2.3 million for the same three months in 1999. Research and
development expenses for the nine months ended September 30, 2000 increased 66%
to $10.2 million from $6.2 million for the same nine months in 1999. The
increases were primarily due to an increase in personnel needed to support
ongoing development of Tumbleweed's products and new applications for our target
markets, increases in average salaries for development personnel in order to
provide a competitive salary in today's marketplace and increased facilities
related expenses. We expect that research and development expenses will increase
in absolute dollars in future periods due to increased personnel required to
support new projects that will allow us to expand the functionality of the core
IME and MMS platforms, increase the number of vertical applications built for
the our target markets and integrate with a wider array of third party software
packages.

    SALES AND MARKETING EXPENSES.  Sales and marketing expenses are comprised of
salaries, commissions, travel expenses and costs associated with trade shows,
advertising and other marketing efforts. Sales and marketing expenses for the
three months ended September 30, 2000 increased 99% to $10.8 million from $5.4
million for the same three months in 1999. Sales and marketing expenses for the
nine months ended September 30, 2000 increased 117% to $27.7 million from $12.7
million for the same nine months in 1999. The increase in sales and marketing
expenses was primarily due to increased sales staffing, an increase in the
number of offices in Europe and increased incentive compensation costs. We
expect that sales and marketing expenses will increase in absolute dollars in
future periods as we expand into new target markets and geographic areas. We
plan to significantly increase the number of our sales and marketing personnel
worldwide throughout 2001.

    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
consist primarily of personnel and support costs for our finance, legal and
human resources departments as well as professional fees. General and
administrative expenses for the three months ended September 30, 2000 increased
45% to $2.9 million from $2.0 million for the same three months in 1999. General
and administrative expenses for the nine months ended September 30, 2000
increased 76% to $6.9 million from $3.9 million for the same nine months in
1999. The increase in general and administrative expenses was due to an increase
in legal fees corresponding to the patent infringement lawsuit we brought
against The docSpace Company, Inc., which is still pending, as well as increased
staffing expenses and professional fees. We expect that general and
administrative expenses will increase in absolute dollars in future periods as
we continue to grow our infrastructure.

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    DEFERRED COMPENSATION EXPENSE.  Deferred compensation expense is recorded in
connection with the grant of certain stock options to non-employees and
employees at exercise prices less than the deemed fair value on the grant date.
During the three months ended September 30, 2000, we recorded aggregate deferred
stock compensation expense of $5.3 million compared to $2.8 million for the same
three months in 1999. The increase in deferred compensation for the three months
ended September 30, 2000, is a combination of $2.3 million related to the
Interface acquisition and $3.0 million resulting from the volatility of
Tumbleweed's stock price combined with certain stock option commitments made to
employees which were not processed in a timely fashion. During the nine months
ended September 30, 2000, we recorded aggregate deferred stock compensation
expense of $7.3 million compared to $7.3 million for the same nine months in
1999. The deferred stock compensation expense is being amortized on an
accelerated basis over the vesting period of the options, which is generally
four years. Of the total deferred stock compensation expense, $1.9 million and
$1.1 million was amortized in the three months ended September 30, 2000 and
1999, respectively. Of the total deferred stock compensation expense, $4.3
million and $2.4 million was amortized in the nine months ended September 30,
2000 and 1999, respectively.

    MERGER RELATED AND RESTRUCTURING EXPENSES.  Merger related and restructuring
expenses, which were recorded in connection with the acquisition of Worldtalk,
are primarily comprised of investment banker's fees, legal fees, severance
payments and accounting and printer fees. Merger related and restructuring
expenses for the nine months ended September 30, 2000 were $10.8 million.

    OTHER INCOME, NET.  Other income, net, is primarily comprised of interest
income earned on investment securities. Other income, net, for the three months
ended September 30, 2000 increased 4% to $991,000 from $956,000 for the same
three months in 1999. Other income, net, for the nine months ended
September 30, 2000 increased 65% to $2.1 million from $1.3 million for the same
nine months in 1999. The increases in other income, net, are due to increased
cash balances invested in money market accounts and commercial paper. The
increase in cash balances available for investment resulted from proceeds from
the issuance of equity securities, including common stock issued in our initial
public offering completed in August 1999 and our secondary offering completed in
August of 2000.

LIQUIDITY AND CAPITAL RESOURCES

    Since inception, we have financed our operations primarily through the
issuance of equity securities. On September 30, 2000, we had $89.5 million in
cash and cash equivalents. This amount includes approximately $77.6 million in
net proceeds from our public offering completed in August 2000.

    Net cash used in operating activities for the nine months ended
September 30, 2000 was $34.6 million. Cash used in operating activities was
primarily the result of net operating losses, offset by certain non-cash charges
and increases in accounts payable and other liabilities, and an increase in
accounts receivable.

    Net cash used in investing activities for the nine months ended
September 30, 2000 was $18.8 million. Net cash used in investing activities was
primarily the result of the cost associated with the interface acquisition,
capital expenditures related to facilities expansion and increased personnel as
well as the TKK stock repurchase.

    Net cash provided by financing activities for the nine months ended
September 30, 2000 was $82.7 million. Cash provided by financing activities was
primarily attributable to net proceeds of the public offering completed in
August, 2000, and to a lesser extent, the issuance of common stock upon exercise
of stock options, offset by the repayments of credit facilities and capital
lease obligations.

    As of September 30, 2000, our principal commitments consisted of obligations
outstanding under equipment and operating leases. Our equipment leases require
payment of rental fees to third party leasing providers at interest rates of
approximately 8.45%. In most cases, we have no obligations to

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purchase the equipment at the end of the lease term. We anticipate a substantial
increase in capital expenditures consistent with potential growth in operations,
infrastructure and personnel.

    In July 1998, we entered into an agreement with a bank, which included a
$1.5 million revolving credit facility, with availability based on outstanding
accounts receivable, and a $1.75 million equipment loan facility. Borrowings
under the credit facility and equipment facility carry interest at the prime
rate plus 0.5% and 0.75%, respectively, with interest payable monthly.
Borrowings under the equipment facility are due in 36 equal monthly installments
and are secured by certain assets of Tumbleweed. As of September 30, 2000, total
borrowings under the equipment loan facility were $1.2 million in the aggregate
and $300,000 remained available under the facility. There were no borrowings
under the credit facility as of September 30, 2000.

    On December 30, 1998, Tumbleweed entered into a loan and security agreement
comprised of a $1.5 million line of credit, which expired on December 29, 1999
and a $250,000 term facility, which expires on December 29, 2000, bearing
interest at the prime rate (9.5% and 7.75% as of December 1999 and 1998) plus
0.25% and prime rate plus 0.50%, respectively. The agreement is collateralized
by the assets of Tumbleweed, contains certain financial covenants and restricts
Tumbleweed's ability to incur other indebtedness and pay dividends. As of
September 30, 2000, borrowings under the term facility were $42,000.

    In September 1999, we entered into a $525,000 financing arrangement with
another company to finance our directors' and officers' liability insurance
premium. Borrowings under the loan agreement are payable in nine equal monthly
installments of $60,000. As of September 30, 2000, there were no borrowings
outstanding under this financing arrangement.

    Our capital requirements depend on numerous factors, including revenue
generated from operations and market acceptance of our products and services,
the resources devoted to the development of our products and services and the
resources devoted to sales and marketing. We have experienced a substantial
increase in capital expenditures and operating expenses since inception
consistent with relocation and the growth in operations and staffing. We
anticipate that these increases will continue for the foreseeable future.
Additionally, we expect to make additional investments in technologies, and plan
to expand our sales and marketing programs. We believe that our existing capital
resources, including the proceeds from our recent secondary public offering,
will enable us to maintain our current and planned operations for at least the
next 12 months. However, we may need to raise funds prior to that time.

    We intend to continue to consider future financing alternatives, which may
include the incurrence of indebtedness, additional public or private equity
offerings or an equity investment by a strategic partner. However, other than
the revolving credit and equipment loan facilities and the insurance premium
financing arrangement, we have no present commitments or arrangements assuring
us of any future equity or debt financing, and additional equity or debt
financing may not be available to us on favorable terms, if at all. We are not
aware of seasonal aspects of our business that will affect our business on a
short or long-term basis.

RISKS AND UNCERTAINTIES THAT YOU SHOULD CONSIDER BEFORE INVESTING IN TUMBLEWEED.

    BECAUSE TUMBLEWEED IS IN AN EARLY STAGE OF DEVELOPMENT AND TUMBLEWEED HAS A
     HISTORY OF LOSSES, IT IS DIFFICULT TO EVALUATE TUMBLEWEED'S BUSINESS AND
     TUMBLEWEED MAY FACE EXPENSES, DELAYS AND DIFFICULTIES.

    Tumbleweed has only a limited operating history upon which an evaluation can
be based. Accordingly, Tumbleweed's prospects must be considered in light of the
risks, expenses, delays and difficulties frequently encountered by companies in
a similarly early stage of development, particularly companies engaged in new
and rapidly evolving markets like secure messaging services and solutions.
Tumbleweed incurred net losses of $43.5 million in the nine months ended
September 30, 2000 and

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<PAGE>
$24.2 million in the year ended December 31, 1999. As of September 30, 2000,
Tumbleweed had incurred cumulative net losses of $108.8 million.

    TUMBLEWEED ANTICIPATES CONTINUED LOSSES.

    Tumbleweed's success will depend in large part upon its ability to generate
sufficient revenue to achieve profitability and to effectively maintain existing
relationships and develop new relationships with customers and strategic
partners. If Tumbleweed does not succeed, its revenue may not increase, and it
may not achieve or maintain profitability on a timely basis or at all. In
particular, Tumbleweed intends to expend significant financial and management
resources on product development, sales and marketing, strategic relationships,
technology and operating infrastructure. As a result, Tumbleweed expects to
incur additional losses and continued negative cash flow from operations for the
foreseeable future.

    TUMBLEWEED'S QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT
     FLUCTUATIONS.

    As a result of Tumbleweed's limited operating history and the emerging
nature of the markets in which it competes, Tumbleweed may not be able to
accurately forecast its revenue or expenses. Tumbleweed's success is dependent
upon its ability to enter into and maintain strategic relationships with
customers and to develop and maintain volume usage of its products by its
customers and their end-users. Tumbleweed's revenue has fluctuated and its
quarterly operating results will continue to fluctuate based on the timing of
the execution of new customer licenses in a given quarter. Tumbleweed's license
revenue is comprised entirely of initial license and distribution fees. As a
result, Tumbleweed will be required to regularly and increasingly sign
additional customers with substantial initial license fees on a timely basis to
realize comparable or increased license revenue.

    Tumbleweed's revenue has fluctuated and its quarterly operating results will
continue to fluctuate based on the timing of the execution of new customer
licenses in a given quarter. Tumbleweed's license revenue is comprised entirely
of initial license and distribution fees. As a result, Tumbleweed will be
required to regularly and increasingly sign additional customers with
substantial initial license fees on a timely basis to realize comparable or
increased license revenue.

    Tumbleweed's services revenue historically has been comprised largely of
implementation, customization and consulting fees. Tumbleweed's ability to
receive revenue from services is subject to multiple risks, including the risk
that Tumbleweed may not be able to meet increasing customer demand because of a
lack of adequately trained personnel, and the risk that customers may not timely
accept the services provided and delay payment for such services.

    Tumbleweed's transaction revenue historically has been comprised of
contractual transaction minimums. Tumbleweed's ability to increase its
transaction revenue through increased transaction volume depends on increased
usage of Tumbleweed's products by its customers and their end users. Unless and
until Tumbleweed has developed a significant and recurring transaction-based
revenue stream from communications that are sent with its services, its revenue
will continue to fluctuate significantly.

    Because of the risks associated with each type of revenue, Tumbleweed may be
unable to achieve and recognize quarterly or annual revenue consistent with its
historical operating results or expectations.

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<PAGE>
    In addition, Tumbleweed has experienced, and expects to continue to
experience, fluctuations in revenue and operating results from quarter to
quarter for other reasons, including, but not limited to:

    - the amount and timing of operating costs and capital expenditures relating
      to its business, operations and infrastructure, including its
      international operations;

    - its ability to accurately estimate and control costs;

    - its ability to timely collect fees owed by customers;

    - the announcement or introduction of new or enhanced products and services
      in the secure online communications or document delivery markets; and

    - acquisitions that it completes or proposes, including Worldtalk and
      Interface Systems, Inc. ("Interface").

    As a result of these factors, Tumbleweed believes that quarter-to-quarter
comparisons of its revenue and operating results are not necessarily meaningful,
and that these comparisons may not be accurate indicators of future performance.
Because Tumbleweed's staffing and operating expenses are based on anticipated
revenue levels, and because a high percentage of its costs are fixed, small
variations in the timing of the recognition of specific revenue could cause
significant variations in operating results from quarter to quarter. If
Tumbleweed is unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall, any significant revenue shortfall would likely
have an immediate negative effect on its operating results. Moreover,
Tumbleweed's operating results in one or more future quarters may fail to meet
the expectations of securities analysts or investors due to any of a wide
variety of factors, including fluctuations in financial ratios or other metrics
used to measure Tumbleweed's performance. If this occurs, Tumbleweed would
expect to experience an immediate and significant decline in the trading price
of its stock.

    A LIMITED NUMBER OF CUSTOMERS ACCOUNT FOR A HIGH PERCENTAGE OF TUMBLEWEED'S
     REVENUE AND THE FAILURE TO MAINTAIN OR EXPAND THESE RELATIONSHIPS COULD
     HARM ITS BUSINESS.

    The loss of one or more of Tumbleweed's major customers, the failure to
attract new customers on a timely basis, or a reduction in usage and revenue
associated with the existing or proposed customers would harm its business and
prospects. Five customers comprised approximately 18% of Tumbleweed's revenue in
the first nine months of fiscal 2000, and 24% of its revenue in fiscal 1999.
Tumbleweed expects that a small number of customers will continue to account for
a substantial portion of its revenue for the foreseeable future.

    TUMBLEWEED'S SERVICE PROVIDER CUSTOMERS MAY COMPETE WITH IT OR FAIL TO
     PROMOTE ITS PRODUCT.

    To date, Tumbleweed has generated a significant amount of Tumbleweed IME
revenue from contracts with a limited number of service provider customers,
which use or intend to use its products for the communication of third-party
documents and data. If these customers do not effectively promote the use of
Tumbleweed IME to their end-users, the adoption of Tumbleweed's services and the
recognition of associated revenue could be limited. Because Tumbleweed's
contracts with its service provider customers are non-exclusive, these customers
could elect to offer competing secure online communication services to their
customers through its existing or future competitors. The service provider
customers also may compete with Tumbleweed's secure online communication
services through their traditional physical delivery channels.

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    IF TUMBLEWEED DOES NOT SECURE KEY RELATIONSHIPS WITH ENTERPRISE CUSTOMERS,
     ITS ACCESS TO BROADER MARKETS WILL BE LIMITED.

    Tumbleweed's enterprise customers, which use or intend to use its products
to intelligently manage the incoming and outgoing online communications of their
enterprises, are a significant source of its revenue. A key aspect of
Tumbleweed's strategy is to access target markets prior to adoption of
alternative online distribution solutions by the larger participants in these
markets. The failure to secure key relationships with new enterprise customers
in targeted markets could limit or effectively preclude Tumbleweed's entry into
these target markets, which would harm its business and prospects.

    CUSTOMERS IN A PRELIMINARY PHASE OF IMPLEMENTING TUMBLEWEED'S PRODUCTS
     MAY NOT PROCEED ON A TIMELY BASIS OR AT ALL.

    Some of Tumbleweed's customers are currently in a pre-production or
pre-launch stage of implementing its products and may encounter delays or other
problems in introducing them. A customer's decision not to do so or a delay in
implementation could result in a delay or loss in related revenue or otherwise
harm Tumbleweed's businesses and prospects. Tumbleweed cannot predict when any
customer that is currently in a pilot or preliminary phase will implement
broader use of its services.

    THE MARKETS FOR ENHANCED ONLINE COMMUNICATION SERVICES GENERALLY, AND FOR
     TUMBLEWEED'S PRODUCTS SPECIFICALLY, ARE NEW AND MAY NOT DEVELOP.

    The market for Tumbleweed's products and services is new and evolving
rapidly. If the market for Tumbleweed's products and services fails to develop
and grow, or if its products and services do not gain broad market acceptance,
its business and prospects will be harmed. In particular, Tumbleweed's success
will depend upon the adoption and use by current and potential customers and
their end-users of secure online communication services. Tumbleweed's success
will also depend upon acceptance of its technology as the standard for providing
these services. The adoption and use of Tumbleweed's products and services will
involve changes in the manner in which businesses have traditionally exchanged
information. In addition, sales and marketing of Tumbleweed's products and
services is to a large extent under the control of its customers. In some cases,
Tumbleweed's customers have little experience with products, services and
technology like those offered by us. Tumbleweed's ability to influence usage of
its products and services by customers and end-users is limited. For example,
the usage of Tumbleweed IME by the end-users of Tumbleweed's service provider
customers has been limited to date. Tumbleweed has spent, and intends to
continue to spend, considerable resources educating potential customers and
their end-users about the value of its products and services. It is difficult to
assess, or to predict with any assurance, the present and future size of the
potential market for Tumbleweed's products and services, or its growth rate, if
any. Moreover, Tumbleweed cannot predict whether its products and services will
achieve any market acceptance. Tumbleweed's ability to achieve its goals also
depends upon rapid market acceptance of future enhancements of its products and
Tumbleweed's ability to identify new markets as they emerge. Any enhancement
that is not favorably received by customers and end-users may not be profitable
and, furthermore, could damage Tumbleweed's reputation or brand name. Any
failure to identify and address new market opportunities could harm Tumbleweed's
business and prospects.

    THE MARKETS TUMBLEWEED ADDRESSES ARE HIGHLY COMPETITIVE AND RAPIDLY
     CHANGING, AND IT MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

    Tumbleweed may not be able to compete successfully against current and
future competitors, and the multiple competitive pressures it faces could harm
its business and prospects. For example, Tumbleweed IME is an alternative to
traditional mail and courier delivery services, such as those offered by Federal
Express Corporation, UPS or the U.S. Postal Service, and to general purpose
e-mail applications and services. As such, Tumbleweed competes with these
options. Tumbleweed's direct

                                       20
<PAGE>
competition mainly comes from other online communication service providers of
various sizes, some of which have products that are intended to compete directly
with our products. Examples of online communication service providers include
Automatic Data Processing, Inc., Content Technologies (recently acquired by
Baltimore Technologies plc), Elron Software, Inc., Entelagent Software, SRA
International, Inc., Critical Path, Inc., VeriCert.com, e-Parcel, LLC, PostX
Corporation and ZixIt Corporation. In addition, companies with which Tumbleweed
does not presently directly compete may become competitors in the future, either
through the expansion of their products and services or through their product
development in the area of secure online communication services. These companies
could include America Online, Inc./Netscape Communications Corporation,
International Business Machines Corporation/Lotus Development Corporation,
Microsoft Corporation and VeriSign, Inc.

    TUMBLEWEED FACES TECHNICAL, OPERATIONAL AND STRATEGIC CHALLENGES THAT MAY
     PREVENT IT FROM SUCCESSFULLY INTEGRATING WORLDTALK, INTERFACE, OR ANY OTHER
     COMPANY IT MAY ACQUIRE.

    The integration of the Worldtalk Communications Corporation business and the
Interface Systems, Inc. business, including the technology, operations and
personnel of each of them, has been and will be a complex, time consuming and
expensive process that may disrupt Tumbleweed's business if not completed in a
timely and efficient manner. Additionally, the integration of any other company
or business Tumbleweed may acquire in the future will be a complex, time
consuming and expensive process that may disrupt its business if not completed
in a timely and efficient manner. Whenever an acquisition is completed,
Tumbleweed must operate as a combined organization utilizing common information
and communication systems, operating procedures, financial controls and human
resources practices. In particular, Tumbleweed is currently evaluating and
upgrading its management information systems and establishing uniformity among
its systems and those formerly operated by Worldtalk and Interface. Tumbleweed
will be required to do the same for any subsequently acquired company.
Tumbleweed may encounter substantial difficulties, costs and delays involved in
integrating the operations of the Worldtalk, Interface, or any other company,
including:

    - potential inability to fully integrate products;

    - potential incompatibility of business cultures;

    - perceived adverse changes in business focus;

    - potential conflicts in customer, advertising or strategic relationships;

    - potential failure to complete anticipated sales; and

    - the loss of key employees and diversion of the attention of management
      from other ongoing business concerns.

    As a result, Tumbleweed may not be successful in integrating Worldtalk,
Interface or any other business or technologies it acquires and may not achieve
anticipated revenue and cost benefits. Tumbleweed also cannot guarantee that
these acquisitions will result in sufficient revenues or earnings to justify its
investment in, or expenses related to, this acquisition. Nor can Tumbleweed
guarantee that any anticipated synergies will develop. If Tumbleweed fails to
execute its acquisition strategy successfully for any reason, its business will
suffer significantly.

    TUMBLEWEED'S PRODUCT DEVELOPMENT EFFORTS MAY BE HINDERED BY A VARIETY OF
     FACTORS.

    Tumbleweed's new product releases may not be as timely scalable, or
successful enough to meet customers' requirements. In addition, Tumbleweed also
faces certain risks associated with the ongoing integration of the Worldtalk
technology and Interface technology. For example, because Worldtalk has
historically based its products on an NT platform and Tumbleweed has created a
platform-independent

                                       21
<PAGE>
architecture for the Tumbleweed IME products, the integration of products from
Worldtalk may result in unanticipated architectural incompatibilities that would
require additional time and engineering resources to resolve. The loss of key
engineering personnel from Worldtalk, Interface or any other entities Tumbleweed
may acquire may increase the time and resources needed to resolve these and
other technical integration issues. Tumbleweed's offices and Interface's offices
are in different locations, which may create coordination issues and could
increase employee turnover. In addition, the installation of integrated or
complementary software products at customer sites may result in difficulties
associated with customer-specific installation processes.

    TUMBLEWEED HAS EXPERIENCED RAPID GROWTH WHICH HAS PLACED A STRAIN ON ITS
     RESOURCES AND TUMBLEWEED'S FAILURE TO MANAGE GROWTH COULD CAUSE ITS
     BUSINESS TO SUFFER.

    Tumbleweed has expanded its operations rapidly and intends to continue this
expansion. For example, the number of Tumbleweed's employees increased from 179
as of September 30, 1999 to 375 as of September 30, 2000. This expansion has
placed, and is expected to continue to place, a significant strain on
managerial, informational, and operational resources. To manage any further
growth, Tumbleweed will need to enhance and improve its managerial capacity, and
improve or replace its existing operational, customer service and financial
systems, procedures and controls. Any failure to properly manage these systems
and procedural transitions could impair Tumbleweed's ability to attract and
service customers, and could cause Tumbleweed to incur higher operating costs
and delays in the execution of Tumbleweed's business plan. Tumbleweed will also
need to continue the expansion of Tumbleweed's operations and employee base.
Tumbleweed's management may not be able to hire, train, retain, motivate and
manage required personnel. In addition, Tumbleweed's management may not be able
to successfully identify, manage and exploit existing and potential market
opportunities. If Tumbleweed cannot manage growth effectively, Tumbleweed's
business and operating results could suffer.

    TUMBLEWEED HAS A LENGTHY SALES AND IMPLEMENTATION CYCLE WHICH COULD HARM
     TUMBLEWEED'S BUSINESS.

    If Tumbleweed is unable to license its services to new customers on a timely
basis or if its existing and proposed customers and their end-users suffer
delays in the implementation and adoption of Tumbleweed's services, Tumbleweed's
revenue may be limited and business and prospects may be harmed. Tumbleweed's
customers must evaluate its technology and integrate its products and services
into the products and services they provide. In addition, Tumbleweed's customers
may need to adopt a comprehensive sales, marketing and training program in order
to effectively implement Tumbleweed IME. Finally, Tumbleweed must coordinate
with its customers using its product for third-party communications in order to
assist end-users in the adoption of its products in order to generate usage
fees. For these and other reasons, the cycle associated with establishing
licenses in order to generate initial license fees and implementation of
Tumbleweed products in order to generate material transaction-based services
revenue can be lengthy. This cycle is also subject to a number of significant
delays over which Tumbleweed has little or no control. Forecasts about license
revenue may be inaccurate as a result of any or all of these factors, and
inaccurate forecasts may cause Tumbleweed's business, or market valuation, to
suffer.

    A FAILURE TO PROTECT TUMBLEWEED'S INTELLECTUAL PROPERTY MAY SIGNIFICANTLY
     HARM ITS BUSINESS.

    Tumbleweed currently relies on a combination of patents, trade secrets,
copyrights, trademarks and licenses, together with non-disclosure and
confidentiality agreements to establish and protect its proprietary rights in
its products. Tumbleweed holds certain patent rights with respect to some of its
products and currently has a lawsuit pending against The docSpace Company, Inc.
alleging infringement of one of its patents by docSpace. Tumbleweed has filed,
and expects in the future to file,

                                       22
<PAGE>
additional patent applications. Tumbleweed's existing patents or trademarks, as
well as any future patents or trademarks obtained by it, may be challenged,
invalidated or circumvented, or its competitors may independently develop or
patent technologies that are substantially equivalent or superior to its
technology. Further patent or trademark protection may not be obtained, in the
United States or elsewhere, for Tumbleweed's existing or new products,
applications or services. In addition, further protection, if obtained, may not
be effective. In some countries, meaningful patent or trademark protection is
not available.

    To date, Tumbleweed has not received any claims of infringement upon the
proprietary rights of third parties. However, third parties could assert
infringement claims against it in the future, and the cost of responding to such
assertions, regardless of their validity, could be significant. In addition,
such claims may be found to be valid and could result in awards against
Tumbleweed, which could harm its business.

    Tumbleweed also relies, to some extent, on unpatented trade secrets and
other unpatented proprietary information. Tumbleweed's policy is to have
employees sign confidentiality agreements, to have selected parties sign
non-competition agreements and to have third parties sign non-disclosure
agreements. Although Tumbleweed takes precautionary measures to maintain its
unpatented proprietary information, others may acquire equivalent information or
otherwise gain access to or disclose its proprietary information and it may be
unable to meaningfully protect its rights to its proprietary information.

    TUMBLEWEED'S EXPANSION INTO INTERNATIONAL MARKETS MAY BE DIFFICULT OR
     UNPROFITABLE.

    Tumbleweed has recently begun to invest significant financial and managerial
resources to expand its sales and marketing operations in international markets
and has opened sales offices in Germany, the United Kingdom, Japan, France, Hong
Kong, Australia, The Netherlands and Sweden. In the first nine months of fiscal
2000 and in fiscal 1999, Tumbleweed derived 37% and 41%, respectively, of its
revenue from international operations. However, to date, Tumbleweed has limited
experience in international operations and may not be able to compete
effectively in international markets. A key component of its long-term strategy
is to further expand into international markets, and Tumbleweed must continue to
devote substantial resources to its international operations in order to succeed
in these markets. In this regard, Tumbleweed may encounter difficulties such as:

    - unexpected changes in regulatory requirements and trade barriers
      applicable to the Internet or its business;

    - challenges in staffing and managing foreign operations, including
      employment laws and practices as it expands into continental Europe;

    - seasonal reductions in business activity and economic downturns, in
      particular, in Europe and Asia;

    - longer payment cycles and problems in collecting accounts receivable;

    - problems associated with the conversion of various European currencies
      into a single currency, the Euro;

    - legal challenges or regulatory requirements related to the export or
      import of encryption technologies;

    - differing technology standards; and

    - reduced protection for intellectual property rights in certain countries
      in which it operates or plans to operate.

                                       23
<PAGE>
    In addition, Tumbleweed's expansion into international markets will
increasingly subject it to fluctuations in currency exchange rates. In the
future, an increasing number of our contracts may be denominated in currencies
other than U.S. dollars. Tumbleweed does not presently engage in hedging or
similar transactions to protect it from currency fluctuations. Any of the
foregoing difficulties of conducting business internationally could harm
Tumbleweed's international operations and, consequently, its business and
prospects.

    IF TUMBLEWEED DOES NOT PROVIDE ADEQUATE SUPPORT SERVICES TO ITS CUSTOMERS TO
     IMPLEMENT ITS PRODUCTS, IT MAY LOSE CUSTOMERS OR REALIZE LOWER TRANSACTION
     VOLUME.

    Tumbleweed's professional services organization assists its customers in
implementing its products through software installation, integration with
existing customer systems, contract engineering, consulting and training. If the
professional services organization does not adequately assess customer
requirements or address technical problems, customers may seek to discontinue
their relationships with Tumbleweed due to dissatisfaction with the product or
its customer support. Furthermore, these customers may realize lower transaction
volume than they could have otherwise achieved because they did not fully
capitalize on the product in ways that could have been addressed by Tumbleweed's
professional services organization. Tumbleweed's products must be integrated
with existing hardware and complex software products of its customers or other
third parties, and its customers may not have significant experience with the
implementation of products similar to its own. In addition, the provision of
contract engineering and integration services is an increasingly important
aspect of Tumbleweed's strategy to strengthen customer loyalty to its product
and company. Therefore, Tumbleweed's business and future prospects significantly
depend on the strength of its professional services organization and
Tumbleweed's ability to leverage this organization by augmenting its reach
through trained and qualified systems integrators.

    PRODUCT PERFORMANCE PROBLEMS, SYSTEM FAILURES AND INTERNET PROBLEMS COULD
     SEVERELY DAMAGE TUMBLEWEED'S BUSINESS.

    The ability of Tumbleweed's customers to use Tumbleweed-based services
depends on stable product performance, and the efficient and uninterrupted
operation of the computer and communications hardware as well as the software
and Internet network systems that they maintain. Although Tumbleweed's ability
to manage the effects of system failures which occur in computer hardware,
software and network systems is limited, the occurrences of these failures could
harm its reputation, business and prospects. The Internet has experienced a
variety of outages and other delays as a result of damage to portions of its
infrastructure, and the Internet could face similar outages and delays in the
future. In addition, an increasing number of its customers require Tumbleweed to
provide computer and communications hardware, software and Internet networking
systems to them as an outsourced data center service. All data centers, whether
hosted by Tumbleweed, its customers or by an independent third party to which it
outsources this function, are vulnerable to damage or interruption from fire,
flood, earthquake, power loss, telecommunications failure or other similar
events.

    IF TUMBLEWEED'S SOFTWARE CONTAINS ERRORS, IT MAY LOSE CUSTOMERS OR
     EXPERIENCE REDUCED MARKET ACCEPTANCE OF ITS PRODUCTS.

    Tumbleweed's software products are inherently complex and may contain
defects and errors that are detected only when the products are in use. In
addition, some of Tumbleweed's customers require or may require enhanced
customization of our software for their specific needs, and these modifications
may increase the likelihood of undetected defects or errors. Further, Tumbleweed
often renders implementation, consulting and other technical services, the
performance of which typically involves working with sophisticated software,
computing and networking systems, and it could fail to meet customer
expectations as a result of any defects or errors. As a result, we may lose
customers,

                                       24
<PAGE>
customers may fail to implement our products more broadly within their
organization and it may experience reduced market acceptance of its products.
Tumbleweed's products are designed to facilitate the secure transmission of
sensitive business information to specified parties outside the business over
the internet. As a result, the reputation of its software products for providing
good security is vital to their acceptance by customers. Tumbleweed's products
may be vulnerable to break-ins, theft or other improper activity that could
jeopardize the security of information for which it is responsible. Problems
caused by product defects, failure to meet project milestones for services or
security breaches could result in loss of or delay in revenue, loss of market
share, failure to achieve market acceptance, diversion of research and
development resources, harm to Tumbleweed's reputation, or increased insurance,
service and warranty costs. To address these problems, Tumbleweed may need to
expend significant capital resources that may not have been budgeted.

    IF TUMBLEWEED LOSES THE SERVICES OF KEY MANAGEMENT PERSONNEL, ITS ABILITY TO
     DEVELOP OUR BUSINESS AND SECURE CUSTOMER RELATIONSHIPS WILL SUFFER.

    Tumbleweed is substantially dependent on the continued services and
performance of its senior management and other key personnel. The loss of the
services of any of its executive officers or other key employees, particularly
our co-founders, Jeffrey C. Smith and Jean-Christophe D. Bandini, could
significantly delay or prevent the achievement of Tumbleweed's development and
strategic objectives. In addition, the loss of key members of Tumbleweed's
senior management, including Kerry S. Champion and Shomit A. Ghose, could harm
its ability to develop its business. Moreover, the loss of key members of its
sales organization, including Donald R. Gammon and Donald N. Taylor, could harm
Tumbleweed's ability to secure key relationships contemplated by its business
plan. Tumbleweed does not have long-term employment agreements with any of its
key personnel. The loss of services of any of our senior management or other key
personnel could significantly harm Tumbleweed's business and prospects.

    TUMBLEWEED'S EFFORTS TO ESTABLISH, MAINTAIN AND STRENGTHEN ITS BRANDS WILL
     REQUIRE SIGNIFICANT EXPENDITURES AND MAY NOT BE SUCCESSFUL.

    If the marketplace does not associate Tumbleweed's brands with high quality
Internet communication services, it may be more difficult for it to attract new
customers or introduce future products and services. The market for Tumbleweed's
services is new. Therefore, Tumbleweed's failure to establish brand recognition
at this stage could harm its ability to compete in the future with other
companies that successfully establish a brand name for their services.
Tumbleweed must succeed in its marketing efforts, provide high quality services
and increase its user base in order to build its brand awareness and
differentiate its products from those of Tumbleweed's competitors. These efforts
have required significant expenditures to date. Moreover, Tumbleweed believes
that these efforts will require substantial commitments of resources in the
future as its brands become increasingly important to its overall strategy and
as the market for its services grows.

    BECAUSE TUMBLEWEED PRODUCTS UTILIZE THE INTERNET, IF USE OF THE INTERNET
     DOES NOT INCREASE, THE LEVEL OF USE OF ITS PRODUCTS WILL SUFFER.

    If the Internet and other products and services necessary for the
utilization of Tumbleweed's products are not sufficiently developed, fewer
customers and end-users will use its products and its business will be harmed.
In particular, the success of Tumbleweed's products and services will depend on
the development and maintenance of adequate Internet infrastructure, such as a
reliable network backbone with the necessary speed, data capacity and other
features demanded by users. Moreover, Tumbleweed's success will also depend on
the timely development of complementary products or services such as high-speed
modems for providing reliable Internet access and services and this may not
occur. Because the online exchange of information is new and evolving, the
Internet may not prove to

                                       25
<PAGE>
be a viable platform for secure online communication services in the long term.
The Internet has experienced, and is expected to continue to experience,
significant growth in the numbers of users and amount of traffic. As the
Internet continues to experience increased numbers of users and frequency of
use, or if its users require increasingly more resources, the Internet
infrastructure may not be able to support the demands placed on it. As a result,
the performance or reliability of the Internet may be harmed. This in turn could
decrease the level of Internet usage and also the level of utilization of
Tumbleweed products and services.

    GOVERNMENT REGULATION RELATING TO THE INTERNET MAY INCREASE COSTS OF DOING
     BUSINESS OR REQUIRE CHANGES IN TUMBLEWEED'S BUSINESS MODEL.

    Tumbleweed is subject to regulations applicable to businesses generally and
laws or regulations directly applicable to companies utilizing the Internet.
Although there are currently few laws and regulations directly applicable to the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet. These laws could cover issues like user privacy,
pricing, content, intellectual property, distribution, taxation, antitrust,
legal liability and characteristics and quality of products and services. The
adoption of any additional laws or regulations could decrease the demand for
Tumbleweed products and services and increase its cost of doing business or
otherwise harm its business or prospects. Delays in the enactment of expected
regulations may result in delayed software purchasing by our customers who are
subject to such regulations, which in turn may harm our business.

    Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues like property ownership, sales and other taxes,
libel and personal privacy is uncertain and may take years to resolve. For
example, tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in online commerce. New state tax
regulations may subject Tumbleweed to additional state sales and income taxes.
Any new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to Tumbleweed's business, or the
application of existing laws and regulations to the Internet and commercial
online services could harm its ability to conduct business and harm operating
results.

    TUMBLEWEED'S PRODUCTS ARE SUBJECT TO IMPORT AND EXPORT CONTROLS, AND IT
     MAY BE UNABLE TO OBTAIN NECESSARY APPROVALS.

    Exports of software products utilizing encryption technology are generally
restricted by the U.S. and various foreign governments. All cryptographic
products require export licenses from certain U.S. government agencies.
Tumbleweed has obtained approval to export products using up to 128-bit
symmetric encryption and 1024-bit public key encryption, including IME Server,
IME Desktop, IME Receive Applet, IME Remote API using OmniORB with SSL, MMS
WorldWide/56 and MMS Strong WorldWide/128. Tumbleweed is not exporting other
products and services that are subject to export control under U.S. law.
However, the list of products and countries for which export approval is
required, and the related regulatory policies, could be revised, and Tumbleweed
may not be able to obtain necessary approval for the export of future products.
The inability to obtain required approvals under these regulations could limit
Tumbleweed's ability to make international sales. Furthermore, competitors may
also seek to obtain approvals to export products that could increase the amount
of competition Tumbleweed faces. Additionally, countries outside of the U.S.
could impose regulatory restrictions impairing Tumbleweed's ability to import
its products into those countries.

    COSTS OF COMMUNICATING VIA THE INTERNET COULD INCREASE IF ACCESS FEES ARE
     IMPOSED.

    Certain local telephone carriers have asserted that the increasing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun to
experience interruptions in telephone service. These carriers have petitioned

                                       26
<PAGE>
the Federal Communications Commission to impose access fees on Internet service
providers and online service providers. If these access fees are imposed, the
costs of communicating on the Internet could increase substantially, potentially
slowing the increasing use of the Internet. This could in turn decrease demand
for Tumbleweed's services or increase the costs of doing business.

    TUMBLEWEED MAY HAVE LIABILITY FOR INTERNET CONTENT.

    As a provider of Internet communication products and services, Tumbleweed
faces potential liability for defamation, negligence, copyright, patent or
trademark infringement and other claims based on the nature and content of the
materials transmitted online. Any imposition of liability, particularly
liability that is not covered by insurance or is in excess of insurance
coverage, could be costly and could require Tumbleweed to implement measures to
reduce exposure to this liability. This may require Tumbleweed to expend
substantial resources or to discontinue selected service or product offerings.

    Tumbleweed does not and cannot screen all of the content generated by users
of its product but may be exposed to liability with respect to this content.
Furthermore, certain foreign governments, such as Germany, have enforced laws
and regulations related to content distributed over the Internet that are more
strict than those currently in place in the U.S. Other countries, such as China,
regulate or prohibit the transport of telephonic data in their territories.
Failure to comply with regulations in a particular jurisdiction could result in
fines or criminal penalties or the termination of service in one or more
jurisdictions. Moreover, the increased attention focused on liability issues as
a result of lawsuits and legislative proposals could impact the growth of
Internet use. Liability insurance may not cover claims of these types, or may
not be adequate to indemnify against all liability that may be imposed.

    INTERNET RELATED STOCK PRICES ARE ESPECIALLY VOLATILE AND THIS VOLATILITY
     MAY DEPRESS TUMBLEWEED'S STOCK PRICE.

    The stock market has experienced significant price and volume fluctuations
and the market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has often been instituted against companies. The
institution of this type of litigation against Tumbleweed could result in
substantial costs and a diversion of Tumbleweed management's attention and
resources, which could harm its business and prospects.

    TUMBLEWEED'S MANAGEMENT WILL BE ABLE TO SUBSTANTIALLY INFLUENCE CORPORATE
     EVENTS BECAUSE THEY OWN A SIGNIFICANT PERCENTAGE OF ITS STOCK.

    Tumbleweed's present directors, executive officers and principal
stockholders as a group beneficially own approximately 31.6% of the outstanding
common stock. Accordingly, if all or particular stockholders were to act
together, they would be able to exercise significant influence over or control
the election of Tumbleweed's board of directors, its management and policies and
the outcome of particular corporate transactions or other matters submitted to
its stockholders for approval, including mergers, consolidations and the sale of
all or substantially all of its assets.

    TUMBLEWEED'S CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN PROVISIONS THAT
     COULD DISCOURAGE OR PREVENT AN ACQUISITION OF TUMBLEWEED, WHICH COULD
     DEPRESS ITS STOCK PRICE.

    Tumbleweed's certificate of incorporation and bylaws may inhibit changes of
control that are not approved by its board of directors. These provisions could
limit the price that investors might be willing to pay in the future for shares
of our common stock. In particular, Tumbleweed's certificate of incorporation
provides for a classified board of directors and prohibits stockholder action by
written consent. These provisions require advance notice for nomination of
directors and stockholders' proposals. In addition, as a Delaware corporation,
Tumbleweed is subject to Section 203 of the

                                       27
<PAGE>
Delaware General Corporation Law. In general, this law prevents a person who
becomes the owner of 15% or more of the corporation's outstanding voting stock
from engaging in specified business combinations for three years unless
specified conditions are satisfied. In addition, Tumbleweed's certificate of
incorporation allows its board of directors to issue preferred stock without
further stockholder approval. This could have the effect of delaying, deferring
or preventing a change in control. The issuance of preferred stock also could
effectively limit the voting power of the holders of Tumbleweed common stock.
The provisions of Tumbleweed's certificate of incorporation and bylaws, as well
as provisions of Delaware law, may discourage or prevent an acquisition or
disposition of its business.

    FUTURE SALES OF COMMON STOCK BY TUMBLEWEED STOCKHOLDERS COULD DEPRESS
     TUMBLEWEED'S STOCK PRICE.

    Tumbleweed cannot predict if future sales of its common stock, or the
availability of its common stock for sale, will depress the market price for its
common stock or its ability to raise capital by offering equity securities. In
particular, on August 1, 2000, Tumbleweed completed a public offering of
3,000,000 shares of its common stock of which 1,500,000 shares were sold by
stockholders of Tumbleweed including Hikari Tsushin. Sales of substantial
amounts of common stock, or the perception that these sales could occur, may
depress prevailing market prices for the common stock.

    INTERFACE SYSTEMS, INC., A TUMBLEWEED SUBSIDIARY, IS A DEFENDANT IN SEVERAL
     PURPORTED SECURITIES CLASS ACTION LAWSUITS.

    On July 7, 2000, three complaints were filed by David H. Zimmer,
Congressional Securities, Inc. and other plaintiffs against Interface and
various additional defendants, including Interface's President and Chief
Executive Officer, Robert A. Nero and Fiserv Correspondent Services, Inc., in
the United States District Court for the Southern District of New York. The
three cases contain substantially similar allegations of false and misleading
representations by various defendants allegedly designed to inflate Interface's
stock price. The complaints seek relief under the federal securities laws on
behalf of purported classes of persons who purchased, held, or sold shares of
Interface stock, and under various other causes of action. On September 27,
2000, Tumbleweed filed (i) a motion to strike or dismiss for failure to meet the
certification requirements of the Private Securities Litigation Reform Act, (ii)
a motion to dismiss for failure to state a claim, and (iii) a motion to dismiss
because of improper venue, or in the alternative, motion to transfer the
lawsuits to the Eastern District of Michigan. Plaintiffs' responsive filings are
due on November 20, 2000.

    Although Tumbleweed believes these lawsuits are without merit, no assurance
can be given about their outcome, and an adverse outcome could significantly
harm Tumbleweed's business and operating results. Moreover, the costs in
defending these complaints could harm future operating results.

                                       28
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Tumbleweed transacts business in various foreign currencies. Accordingly,
Tumbleweed is subject to exposure from adverse movements in foreign currency
exchange rates. This exposure is primarily related to revenue and operating
expenses denominated in each subsidiary's respective local currency. To date,
Tumbleweed has not entered into any derivative financial instruments or hedging
activities.

    Tumbleweed currently does not use financial instruments to hedge operating
expenses in the United Kingdom or Japan dominated in the respective local
currency. Tumbleweed assesses the need to utilize financial instruments to hedge
currency exposures on an ongoing basis.

    Tumbleweed does not use derivative financial instruments for speculative
trading purposes, nor does Tumbleweed hedge its foreign currency exposure in a
manner that entirely offsets the effects of changes in foreign exchange rates.
Tumbleweed regularly reviews its hedging program and may as part of this review
determine at any time to change its hedging program.

                           INTEREST RATE SENSITIVITY

    The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we have
invested in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed rate
equal to the then-prevailing interest rate and the prevailing interest rate
later rises, the fair value of our investment will decline. To minimize this
risk, we maintain our portfolio of cash equivalents in commercial paper and
money market funds. In general, money market funds are not subject to market
risk because the interest paid on these funds fluctuates with the prevailing
interest rate. As of September 30, 2000, none of our cash equivalents were
subject to market risk by range of expected maturity and weighted-average
interest rates, not including money market funds because these funds are not
subject to market risk.

                                       29
<PAGE>
PART II--OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

    On March 3, 1999, we sued The docSpace Company, Inc. alleging infringement
of our U.S. Patent No. 5,790,790. In its answer, docSpace raised counterclaims
alleging, among other things, antitrust violations and unfair competition. On
May 3, 1999, docSpace filed a summary judgment motion of non-infringement. On
May 27, 1999, the court granted Tumbleweed's request to continue docSpace's
summary judgment motion pending further discovery and indicated that docSpace's
motion would be rescheduled. On July 14, 1999, the court issued a scheduling
order stating that it would conduct a hearing on the proper interpretation of
the claims of Tumbleweed's patent, and would afterwards hold a hearing on any
motions for summary judgment on the issue of infringement. The court also
ordered that discovery on all issues other than claim construction and
infringement would be stayed pending resolution of these issues.

    The court held the claim interpretation hearing on November 19, 1999. On
December 9, 1999, the court issued an order based on the claims construction
hearing essentially adopting Tumbleweed's interpretation of the patent claims.
Critical Path, Inc. acquired docSpace on March 9, 2000. On April 24, 2000,
Tumbleweed filed a motion for summary judgment that all versions of the docSpace
"Express" system infringe our patent. On the same day, docSpace filed a motion
for summary judgment that its current version of "Express" does not infringe our
patent. On July 10, 2000, the court held a hearing on the parties' summary
judgment motions.

    On July 7, 2000, three complaints were filed by David H. Zimmer,
Congressional Securities, Inc. and other plaintiffs against Interface and
various additional defendants, including Interface's President and Chief
Executive Officer, Robert A. Nero and Fiserv Correspondent Services, Inc., in
the United States District Court for the Southern District of New York. The
three cases contain substantially similar allegations of false and misleading
representations by various defendants allegedly designed to inflate Interface's
stock price. The complaints seek relief under the federal securities laws on
behalf of purported classes of persons who purchased, held, or sold shares of
Interface stock, and under various other causes of action. Recently, all three
of the complaints were amended. On September 27, 2000, Tumbleweed filed (i) a
motion to strike or dismiss for failure to meet the certification requirements
of the Private Securities Litigation Reform Act, (ii) a motion to dismiss for
failure to state a claim, and (iii) a motion to dismiss because of improper
venue, or in the alternative, motion to transfer the lawsuits to the Eastern
District of Michigan. Plaintiffs' responsive filings are due on November 20,
2000.

    Tumbleweed intends vigorously to defend these lawsuits and seek their
dismissal. Although Tumbleweed believes these actions to be without merit, no
prediction of the ultimate outcome can be made at this time and the outcome may
harm our business. In addition, the costs in defending these complaints could
harm future operating results.

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

    On August 11, 1999, we completed an initial public offering of our common
stock, $0.001 par value. The shares of common stock sold in the offering were
registered under the Securities Act of 1933, as amended, on a Registration
Statement on Form S-1 (No. 333-79687). The Registration Statement was declared
effective by the Securities and Exchange Commission on August 5, 1999. From the
date our Registration Statement was declared effective, until June 30, 2000, we
financed our operations from cash available prior to our initial public
offering, and did not use any of the net proceeds from our initial public
offering. Our temporary investments were in cash, cash equivalents and
investment grade, short-term interest bearing securities.

                                       30
<PAGE>
    On August 1, 2000, Tumbleweed completed a primary and secondary public
offering of 3,000,000 shares of its common stock at a price of $56.00 per share.
Of the 3,000,000 shares of common stock, 1,500,000 primary shares were sold by
Tumbleweed and 1,500,000 secondary shares were sold by stockholders of
Tumbleweed. Tumbleweed will not receive any of the proceeds from shares sold by
its stockholders. Net proceeds of $77.6 million from the offering of primary
shares will be used for working capital and other general corporate purposes. In
addition, Tumbleweed may use a portion of the net proceeds to acquire
complementary products, technologies or businesses.

ITEM 6. EXHIBITS

Exhibit 27.1    Financial Data Schedule (available in EDGAR format only)

    (1) Previously filed in Tumbleweed's Current Report on Form 8-K, filed
       July 6, 2000, and incorporated herein by reference.

    (2) Previously filed in Tumbleweed's Registration Statement on Form S-1,
       filed July 11, 2000 (File No. 333-41188), as amended and incorporated
       herein by reference.

                                       31
<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, hereunto duly authorized:

                        TUMBLEWEED COMMUNICATIONS CORP.

Date: November 14, 2000

<TABLE>
<S>  <C>
By:              /s/ JEFFREY C. SMITH
     -------------------------------------------
                   Jeffrey C. Smith
         Chairman of the Board, President and
               Chief Executive Officer
            (Principal Executive Officer)
</TABLE>

Date: November 14, 2000

<TABLE>
<S>  <C>
By:              /s/ JOSEPH C. CONSUL
     -------------------------------------------
                   Joseph C. Consul
              Vice President-Finance and
               Chief Financial Officer
           (Principal Financial Officer and
            Principal Accounting Officer)
</TABLE>

                                       32