<PAGE>
================================================================================


                       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 March 31, 2000


                        Commission File Number: 000-26223

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


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

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

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

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

THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF APRIL 30, 2000 WAS
25,932,312.

================================================================================
<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 are based on Tumbleweed
Communications Corp.'s current expectations and projections about 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 are based on current
beliefs, expectations and assumptions and 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" 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>
-------------------------------------------------------------------------------------------------------------------
PART I            FINANCIAL INFORMATION
-------------------------------------------------------------------------------------------------------------------
                                                                                                                PAGE NO.
                                                                                                                --------
<S>          <C>                                                                                                 <C>
Item 1:      FINANCIAL STATEMENTS..................................................................................4

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

                  Condensed Consolidated Statements of Operations for the
                    three months ended March 31, 2000 and 1999 (unaudited).........................................5

                  Condensed Consolidated Statements of Cash Flows for the
                    three months ended March 31, 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...............10

Item 3:       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........................................23

-------------------------------------------------------------------------------------------------------------------
PART II           OTHER INFORMATION
-------------------------------------------------------------------------------------------------------------------

Item 1:           Legal Proceedings...............................................................................24

Item 2:           Use of Proceeds.................................................................................24

Item 4:           Submission of Matters to a Vote of Security Holders.............................................25

Item 6:           Exhibits and Reports on Form 8-K................................................................26

Signatures........................................................................................................27
</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 COMMUNICATONS CORP.
                                AND SUBSIDIARIES
                     Condensed Consolidated Balance Sheets
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                      March 31,               December 31,
                                                                        2000                      1999
                                                                   ----------------          ---------------
Assets                                                               (unaudited)
<S>                                                            <C>                      <C>
Current Assets:
      Cash and cash equivalents                                $            46,447      $             60,544
      Accounts receivable                                                    4,980                     5,182
      Prepaid expenses and other current assets                              3,134                     3,574
                                                                   ----------------          ----------------
         Total current assets                                               54,561                    69,300

Property and equipment, net                                                  5,001                     3,485
Other assets                                                                 3,014                     2,898
                                                                   ----------------          ----------------
         Total assets                                          $            62,576      $             75,683
                                                                   ================          ================

Liabilities and Stockholders' Equity

Current liabilities:
      Accounts payable                                         $             5,514      $              2,878
      Current installments of long-term debt                                   594                       840
      Accrued liabilities                                                    6,822                     6,398
      Deferred revenue                                                       2,639                     2,579
                                                                   ----------------          ----------------
         Total current liabilities                                          15,569                    12,695

Long-term debt, excluding current installments                                 858                     1,017
Other long-term liabilities                                                    266                       258
                                                                   ----------------          ----------------
         Total liabilities                                                  16,693                    13,970

Stockholders' equity:
      Common stock                                                              26                        26
      Additional paid-in capital                                           134,764                   132,167
      Deferred compensation expense                                         (5,105)                   (5,283)
      Accumulated other comprehensive income                                    70                        53
      Accumulated deficit                                                  (83,872)                  (65,250)
                                                                   ----------------          ----------------
         Total stockholders' equity                                         45,883                    61,713
                                                                   ----------------          ----------------
         Total liabilities and stockholders' equity            $            62,576      $             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
                                                                                      March 31,
                                                                         ------------------------------------
                                                                             2000                   1999
                                                                         -------------          -------------
<S>                                                                  <C>                    <C>
Revenue:
      License                                                        $          4,356       $          2,702
      Services                                                                  1,524                    564
      Transaction fees                                                            730                      3
                                                                         -------------          -------------
         Revenue from continuing product lines                                  6,610                  3,269
      Discontinued product line                                                   ---                    638
                                                                         -------------          -------------
             Total revenue                                                      6,610                  3,907
Cost of revenue:
      License                                                                     267                    117
      Services                                                                  1,941                    782
      Transaction fees                                                             40                      5
                                                                         -------------          -------------
             Total cost of revenue                                              2,248                    904
                                                                         -------------          -------------
Gross profit                                                                    4,362                  3,003

Operating expenses:
Research and development (exclusive of non-cash compensation expense of
      $274 and $140 as of March 31, 2000 and 1999, respectively)                2,843                  1,794
Sales and marketing (exclusive of non-cash compensation expense of
      $636 and $146 as of March 31, 2000 and 1999, respectively)                7,192                  3,144
General and administrative (exclusive of non-cash compensation expense
      of $164 and $50 as of March 31, 2000 and 1999, respectively)              1,640                    816
Stock compensation                                                              1,074                    336
Merger related and restructuring expenses                                      10,803                    ---
                                                                         -------------          -------------
             Total operating expenses                                          23,552                  6,090
                                                                         -------------          -------------
             Operating loss                                                   (19,190)                (3,087)
Other income, net                                                                 656                    138
                                                                         -------------          -------------
             Net loss before provision (benefit) for taxes                    (18,534)                (2,949)
             Provision (benefit) for taxes                                         88                    (18)
                                                                         -------------          -------------
             Net loss                                                $        (18,622)      $         (2,931)
                                                                         =============          =============

Net loss per share - basic and diluted                               $          (0.73)      $          (0.43)
                                                                         =============          =============

Weighted average shares - basic and diluted                                    25,588                  6,889
                                                                         =============          =============
</TABLE>

                                       5

<PAGE>



                                       TUMBLEWEED COMMUNICATIONS CORP.
                                              AND SUBSIDIARIES
                              Condensed Consolidated Statements of Cash Flows
                                               (in thousands)
                                                (unaudited)


<TABLE>
<CAPTION>
                                                                                 Three Months Ended
                                                                                      March 31,
                                                                         ------------------------------------
                                                                             2000                   1999
                                                                         -------------          -------------
<S>                                                                  <C>                    <C>
Cash flows from operating activities:
Net loss                                                             $        (18,622)      $         (2,931)
Adjustments to reconcile net loss to net cash used in operating
      activities:
      Compensation for grant of non-employee stock options
         and warrant issuances                                                    411                     78
      Amortization of deferred stock compensation expense                       1,074                    336
      Depreciation and amortization                                               447                    247
      Amortization of debt discount                                               ---                     43
Changes in operating assets and liabilities:
      Accounts receivable                                                         202                    224
      Prepaid expenses and other current assets                                   440                    (84)
      Accounts payable and other liabilities                                    3,068                    (42)
      Deferred revenue                                                             60                   (792)
                                                                         -------------          -------------
         Net cash used in operating activities                                (12,920)                (2,921)
                                                                         -------------          -------------

Cash flows from investing activities:
      Purchase of property and equipment                                       (1,963)                  (277)
      Proceeds from the sale of short term investments                            ---                  1,666
      Other assets                                                               (116)                    18
                                                                         -------------          -------------
         Net cash (used in) provided by investing activities                   (2,079)                 1,407
                                                                         -------------          -------------

Cash flows from financing activities:
      Increase in borrowings                                                      ---                  1,167
      Repayments of borrowings                                                   (405)                (1,107)
      Proceeds from issuance of preferred stock and warrants,
           net                                                                    ---                 14,949
      Issuance of common stock upon exercise of stock options                   1,290                    301
                                                                         -------------          -------------
         Net cash provided by financing activities                                885                 15,310
Effect of exchange rate fluctuations                                               17                      4
                                                                         -------------          -------------
Net (decrease) increase in cash and cash equivalents                          (14,097)                13,800
Cash and cash equivalents, beginning of period                                 60,544                  4,556
                                                                         -------------          -------------
Cash and cash equivalents, end of period                             $         46,447       $         18,356
                                                                         =============          =============
Supplemental disclosures of cash flow information:
      Cash paid during the period for interest                       $             39       $             82
                                                                         =============          =============
      Noncash financing activities -
             Deferred compensation expense associated with stock
                option activity                                      $          1,307       $          2,326
                                                                         =============          =============
</TABLE>



                                       6

<PAGE>

                         TUMBLEWEED COMMUNICATIONS CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)      Basis of Presentation

         The condensed consolidated financial statements as of March 31, 2000
and for the three months ended March 31, 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
Communications Corp.'s ("Tumbleweed") financial position and operating results
for the interim periods presented.

         The accompanying condensed consolidated financial statements include
the accounts of Tumbleweed and its wholly owned subsidiary in the United
Kingdom and the United Kingdom subsidiary's wholly owned subsidiaries in
France and Germany. Tumbleweed accounts for its former wholly owned
subsidiary in Japan under the equity method, following its ownership change
effective August 31, 1999. All significant intercompany accounts and
transactions have been eliminated in consolidation.

(2)      Business Combination

         On January 31, 2000, Tumbleweed completed its acquisition of
Worldtalk Communications Corp. ("Worldtalk"). Under the terms of the merger
agreement, each Worldtalk share of common stock has been converted into 0.26
of a share 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 for
periods prior to the combination have been restated to include the accounts
and results of operations of Worldtalk.

         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 March 31,      Years Ended December 31,
                  ----------------------------   -----------------------------
                      2000           1999           1999           1998
                  -------------   -----------    ----------     -----------
                  (unaudited)     (unaudited)   (unaudited)     (unaudited)
<S>               <C>             <C>            <C>            <C>
Revenue:
    Tumbleweed    $   3,974       $    693       $   5,777      $   2,015
    Worldtalk         2,636          3,214          10,979         13,448
                   ---------       --------       ---------      ---------

    Combined      $   6,610       $  3,907       $  16,756      $  15,463
                   =========       ========       =========      =========


Net loss:
    Tumbleweed    $(10,955)       $(2,056)       $(16,416)      $ (6,590)
    Worldtalk       (7,667)          (875)         (7,806)        (5,130)
                   ---------       --------       ---------      ---------

    Combined      $(18,622)       $(2,931)       $(24,222)      $(11,720)
                   =========       ========       =========      =========
</TABLE>


                                       7

<PAGE>

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

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

         As of March 31, 2000, seven employees had been terminated as a
result of the acquisition. As of March 31, 2000, Tumbleweed had approximately
$3.9 million of accrued merger related and restructuring expenses.

(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 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 following potential 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 (in thousands):

<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                             March 31,
                                                      ------------------------
                                                        2000          1999
                                                      ----------    ----------
<S>                                                   <C>           <C>
Shares issuable under stock options                       4,634         3,207
Shares of restricted stock subject
   to repurchase                                            ---           113
Shares issuable pursuant to warrants
   or rights to purchase common stock                       100           ---
Shares of convertible preferred stock
   on an "as-if-converted" basis                            ---           120
                                                      ----------    ----------
                                                          4,734         3,440
                                                      ==========    ==========
</TABLE>


                                       8

<PAGE>



(4)      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.

         Revenue aggregating 1% and 11% of total revenue for the three months
ended March 31, 2000 and 1999, respectively, was generated from two customers
who, or whose 50% stockholders, are stockholders of Tumbleweed, and whose
ownership percentages as of March 31, 2000 were 17% and 4%, respectively.

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


<TABLE>
<CAPTION>
                                                Three Months Ending
                                                     March 31,
                                      ----------------------------------------
                                           2000                     1999
                                      ----------------        ----------------
<S>                                   <C>                     <C>
            United States             $         4,348         $         2,618
            Europe:
                  Belgium                         ---                     108
                  Switzerland                     685                     ---
                  Other                           791                     717
            Asia:
                  Japan                           384                     439
                  Hong Kong                       322                     ---
                  Australia                        80                     ---
                  Other                           ---                      25
                                         -------------           -------------
                     Total            $         6,610         $         3,907
                                         =============           =============
</TABLE>


(5)      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, 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. 101A, and any resulting change
in accounting principle that a registrant would have to report, is effective
no later than the company's fiscal quarter ending June 30, 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.

         In March 2000, FASB issued Financial Interpretation No. 44 ("FIN 44").
FIN 44 clarifies (a) the definition of EMPLOYEE for purposes of applying
Accounting Principles Board ("APB") Opinion 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000, but certain conclusions in this Interpretation cover
specific events that occur after either December 15, 1998, or January 12, 2000.
To the extent that this Interpretation covers events occurring during the period
after December 15, 1998, or January 12, 2000, but before the effective date of
July 1, 2000, the effects of applying this Interpretation are recognized on a
prospective basis from July 1, 2000. Tumbleweed does not expect the application
of FIN 44 to have a material effect on its financial position or results of
operations.


                                       9

<PAGE>


ITEM 2:     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

OVERVIEW

         Tumbleweed Communications Corp. ("Tumbleweed") is a leading provider
of internet infrastructure for business messaging worldwide. We have
developed the Tumbleweed Integrated Messaging Exchange, or Tumbleweed IME, a
comprehensive set of products and services that enables businesses to use
e-mail and the Web for secure, trackable online communication. In addition to
our core IME technology, Tumbleweed offers applications aimed at specific
vertical markets and common business processes, and an extensive development
toolkit for building customized online services. Tumbleweed IME is a
scalable, feature rich communication solution, and serves as the foundation
for online business services offered by our customers.

         On January 31, 2000, Tumbleweed completed the acquisition of Worldtalk
Communications Corp. ("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," the "Company," "we," and "our" refer to Tumbleweed and its
subsidiaries, including Worldtalk, in this discussion.

         Tumbleweed's revenue consists of (i) license fees, (ii) service fees,
and (iii) transaction fees. 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 shipment of the software. Revenue from the
sale of distribution rights is recognized upon the execution of a distribution
agreement. Service fee revenue consists of consulting fees and support and
maintenance fees. Consulting fees related to installation are recognized upon
acceptance of the installation 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 fees are 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.

         In July 1999, Worldtalk completed the sale of its NetJunction e-mail
connectivity and directory integration product line to Wingra Technologies, LLC.
Under the terms of the agreement, Wingra has acquired the assets related to the
NetJunction product line and has assumed support and development
responsibilities for NetJunction customers and resellers with current
agreements. As a result of the sale of Worldtalk's NetJunction product line,
revenue related to the NetJunction product line is reported as discontinued
product line in the Condensed Consolidated Statement of Operations.

         Historically, our revenue has been concentrated among a few
customers, but the customer base contributing to revenue has been
diversifying. As of March 31, 2000 and 1999, our top five customers
contributed 30% and 48% of total revenue, respectively. In addition, the
constituency of that list is evolving.

         A substantial portion of our revenue relates to international customers
or operations. Most of our contracts are denominated in U.S. dollars. However, a
contract between our 50% owned Japanese subsidiary, Tumbleweed Communications
K.K. ("TKK"), and Hikari Tsushin is denominated in Japanese yen, and, in the
future, an increasing number of contracts may be denominated in foreign
currencies. We currently do not have 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.

         Our future net income and cash flow will be affected by our ability to
apply net operating losses for federal tax reporting purposes against taxable
income in future periods due to a cumulative change in ownership for income tax
purposes, as defined in Section 382 of the Internal Revenue Code, arising from
the sale of stock in prior offerings.

                                       10

<PAGE>

RESULTS OF OPERATIONS

THREE MONTH PERIODS ENDED MARCH 31, 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 March 31, 2000 increased 102% to $6.61 million from $3.27
million (excluding revenue of $638,000 from discontinued products) for the same
three months in 1999. Total revenue increased in both periods due to increases
in license revenue, services, and transaction fees revenue.

         License revenue for the three months ended March 31, 2000 increased 61%
to $4.36 million from $2.70 million for the same three 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 March 31, 2000 increased
170% to $1.52 million from $564,000 for the same three 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. The increase in contract development work was a
direct result of the increase in customers licensing Tumbleweed products.

         Transaction fees revenue for the three months ended March 31, 2000
increased to $730,000 from $3,000 for the same three months in 1999. The
increase in transaction fees revenue resulted from minimum transaction fee
payments made by new customers who launched IME-based services, and to a lesser
extent, transaction fee payments made by existing customers.

         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 due on
transaction fees revenue and, to a lesser extent, depreciation expense and
connectivity costs incurred in generating transaction revenue. Total cost of
revenue for the three months ended March 31, 2000 increased 149% to $2.25
million from $904,000 for the same three months in 1999 corresponding to
increased revenue during the same period.

         License cost for the three months ended March 31, 2000 increased 128%
to $267,000 from $117,000 for the same three months in 1999. License costs
increased due to increased sales of products containing software licensed from
third parties. The increase was not in direct proportion to the increase in
license revenue as some of the agreements with third parties contain fixed
minimum payments.

         Services cost for the three months ended March 31, 2000 increased
148% to $1.94 million from $782,000 for the same three months in 1999. The
increase was primarily due to increased personnel costs supporting an
increase in new contract development projects and an increase in
facilities-related expenses.

         Transaction fees cost for the three months ended March 31, 2000 was
$40,000 compared to $5,000 for the same three months in 1999. The increase 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.


                                       11
<PAGE>

         RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
are comprised of engineering and related costs associated with the development
of Tumbleweed IME applications, quality assurance and testing. Research and
development costs for the three months ended March 31, 2000 increased 58% to
$2.84 million from $1.79 million for the same three months in 1999. The
increase was primarily due to increased head count supporting development of
the Tumbleweed IME platform and new applications developed for our target
markets, increases in average salaries for development personnel, and increased
facilities related expenses. We expect that research and development expenses
will increase in absolute dollars in future periods primarily due to increased
personnel costs. Additional research and development personnel will be required
to support new projects that will allow us to expand the functionality of the
core IME platform, increase the number of vertical applications built for our
target markets and integrate with a wider array of messaging applications.

         SALES AND MARKETING EXPENSES. Sales and marketing expenses are
primarily 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 March 31, 2000 increased 129% to
$7.19 million from $3.14 million for the same three months in 1999. The
increase in sales and marketing expenses was primarily due to increased sales
staffing and 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 2000.

         GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist primarily of personnel and support costs for our finance,
legal, information systems and human resources departments as well as
professional fees. General and administrative expenses for the three months
ended March 31, 2000 increased 100% to $1.65 million from $827,000 for the same
three months in 1999. The increase in general and administrative expenses was
due to increased staffing expenses, increased legal fees corresponding to the
patent infringement lawsuit we brought against The docSpace Company, Inc.,
which is still pending, and increased professional fees. We expect that general
and administrative expenses will increase in absolute dollars in future periods
as we continue to grow our infrastructure.

         DEFERRED COMPENSATION EXPENSE. Deferred compensation expense is
recorded in connection with the grant of certain stock options to non-employees
and options granted to employees at exercise prices less than the deemed fair
value on the grant date. During the three months ended March 31, 2000, we
recorded aggregate deferred stock compensation expense of $1.31 million
compared to $2.33 million for the same three 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, $1.07 million and $336,000 was amortized
in the three months ended March 31, 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 three months ended March 31, 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 March 31, 2000 increased 375% to $656,000 from $138,000 for
the same three months in 1999 due to increased interest income from cash
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.


                                       12

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Since inception, we have financed our operations primarily through the
issuance of equity securities. On March 31, 2000, we had $46.45 million in cash
and cash equivalents.

         Net cash used in operating activities for the three months ended
March 31, 2000 was $12.92 million. Cash used in operating activities was
primarily the result of net operating losses which included $10.8 million of
merger related and restructuring expenses, offset by certain non-cash charges.

         Net cash used in investing activities for the three months ended
March 31, 2000 was $2.08 million. Net cash used in investing activities was
primarily the result of capital expenditures related to computer equipment
for new employees and sales and services mainframe software.

         Net cash provided by financing activities for the three months ended
March 31, 2000 was $885,000. Cash provided by financing activities was
primarily attributable to proceeds from the exercise of stock options.

         As of March 31, 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 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 March 31, 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 March 31, 2000.

         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 March 31, 2000, total debt outstanding under this
financing arrangement was $61,000 and is classified as a current liability.

         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 currently anticipate that
our existing cash and sources of liquidity will be sufficient to meet the
anticipated needs for working capital and capital expenditures for at least the
next 12 months. However, we may need to raise funds prior to that time.


                                       13

<PAGE>

         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.

YEAR 2000 COMPLIANCE

         We are currently not aware of any Year 2000 problems in any of our
critical systems and products. However, the success to date of our Year 2000
efforts cannot guarantee that a Year 2000 problem affecting third parties upon
which we rely will not become apparent in the future that could harm our
business.

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

         Tumbleweed is subject to a number of risks -- some are normal to our
industry, some are the same or similar to those disclosed in previous SEC
filings, and some may be present in the future. You should carefully consider
all of these risks and the other information in this report before investing
in Tumbleweed. The fact that certain risks are endemic to our industry does
not lessen the significance of those risks.

         As a result of these risks, our business, financial condition or
operating results could be materially adversely affected. This could cause
the trading price of our common stock to decline, and you may lose part or
all of your investment.

BECAUSE TUMBLEWEED IS IN AN EARLY STAGE OF DEVELOPMENT AND HAS A HISTORY OF
LOSSES, IT IS DIFFICULT TO EVALUATE ITS 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 online communication services.

TUMBLEWEED ANTICIPATES CONTINUED LOSSES.

         Although we believe that our success will depend in large part upon
our ability to generate sufficient revenue to achieve profitability and to
effectively maintain existing relationships and develop new relationships with
customers and strategic partners, our revenue may not increase, and we may not
achieve or maintain profitability. In particular, we intend to expend
significant financial and management resources on product development, sales
and marketing, strategic relationships and technology, and operating
infrastructure. As a result, we expect to incur additional losses and continued
negative cash flows from operations for the foreseeable future.

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

         As a result of our limited operating history and the emerging nature
of the markets in which we compete, we may be unable to accurately forecast
our revenue or expenses. We may be unable to recognize quarterly or annual
revenue consistent with our historical operating results or expectations. Our
success is dependent upon our ability to enter into and maintain strategic
relationships with customers and to develop and maintain volume usage of our
products by our customers and their end-users. Our revenue has fluctuated and
our quarterly operating results will continue to fluctuate based on the
timing of the execution of new customer licenses, customer transitions from
pre-production to final launch phase, and customer implementation of
Tumbleweed products in that quarter. Our license revenue consists primarily
of initial license and distribution fees. As a result, in order to realize
comparable or increased license revenue, we must regularly and increasingly
sign additional customers with substantial initial license fees on a timely
basis. Our services revenue historically has consisted almost entirely of
implementation and consulting fees. As a result, in order to realize
comparable or increased services revenue, we must increase our implementation
and consulting work, or increase revenue from post-contract services work,
which comprises an additional component of our services revenue. Revenue
derived from post-contract services work may fluctuate significantly based on
the timing of our release of new versions of our products, and on our
customers' acceptance of the new versions. Our transaction revenue is derived
in the short term from contractual transaction minimums and will only
increase in the longer term through increased transaction volume associated
with the use of our services. The timing of these transactions may also cause
our

                                       14


<PAGE>

quarterly operating results to fluctuate. Unless and until we have developed a
significant and recurring transaction-based revenue stream from communications
that are sent with our services, our revenue may continue to fluctuate
significantly.

         In addition, we have experienced, and expect 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 our business, operations and infrastructure,
               including our international operations; and

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

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
TUMBLEWEED'S BUSINESS.

         The loss of one or more of our 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 our business
and prospects. Five customers comprised approximately 30% of our revenue for
the three months ended March 31, 2000, and approximately 48% of our revenue
for the three months ended March 31, 1999. We expect that a small number of
customers will continue to account for a majority of our revenue for the
foreseeable future.

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

         To date, we have generated a significant amount of our IME revenue from
contracts with a very limited number of service provider customers, including
Hikari Tsushin, United Parcel Service, the U.S. Postal Service, Canada Post and
France's La Poste, as member posts of the International Post Corporation
Technology, S.C., Pitney Bowes, Nippon Telegraph and Telephone Corporation and
UPAQ Ltd., which use or intend to use our 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, adoption of our services and the
recognition of associated revenue could be limited. Because our contracts with
our service provider customers are non-exclusive, these customers could elect to
offer competing secure online communication services to their customers through
our existing or future competitors. The service provider customers also may
compete with our secure online communication services through their traditional
physical delivery channels.

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

     Our IME enterprise customers, which use or intend to use Tumbleweed IME for
internal purposes or for distribution of internally generated communications
to their customers, are an increasingly significant source of our revenue. A
key aspect of our strategy is to access target markets prior to adoption of
alternative online distribution solutions by the larger participants in these
markets. Our efforts to expand into these targeted markets may not be
successful, particularly if we fail to secure key relationships with new
enterprise customers in these markets, and our entry into these target
markets could be limited or effectively precluded, which would harm our
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 our customers are currently in a pre-production or pre-launch
stage of implementing Tumbleweed IME and may encounter delays or other problems
in the introduction of IME-based services. A decision not to do so or a delay
in implementation could result in a delay or loss in related revenue or
otherwise harm our businesses and prospects. In particular, a complaint was
filed with the Postal Rate Commission in 1999 alleging that the U.S. Postal
Service's offering of the Tumbleweed IME-based service PostECS, currently in a
preliminary phase, is subject to regulation by the Postal Rate Commission. On
May 3, 1999, the Postal Rate Commission issued an order determining that it has
jurisdiction over the implementation of PostECS and is pursuing formal
proceedings to consider the complaint. We cannot predict what impact, if any,
these proceedings may have on Tumbleweed's business and prospects. More
generally, we cannot predict when any customer that is currently in a pilot or
preliminary phase will implement broader use of our services.


                                       15

<PAGE>

THE MARKETS FOR ONLINE COMMUNICATION SERVICES ARE NEW AND MAY NOT DEVELOP.

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

THE MARKETS FOR ONLINE COMMUNICATION SERVICES MAY DEVELOP IN A HIGHLY
CHALLENGING OR UNEXPECTED MANNER.

         To the extent the market for our products and services develops and
grows, it may do so in highly challenging or unexpected ways, which may limit
or harm our business and prospects. For example, technical challenges, product
limitations, and related issues associated with third-party software (database,
document extraction, document format conversion, long term archiving, etc.) may
effect our success with customers, especially as a customer's message volume and
the range of available functionalities increases. We have limited control over
the resolution of any such issues. In addition, to the extent our customer's
demand solutions using a new functionality (wireless connectivity, legacy
system access, improved PKI support, etc.) there is a risk that we will not be
able to satisfy such demands in a timely fashion, particularly when customers
require solutions based on technologies that are new to us, or involve
third-party support.

THE TRADITIONAL AND INTERNET DELIVERY SERVICES INDUSTRIES ARE HIGHLY COMPETITIVE
AND RAPIDLY CHANGING, AND TUMBLEWEED MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

         We may not be able to compete successfully against current and future
competitors, and the competitive pressures we face could harm our business and
prospects. Broadly speaking, Tumbleweed IME is an alternative to traditional
mail and courier delivery services, such as those offered by Federal Express
Corporation, United Parcel Service or the U.S. Postal Service, and to general
purpose e-mail applications and services. As such, we compete with these
options. Ultimately, we believe that the Internet will become the primary
solution for secure online communication services. Within this area, our direct
competition comes from other secure online communication service providers of
various sizes, some of which have products that are intended to compete
directly with our products. Examples of secure online communication service
providers include Automatic Data Processing, Inc., Critical Path, Inc.,
Differential Inc. (now known as Receipt.com), e-Parcel, LLC, PostX Corporation,
and ZixIt Corporation. On March 9, 2000, Critical Path, Inc. completed the
acquisition of The docSpace Company, Inc. This acquisition may significantly
increase the competitive pressures we face particularly because Tumbleweed has
filed a patent infringement lawsuit against The docSpace Company, Inc. In
addition, companies with which we do not presently directly compete may become
competitors in the future, either through the expansion of our 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.

         The market for online communication services is new, rapidly evolving,
and highly competitive. The level of competition is likely to increase as
current competitors improve their offerings and as new participants enter the
market. Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, sales, marketing, technical and other resources than
Tumbleweed. Moreover, these competitors may enter


                                       16

<PAGE>

into strategic or commercial relationships with larger, more established and
well-financed companies. Some of our competitors may be able to enter into these
strategic or commercial relationships on more favorable terms. Additionally,
these competitors have research and development capabilities that may allow them
to develop new or improved products that may compete with product lines we
market and distribute. New technologies and the expansion of existing
technologies also may increase competitive pressures on us. Increased
competition may result in reduced operating margins as well as loss of market
share and brand recognition. This could result in decreased usage of our
products.

WE FACE TECHNICAL, OPERATIONAL AND STRATEGIC CHALLENGES THAT MAY PREVENT US FROM
SUCCESSFULLY INTEGRATING WORLDTALK.

         The integration of the Worldtalk Communications Corporation business,
including its technology, operations and personnel, has been and will be a
complex, time consuming and expensive process that may disrupt our business if
not completed in a timely and efficient manner. We must operate as a combined
organization utilizing common information and communication systems, operating
procedures, financial controls and human resources practices. In particular, we
are currently evaluating and upgrading our management information systems and
establishing uniformity among the Tumbleweed systems and those formerly operated
by Worldtalk. We may encounter substantial difficulties, costs and delays
involved in integrating the operations of the Worldtalk subsidiary, including:

          -    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, we may not be successful in integrating the Worldtalk
business or technologies and may not achieve anticipated revenue and cost
benefits. We also cannot guarantee that this acquisition will result in
sufficient revenues or earnings to justify our investment in, or expenses
related to, this acquisition. Nor can we guarantee that any anticipated
synergies will develop. If we fail to execute our acquisition strategy
successfully for any reason, our business will suffer significantly.

TUMBLEWEED'S PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET.

         There are a number of factors that must be addressed for our products
to achieve broad market acceptance. These factors include performance,
functionality, interoperability, price and the customer's assessment of our
technical, managerial, service and support expertise and capability. Failure to
succeed with respect to any of these factors could result in a failure to
achieve broad market acceptance of our products, which could have a material
adverse effect on our business and prospects. In particular, Tumbleweed has
modified certain products formerly offered by Worldtalk and launched them as a
new product line known as MMS, a set of e-mail management products and services
that enables businesses to protect valuable corporate information on the
Internet. We can offer no assurance that the market will accept the pricing or
positioning of this product line, and cannot predict how successful future
sales may be.

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

         Tumbleweed faces certain risks associated with the planned integration
of the Worldtalk technology with our IME technology. Because Worldtalk has
historically based its products on an NT platform and we have created a
platform-independent 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 may
increase the time and resources needed to resolve these and other technical
integration issues. To the extent that our technical personnel who formerly
worked for Worldtalk collaborate with our personnel who have not worked for
Worldtalk, the identification and resolution of any previously divergent
technical standards used by each company's personnel, as well as the
implementation of common product development practices and standards, may
result in unanticipated product development delays. In addition, the
installation of integrated or complementary software products at customer sites
may result in difficulties associated with customer-specific installation
processes.

                                       17

<PAGE>

WE HAVE EXPERIENCED RAPID GROWTH WHICH HAS PLACED A STRAIN ON RESOURCES AND OUR
FAILURE TO MANAGE GROWTH COULD CAUSE OUR BUSINESS TO SUFFER.

         We have expanded our operations rapidly and intend to continue this
expansion, which may make it difficult for us to keep expense growth in line
with revenue growth. This expansion has placed, and is expected to continue to
place, a significant strain on managerial and operational resources. To manage
any further growth, we will need to improve or replace our existing
operational, customer service and financial systems, procedures and controls.
Any failure to properly manage these systems and procedural transitions could
impair our ability to attract and service customers, and could cause us to
incur higher operating costs and delays in the execution of our business plan.
We will also need to continue the expansion of our operations and employee
base. Our management may not be able to hire, train, retain, motivate and
manage required personnel. In addition, our management may not be able to
successfully identify, manage and exploit existing and potential market
opportunities. If we cannot manage growth effectively, our business and
operating results could suffer.

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

         The inability to license our services to new customers on a timely
basis or delays by our existing and proposed customers and their end-users in
the implementation and adoption of our services could limit revenue and harm
our business and prospects. Our customers must evaluate our technology and
integrate our products and services into the products and services they
provide. In addition, our customers may need to adopt a comprehensive sales,
marketing and training program in order to effectively implement Tumbleweed
products. Finally, we must coordinate with our customers using our product for
third-party communications in order to assist end-users in the adoption of our
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 our 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 we have little or no control.

A FAILURE TO PROTECT TUMBLEWEED'S INTELLECTUAL PROPERTY MAY SIGNIFICANTLY HARM
OUR 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 our proprietary
rights in our products. Tumbleweed holds certain patent rights with respect
to some of our products and currently has a lawsuit pending against The
docSpace Company, Inc. based on docSpace's infringement of one of our
patents. See "Legal Proceedings." Tumbleweed has filed, and expects in the
future to file, additional patent applications. No assurance can be given
that Tumbleweed's existing patents or trademarks, or any future patents or
trademarks obtained by us, will not be challenged, invalidated, or
circumvented, or that our competitors will not independently develop or
patent technologies that are substantially equivalent or superior to our
technology. There can be no assurance that further patent or trademark
protection will be obtained, in the United States or elsewhere, for existing
or new products, applications, or services or that such further protection,
if obtained, will be effective. In some countries, meaningful patent or
trademark protection is not available.

         Tumbleweed does not believe our products infringe upon the proprietary
rights of third parties and we are not aware of any claims to that effect.
However, there can be no assurance that third parties will not assert
infringement claims against Tumbleweed 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 have a material adverse effect on our business.

         Tumbleweed also relies, to some extent, on unpatented trade secrets and
other unpatented proprietary information. It is our policy 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

                                       18

<PAGE>

information, no assurance can be given that others will not acquire equivalent
information or otherwise gain access to or disclose our proprietary information
or that we can meaningfully protect our rights to such proprietary information.

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

         We have recently begun to invest significant financial and managerial
resources to expand our sales and marketing operations in international markets
and have opened sales offices in Germany, the United Kingdom, Japan, France,
Australia, The Netherlands, and Sweden. In fiscal 1999, we derived 31% of our
revenue from international operations. However, as an early-stage company, we
have limited experience in international operations and may not be able to
compete effectively in international markets. A key component of our long-term
strategy is to further expand into international markets, and we must continue
to devote substantial resources to our international operations in order to
succeed in these markets. In this regard, we may encounter difficulties such as:

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

          -    higher than planned costs and/or slower than planned increases
               in revenue;

          -    challenges in staffing and managing foreign operations, including
               employment laws and practices as we expand 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 caused by the conversion of various European currencies
               into a single currency, the Euro;

          -    differing technology standards; and

          -    reduced protection for intellectual property rights in certain
               countries in which we operate or plan to operate.

         In addition, our expansion into international markets will increasingly
subject us 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. We do not presently engage in hedging or similar transactions to
protect us from currency fluctuations. Any of the foregoing difficulties of
conducting business internationally could harm our international operations and,
consequently, our business and prospects.

IF WE DO NOT PROVIDE ADEQUATE SUPPORT SERVICES TO OUR CUSTOMERS TO IMPLEMENT
OUR PRODUCTS, WE MAY LOSE CUSTOMERS OR REALIZE LOWER TRANSACTION VOLUME.

         Our professional services organization assists our customers in
implementing our 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
our 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 our
professional services organization. Tumbleweed products must be integrated with
existing hardware and complex software products of our customers or other third
parties, and our customers may not have significant experience with the
implementation of products similar to ours. In addition, the provision of
contract engineering and integration services is an increasingly important
aspect of Tumbleweed's strategy to strengthen customer loyalty to our product
and company. Therefore, our business and future prospects significantly depend
on the strength of our professional services organization.

                                       19
<PAGE>


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

         The ability of our customers to provide Tumbleweed-based services
depends on stable product performance, at various usage rates, some of which
are very high, and on the efficient and uninterrupted operation of the computer
and communications hardware as well as the software and Internet network
systems that they maintain. Although our ability to manage the effects of
system failures that occur in computer hardware, software and network systems
is limited, the occurrences of these failures could harm our 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 our 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 us, our
customers, or by an independent third party to which we outsource this
function, are vulnerable to damage or interruption from fire, flood,
earthquake, power loss, telecommunications failure, or other similar events.

         Finally, although our MMS products have industry standard virus
detection capability, previously unknown viruses may go undetected unless and
until the MMS customer adopts a new or modified virus detection policy. As a
consequence, undetected viruses continue to pose a risk to our customers and to
our business.

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

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

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

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

                                       20

<PAGE>

TUMBLEWEED'S BUSINESS WILL BE HARMED IF WE CANNOT MEET FUTURE CAPITAL NEEDS.

         We will require substantial working capital to fund our business and
achieve our goals. We have experienced negative cash flows from operations and
we expect to continue to experience significant negative cash flows from
operations for the foreseeable future. We believe that our existing capital
resources will enable us to maintain our current and planned operations for at
least the next 12 months. However, our capital requirements depend upon several
factors, including:

          -    the rate of market acceptance of our products and services,
               including transaction volume;

          -    our ability to expand our customer base;

          -    our level of expenditures; and

          -    the cost of service and technology upgrades.

         If we seek additional funding to meet our requirements, this funding
may not be available on acceptable terms, if at all, particularly because market
valuations for not yet profitable companies recently declined dramatically.
This would effect our ability to raise capital and execute acquisitions. If
adequate funds are not available, we may be required to curtail significantly
or defer one or more of our operating goals or programs. If we raise additional
funds through the issuance of equity securities, the issuance could result in
substantial dilution to existing shareholders. In addition, these equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. If we raise additional funds through the issuance
of debt securities, these new securities would have rights, preferences and
privileges senior to those of the holders of our common stock. The terms of
these debt securities could also impose restrictions on our operations.

BECAUSE TUMBLEWEED'S PRODUCTS UTILIZE THE INTERNET TO ACHIEVE SECURE
COMMUNICATIONS, IF USE OF THE INTERNET DOES NOT INCREASE, THE LEVEL OF USE OF
OUR PRODUCTS WILL SUFFER.

         If the Internet and other products and services necessary for the
utilization of Tumbleweed products are not sufficiently developed, fewer
customers and end-users will use Tumbleweed products and Tumbleweed's 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 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's products and services.


                                       21

<PAGE>

ADDITIONAL GOVERNMENT REGULATION RELATING TO THE INTERNET MAY INCREASE COSTS OF
DOING BUSINESS OR REQUIRE CHANGES IN OUR 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 our
products and services and increase our cost of doing business or otherwise harm
our business or prospects.

         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 us 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 our business, or the
application of existing laws and regulations to the Internet and commercial
online services could harm Tumbleweed's ability to conduct business and harm
operating results.

TUMBLEWEED'S PRODUCTS ARE SUBJECT TO EXPORT CONTROLS, AND TUMBLEWEED MAY BE
UNABLE TO OBTAIN NECESSARY EXPORT 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 IME Server 3.1, Desktop
3.1, Receive Applet 3.1, Remote API 3.2, MMS WorldWide/56 4.3 and MMS Strong
WorldWide/128 4.3. We are 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.

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
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.


                                       22

<PAGE>


         Although our MMS customers can use the MMS products to create
enterprise-wide policies to screen the content of online messages, Tumbleweed
does not and cannot screen all of the content generated by users, and both
could 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.

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 in the United Kingdom and Japan denominated in the 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.

         The following table presents the amounts of our cash equivalents that
are subject to market risk by range of expected maturity and weighted-average
interest rates as of March 31, 2000. This table does not include money market
funds because these funds are not subject to market risk.

<TABLE>
<CAPTION>
                                                     Maturing In
                                            -------------------------------
                                              One Year          Over                            Fair
                                              or less         One year         Total            Value
                                            -------------    -----------    ------------     ------------
<S>                                         <C>              <C>            <C>              <C>
Included in cash & cash equivalents         $     16,887        None        $    16,887      $    16,887
Weighted-average interest rate                      6.22%
</TABLE>


                                       23
<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 on September 24,
1999, and a hearing on any motions for summary judgement on the issue of
infringement on November 1, 1999. 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 later rescheduled the claim interpretation
hearing, which occurred 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. On April 24, 2000, we filed a motion seeking a summary judgement
that all versions of docSpace's "Express" system in use since the patent was
issued infringed the patent. DocSpace also filed a motion on that date seeking
summary judgement that its current version of "Express" does not infringe the
patent. Pursuant to a prior order, briefing on these motions is scheduled to be
completed on May 22, 2000, and a hearing before the court on the motion is
scheduled for June 5, 2000.

         On November 4, 1999, Critical Path, Inc. announced that it had entered
into a definitive agreement to acquire docSpace, and on March 9, 2000 announced
that the acquisition had been consummated. We intend to continue the litigation
until all remaining issues are resolved. We believe that we will prevail on the
merits of this patent infringement lawsuit and that docSpace's counterclaims
are meritless.

ITEM 2:  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 March 31, 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.

                                       24

<PAGE>



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

(a)      A Special Meeting of Stockholders of Tumbleweed was held on January 31,
         2000.

(b)      Not applicable

(c)      The matters voted upon and the voting of the stockholders with respect
         thereto are as follows:

(i)      To approve the Company's acquisition of Worldtalk
         Communications Corp.

         For:        13,499,222                Against:      2,710
         Abstain:        11,507                Broker Non-Votes: None




                                       25

<PAGE>

Item 6:    Exhibits and Reports on Form 8-K

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

           (b)    Tumbleweed filed on February 1, 2000 with the Securities and
                  Exchange Commission a Current Report on Form 8-K announcing
                  Tumbleweed's consummation of our acquisition of Worldtalk
                  Communications Corp.


                                       26

<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:   May 12, 2000     By:         /s/ Jeffrey C. Smith
                            ---------------------------------------
                                       Jeffrey C. Smith
                              Chairman of the Board, President and
                                    Chief Executive Officer
                                 (Principal Executive Officer)

Date:   May 12, 2000     By:          /s/ Joseph C. Consul
                             ---------------------------------------
                                        Joseph C. Consul
                                  Vice President-Finance and
                                    Chief Financial Officer
                               (Principal Financial Officer and
                                  Principal Accounting Officer)


                                       27