<PAGE>   1

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

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

(Mark One)

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

     FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       OR

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

    FOR THE TRANSITION PERIOD FROM                TO
                                   --------------    ---------------

                        COMMISSION FILE NUMBER 000-27913

                               FREEMARKETS, INC.
             (Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S>                                                            <C>
                          DELAWARE                                          04-3265483
      (State or Other Jurisdiction of Incorporation or         (I.R.S. Employer Identification No.)
                        Organization)

                     FREEMARKETS CENTER
                      210 SIXTH AVENUE
                       PITTSBURGH, PA                                         15222
          (Address of Principal Executive Offices)                          (Zip Code)
</TABLE>

                                 (412) 434-0500
              (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 the registrant's common stock outstanding as of the
close of business on April 30, 2001 was 39,191,272.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                               FREEMARKETS, INC.

                                   FORM 10-Q
                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                     INDEX

<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
<S>                                                             <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
            Condensed Consolidated Balance Sheets as of           3
            March 31, 2001 (unaudited) and December 31,
            2000............................................
            Condensed Consolidated Statements of Operations       4
            for the three months ended March 31, 2001 and
            2000 (unaudited)................................
            Condensed Consolidated Statements of Cash Flows       5
            for the three months ended March 31, 2001 and
            2000 (unaudited)................................
            Notes to Condensed Consolidated Financial             6
            Statements......................................

Item 2. Management's Discussion and Analysis of Financial         9
  Condition and Results of Operations.......................

Item 3. Quantitative and Qualitative Disclosures About           16
  Market Risk...............................................

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings...................................     17

Item 6. Exhibits and Reports on Form 8-K....................     17

Signature...................................................     18
</TABLE>
<PAGE>   3

                        PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       FREEMARKETS, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                ($ IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               MARCH 31,     DECEMBER 31,
                                                                 2001            2000
                                                              -----------    ------------
                                                              (UNAUDITED)
<S>                                                           <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................    $ 38,639       $ 52,991
  Short-term investments....................................      58,985         68,157
  Accounts receivable, net..................................      26,326         27,861
  Other current assets......................................       6,790          5,069
                                                                --------       --------
     Total current assets...................................     130,740        154,078
Property and equipment, net.................................      48,248         43,714
Goodwill and other assets, net..............................     231,804        264,754
                                                                --------       --------
     Total assets...........................................    $410,792       $462,546
                                                                ========       ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $  9,832       $  9,517
  Accrued incentive compensation............................       2,419         10,235
  Accrued acquisition costs.................................       1,173          4,676
  Other current liabilities.................................      14,263         16,890
  Short-term borrowings.....................................       3,703          3,703
  Current portion of long-term debt.........................         188            184
                                                                --------       --------

     Total current liabilities..............................      31,578         45,205

Long-term debt..............................................         495            544
                                                                --------       --------

     Total liabilities......................................      32,073         45,749
                                                                --------       --------

Commitments and contingencies
Stockholders' equity:
  Common stock..............................................         391            388
  Additional capital........................................     508,215        503,065
  Unearned stock-based compensation.........................        (428)          (556)
  Stock purchase warrants...................................      95,484         95,484
  Accumulated other comprehensive income (loss).............         204           (171)
  Accumulated deficit.......................................    (225,147)      (181,413)
                                                                --------       --------

     Total stockholders' equity.............................     378,719        416,797
                                                                --------       --------

     Total liabilities and stockholders' equity.............    $410,792       $462,546
                                                                ========       ========
</TABLE>

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.
                                        3
<PAGE>   4

                       FREEMARKETS, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             (UNAUDITED; $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED
                                                                      MARCH 31,
                                                              --------------------------
                                                                 2001           2000
                                                              -----------    -----------
<S>                                                           <C>            <C>
Revenues....................................................  $    30,197    $    10,808
                                                              -----------    -----------
Operating costs and expenses:
  Cost of revenues..........................................       16,230          6,334
  Research and development, excluding stock compensation....        5,625          2,884
  Sales and marketing, excluding stock compensation.........       12,203          7,420
  General and administrative................................        9,641          5,091
  Stock compensation - research and development.............           49            142
  Stock compensation and warrant costs - sales and
     marketing..............................................        2,040             84
  Goodwill amortization.....................................       29,523          2,145
  Write-off of in-process research and development..........           --          7,397
                                                              -----------    -----------
Total operating costs and expenses..........................       75,311         31,497
                                                              -----------    -----------
     Operating loss.........................................      (45,114)       (20,689)
Interest and other income, net..............................        1,529          2,627
                                                              -----------    -----------
     Net loss before income taxes...........................      (43,585)       (18,062)
Provision for income taxes..................................          149             75
                                                              -----------    -----------
     Net loss...............................................  $   (43,734)   $   (18,137)
                                                              ===========    ===========

Basic and diluted earnings per share........................  $     (1.13)   $      (.51)
                                                              ===========    ===========
Shares used in computing basic and diluted earnings per
  share.....................................................   38,871,938     35,498,829
                                                              ===========    ===========
</TABLE>

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.
                                        4
<PAGE>   5

                       FREEMARKETS, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (UNAUDITED; $ IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                                    MARCH 31,
                                                              ---------------------
                                                                2001        2000
                                                              --------    ---------
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $(43,734)   $ (18,137)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization..........................     4,500          931
     Provision for bad debts................................       626          191
     Loss on disposal of property and equipment.............        --          393
     Stock compensation and warrant costs...................     2,089          226
     Goodwill amortization..................................    29,523        2,145
     Write-off of in-process research and development.......        --        7,397
  Cash (used in) provided by changes in:
     Accounts receivable....................................       (52)      (3,426)
     Other assets...........................................    (1,791)      (2,561)
     Accounts payable.......................................       315       (1,975)
     Other liabilities......................................   (10,189)       3,009
                                                              --------    ---------
          Net cash used in operating activities.............   (18,713)     (11,807)
                                                              --------    ---------
Cash flows from investing activities:
  Acquisitions, net of cash acquired........................        --      (16,660)
  Purchases of short-term investments.......................   (29,192)     (39,199)
  Maturities of short-term investments......................    38,482           --
  Capital expenditures, net.................................    (9,026)      (4,188)
  Patent and trademark costs, net...........................       (11)         (65)
                                                              --------    ---------
          Net cash provided by (used in) investing
            activities......................................       253      (60,112)
                                                              --------    ---------
Cash flows from financing activities:
  Repayment of debt.........................................       (45)      (3,198)
  Proceeds from fees applied to customer warrant............     3,774           --
  Options and warrants exercised............................       379           83
                                                              --------    ---------
          Net cash provided by (used in) financing
            activities......................................     4,108       (3,115)
                                                              --------    ---------
Net change in cash and cash equivalents.....................   (14,352)     (75,034)
Cash and cash equivalents at beginning of period............    52,991      177,204
                                                              --------    ---------
Cash and cash equivalents at end of period..................  $ 38,639    $ 102,170
                                                              ========    =========

Supplemental non-cash disclosure:
  Issuance of stock and assumption of options in connection
     with acquisition.......................................  $     --    $ 333,594
                                                              ========    =========
  Reduction in goodwill as a result of settlement of fees...  $  3,500    $      --
                                                              ========    =========
  Amounts due from customer characterized as payment for
     warrant................................................  $  1,958    $      --
                                                              ========    =========
</TABLE>

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.
                                        5
<PAGE>   6

                       FREEMARKETS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
             (UNAUDITED; $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1.  BASIS OF PRESENTATION

     The unaudited condensed consolidated financial statements have been
prepared by FreeMarkets, Inc. and Subsidiaries (the "Company") and reflect all
adjustments (all of which are normal and recurring in nature) that, in the
opinion of management, are necessary for a fair presentation of the interim
periods presented. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for any subsequent
quarter or for the entire year ending December 31, 2001. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission (the "SEC"). The unaudited condensed consolidated financial
statements and notes included herein should be read in conjunction with the
Company's audited consolidated financial statements and notes for the year ended
December 31, 2000, included in the Company's Annual Report on Form 10-K/A filed
with the SEC on May 10, 2001. Certain prior year amounts have been reclassified
to conform with the current presentation.

NOTE 2.  REVENUES AND FEES

     Revenues exclude fees earned under a service contract with Visteon
Corporation ("Visteon"). Below is a reconciliation of revenues under generally
accepted accounting principles with revenues plus the fees under our service
contract with Visteon:

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                                               MARCH 31,
                                                          -------------------
                                                            2001       2000
                                                          --------    -------
<S>                                                       <C>         <C>
Revenues plus fees under Visteon service contract
  characterized as payment for warrant..................  $ 33,010    $10,808
Less fees under Visteon service contract characterized
  as payment for warrant................................    (2,813)        --
                                                          --------    -------
Revenues................................................  $ 30,197    $10,808
                                                          ========    =======
</TABLE>

NOTE 3.  EARNINGS PER SHARE

     The computation of earnings per share is as follows:

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED
                                                            MARCH 31,
                                                    --------------------------
                                                       2001           2000
                                                    -----------    -----------
<S>                                                 <C>            <C>
Net loss..........................................  $   (43,734)   $   (18,137)
Weighted average common shares used in computing
  basic and diluted earnings per share............   38,871,938     35,498,829
Basic and diluted earnings per share..............  $     (1.13)   $      (.51)
</TABLE>

     The following potentially dilutive common shares were excluded because
their effect was antidilutive:

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED
                                                            MARCH 31,
                                                    --------------------------
                                                       2001           2000
                                                    -----------    -----------
<S>                                                 <C>            <C>
Stock options and warrants........................    6,044,404     11,294,893
</TABLE>

                                        6
<PAGE>   7
                       FREEMARKETS, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             (UNAUDITED; $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 4.  ACQUISITIONS

     In March 2000, the Company acquired iMark.com, Inc. ("iMark"), a
business-to-business online marketplace for surplus equipment and inventory. The
Company issued 1,573,725 shares of its common stock and assumed 176,275 options
with an aggregate total value of $333.6 million, in exchange for all of the
outstanding shares and options of iMark. The acquisition was accounted for as a
purchase business combination, and the goodwill and other intangible assets of
$336.3 million are being amortized on a straight-line basis over 36 months.
In-process research and development of $7.4 million was written off as a
non-recurring charge upon consummation of the acquisition. The accrued
acquisition costs were reduced by $3.5 million during the quarter ended March
31, 2001 to reflect a settlement of disputed fees.

     Also in March 2000, the Company purchased substantially all of the assets
of Surplus Record, Inc. and SR Auction, Inc. (collectively, "Surplus Record")
for $18.0 million in cash. Surplus Record consists of a directory and network of
dealers and buyers and an online surplus asset trade site for business surplus,
new and used industrial equipment, machinery and machine tools. The acquisition
was accounted for as a purchase business combination, and the excess of the
purchase price over the fair value of the net assets acquired of $17.9 million
was allocated to goodwill, which is being amortized on a straight-line basis
over 36 months.

     The following unaudited pro forma financial information presents the
Company's results of operations as if the acquisitions of iMark and Surplus
Record occurred at the beginning of the period presented. The write-off of
in-process research and development has been excluded because it is
non-recurring. The unaudited pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
Company, iMark and Surplus Record constituted a single entity during such
period.

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                               MARCH 31, 2000
                                                             ------------------
<S>                                                          <C>
Revenues.................................................         $11,630
Goodwill amortization....................................         (29,461)
Net loss.................................................         (44,696)
Basic and diluted earnings per share.....................           (1.21)
</TABLE>

NOTE 5.  COMPREHENSIVE INCOME OR LOSS

     Other comprehensive income or loss includes the net effect of foreign
currency translation adjustments and unrealized gains or losses on short-term
investments. Including net loss from the condensed consolidated statements of
operations, comprehensive loss was $43.4 million and $18.3 million for the three
months ended March 31, 2001 and 2000, respectively.

NOTE 6.  SEGMENT REPORTING

     Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The Company operates in one segment, business-to-business
electronic commerce. The Company markets its services in the United States and
in foreign countries through its sales personnel and its subsidiaries.

     The Company serves its customers from offices in the United States and 13
foreign countries. Many of the Company's customers are multi-national customers.
Over 90% of the Company's revenues and assets were derived from customers whose
headquarters are located in the United States.

                                        7
<PAGE>   8
                       FREEMARKETS, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             (UNAUDITED; $ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 7.  NEW ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133, which is effective
for all quarters beginning January 1, 2001, establishes accounting and reporting
standards for derivative financial instruments and hedging activities related to
those instruments. The adoption of this standard did not have a material impact
on the Company's consolidated financial statements.

     In February 2001, the FASB issued a revision to a previously issued
exposure draft covering business combinations proposing new accounting guidance
related to goodwill. This proposed standard would not allow for amortization of
goodwill. The carrying amount of goodwill would be reduced only if it was found
to be impaired. Goodwill would be tested for impairment when events or
circumstances occur indicating that goodwill might be impaired. A fair-value
based impairment test would be used to measure goodwill for impairment in lieu
of the method for measuring impairment of long-lived assets set forth in SFAS
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed of." As goodwill is measured as a residual amount in an
acquisition, it is not possible to directly measure the fair value of goodwill.
Under this proposed standard, the net assets of a reporting unit should be
subtracted from the fair value of that reporting unit to determine the implied
fair value of goodwill. Impairment loss would be recognized to the extent the
carrying amount of goodwill exceeds the implied fair value. The provisions of
this proposed standard would be effective for fiscal quarters beginning after
the issuance of a final statement. Management believes the adoption of this
standard, as it is proposed, will have a material non-cash impact on the
Company's financial statements if the final statement is issued prior to the
full amortization of its remaining goodwill.

NOTE 8.  SUBSEQUENT EVENT

     Since April 27, 2001, five securities fraud class action complaints have
been filed against the Company and two executive officers in federal court in
Pittsburgh, Pennsylvania. The complaints, all of which assert the same claims,
stem from the Company's announcement on April 23, 2001 that, as a result of
discussions with the staff of the SEC, the Company was considering amending its
2000 financial statements for the purpose of reclassifying fees earned by the
Company under a service contract with Visteon. The Company and the individuals
defendants believe that the plaintiffs' allegations are completely without merit
and they intend to defend these claims vigorously.

                                        8
<PAGE>   9

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

     The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our condensed
consolidated financial statements and related notes contained in this Quarterly
Report on Form 10-Q ("Form 10-Q").

     Certain statements contained in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different than any expressed or implied by
these forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue," or the negative of these terms or other comparable
terminology. Please refer to the risk factors set forth in the section entitled
"Additional Factors that May Affect Future Results" on page 15 of this Form
10-Q, as well as to our other filings with the SEC and to the factors discussed
elsewhere in this Form 10-Q for a description of some of the risk factors that
could cause our results to differ materially from our forward-looking
statements.

OVERVIEW

     FreeMarkets creates business-to-business online auctions and provides
electronic commerce technology and services to buyers of industrial parts, raw
materials, commodities and services. We have created more than 11,500 online
auctions -- which we call "markets"-- for more than $16.6 billion worth of goods
and services for our customers. We estimate, based upon the difference between
the prices that our customers have historically paid and the lowest prices that
are identified in our auctions, that our markets have resulted in potential
estimated savings of over $3.2 billion for our customers.

     We combine our proprietary technology platform with an in-depth knowledge
of the supply markets for direct materials, which are the industrial parts and
raw materials that are incorporated into finished products by manufacturing
companies. Because direct materials are often custom-made to buyers'
specifications, there are no catalogs or price lists to enable buyers to make
price comparisons. The fragmentation of many supply markets and the importance
of product quality in supplier selection further complicate the purchasing
process. Because this complexity leads to market inefficiencies, we think that
buyers of direct materials often pay prices that are too high.

     Our online markets help buyers of direct materials obtain lower prices and
make better purchasing decisions. In a FreeMarkets online market, suppliers from
around the world can submit bids in a real-time, interactive competition that is
designed to be fair to all participants. We offer customers our FullSource
solution, in which we help the customer to identify and screen suppliers and to
assemble a request for quotation that provides detailed, clear and consistent
information for suppliers to use as a basis for their competitive bids. We also
offer our QuickSource solution, which enables customers to use our technology to
run their own online markets. In addition, we operate the FreeMarkets Asset
Exchange for buyers and sellers of surplus assets and inventory.

RECENT EVENTS

     In February 2001, we entered into a definitive merger agreement to acquire
Adexa, Inc. ("Adexa"), a leading provider of software products that enable
collaborative commerce. Under the merger agreement, we will issue up to
17,250,000 shares of our common stock and options in exchange for all
outstanding equity interests of Adexa. We expect the merger to close in the
second quarter of 2001. We have filed with the SEC a Registration Statement on
Form S-4 relating to the issuance of FreeMarkets common stock in connection with
the proposed merger. Please refer to the risk factors set forth in our Form
10-K, as amended, and in the Form S-4 for risks that could cause the merger not
to occur or that could cause the benefits that we expect to gain from the merger
not to be realized. As part of its review of our Form S-4, the staff of the SEC
raised questions with respect to the classification of certain revenues in our
financial statements included in our Form 10-K filed February 23, 2001.
Following discussions with the staff of the SEC, we reissued our consolidated
financial statements as of December 31, 2000 and for the year then ended in our
Form 10-K/A filed May 10, 2001.

                                        9
<PAGE>   10

     In April 2001, we closed our Austin, Texas office, formerly the
headquarters of our iMark subsidiary which we acquired in March 2000, and
relocated our asset recovery division to our corporate headquarters in
Pittsburgh, Pennsylvania. As a result of the closing of the Austin office, we
will record a restructuring charge of approximately $3.0 million to $4.0 million
in the second quarter of 2001 relating to lease termination costs, employee
severance costs and the non-cash write-off of assets.

DETERMINATION OF ONLINE MARKET VOLUME AND ACHIEVABLE SAVINGS

     We believe that one indicator of our market acceptance is the dollar volume
of materials, commodities and services for which we create online markets on
behalf of our customers. We measure this online market volume by multiplying the
lowest bid price per unit in each online market by the estimated number of units
that our customer expects to purchase. When our customers specify multi-year
purchases in a request for quotation, we calculate online market volume for the
estimated term.

     Online market volume does not necessarily correlate with either our
revenues or our operating results in any particular period due to the
seasonality of our customers' purchasing needs, the timing of the addition of
new customers, the length of the customer contracts and the industry in which
the items in the online markets will be used. We believe that online market
volume may be correlated with revenues and operating results over periods of one
year or longer; however, because of our limited operating history, a strong
correlation has not yet been demonstrated. Moreover, online market volume has
varied in the past, and we expect it to vary in the future. The following table
sets forth our online market volume for the periods indicated:

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                                              MARCH 31,
                                                         --------------------
                                                          2001          2000
                                                         ------        ------
<S>                                                      <C>           <C>
Online market volume (in millions).....................  $2,602        $1,355
</TABLE>

     We believe that the savings achievable by customers through our online
markets is an indicator of the effectiveness of our online market services. To
estimate these savings, we compare the last price paid by our customer against
the lowest bid price for those items in our online market. Actual savings that
our customers achieve may not equal these estimates because our customer may not
select the lowest bid price, the parties may agree to change price terms after
our online market or our customer may not actually buy all or any of the
auctioned items.

     Many of our agreements with customers provide for incentive compensation
based on online market volume and/or savings. These agreements may calculate
online market volume or savings differently than the methods we use to calculate
online market volume and savings for the purposes described above.

REVENUES

     We generate revenues under service agreements with our customers. Our
service agreements typically provide us with revenues from fixed monthly fees,
and may also include performance incentive payments based on volume and/or
savings. The revenue structure in a particular service agreement may vary,
depending upon the needs of our customer and the conventional practices in the
supply market where our customer obtains its materials, commodities or services.
The monthly fees that we receive are for the use of our technology, supplier and
supply market information, market making and market operations staff and
facilities. Negotiated monthly fees vary by customer, and reflect both the
anticipated online market volume and the staffing, expertise and technology we
anticipate committing to complete the services requested by our customers. Fixed
monthly fees constitute a majority of our revenues, and we expect that these
monthly fees will continue to constitute a majority of our revenues. We
recognize revenues from our fixed monthly fees ratably as we provide services.
Our agreements range in length from a few months to as many as five years. At
any given time, we have agreements of varying lengths with staggered
expirations. Some of our service agreements permit early termination by our
customers without penalty.

     Many of our agreements include performance incentive payments that are
contingent upon our customer achieving specific online market volume and/or
savings, as set forth in the respective agreements. We recognize

                                        10
<PAGE>   11

these revenues as the thresholds are achieved. We expect that as our online
market volume grows, the revenues attributable to these incentive payments will
also grow over time in terms of absolute dollars, but not necessarily as a
percentage of revenues.

     However, we exclude from revenues the amounts that we earn under a contract
with Visteon pursuant to which we provide access to our eMarketplace and perform
services for Visteon. Visteon pays us fixed monthly fees plus variable fees if
specified volume thresholds are exceeded. At the time we executed the service
contract, we granted a warrant for 1.75 million shares to Visteon with an
exercise price of $.01 per share, and we receive marketing and public relations
benefits as a result of our relationship with Visteon. The warrant was valued at
$95.5 million using the Black-Scholes pricing model at the time of the grant in
April 2000. Because of the grant of this warrant, we are required to exclude
from our revenues the fees we earn from Visteon, and to allocate those fees as
payment for the warrant. However, we view our relationship with Visteon as a
customer relationship, and for all business and operational purposes in which
revenue is a factor in the decision, including budgets, forecasts, allocation of
resources, sales compensation and bonus decisions and other performance
indicators, we treat the fees we earn from Visteon in the same manner as
revenues from other customers. Accordingly, we have referred, where applicable,
to "revenues plus Visteon fees" throughout Management's Discussion and Analysis
of Financial Condition and Results of Operations in order to accurately describe
our analysis of our operations.

     Below is a reconciliation of revenues under generally accepted accounting
principles with revenues plus the fees under our service contract with Visteon:

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                                               MARCH 31,
                                                          -------------------
                                                            2001       2000
                                                          --------    -------
<S>                                                       <C>         <C>
Revenues plus fees under Visteon service contract
  characterized as payment for warrant..................  $ 33,010    $10,808
Less fees under Visteon service contract characterized
  as payment for warrant................................    (2,813)        --
                                                          --------    -------
Revenues................................................  $ 30,197    $10,808
                                                          ========    =======
</TABLE>

     Our service contract with Visteon is a standard customer agreement (except
for the warrant). The contract with Visteon has a five-year term ending in 2005,
and, as of March 31, 2001, provided for a fixed monthly payment stream larger
than any other customer contract. We do not expect to recognize revenues under
our Visteon service contract for either the fixed or any variable fees we earn
because we have determined, as a result of a review by the staff of the SEC,
that we must allocate those fees as payment for the warrant that we granted to
Visteon. We estimate that the direct costs that we will incur to service the
Visteon contract over its remaining life will be approximately $18.3 million in
excess of the revenue that we will recognize under generally accepted accounting
principles from that contract. We will recognize the resulting loss over the
life of the contract as costs are incurred to service the contract.

LIMITED OPERATING HISTORY

     Our limited operating history makes predicting future operating results
very difficult. We believe that you should not rely on the period-to-period
comparison of our operating results to predict our future performance. You must
consider our prospects in light of the risks, expenses and difficulties
encountered by companies in new and rapidly evolving markets. We may not be
successful in addressing these risks and difficulties. Although we have
experienced significant percentage growth in revenues in recent periods, we may
not be able to sustain our prior growth rates. Our prior growth may not be
indicative of future operating results.

     The recent slowdown in the economy may cause customers to defer or postpone
their purchasing decisions, increasing sales cycles for our products and
services and possibly reducing our revenue and income. In addition, the amount
of fixed monthly fees that we are able to negotiate for new customers may be
adversely affected based on lower anticipated market volume from our customers.
The amount of revenue we earn from variable fees, such as performance incentive
payments based on volume and/or savings, may also decline as a result of lower
volumes.

                                        11
<PAGE>   12

RESULTS OF OPERATIONS

     Net loss for the quarter ended March 31, 2001 was $43.7 million, or $1.13
per diluted share. Excluding stock compensation, warrant costs and non-cash
acquisition-related charges for goodwill amortization, net loss was $9.3
million, or $.24 per diluted share. Net loss for the quarter ended March 31,
2000 was $18.1 million, or $.51 per diluted share. Excluding stock compensation,
warrant costs and non-cash acquisition-related charges for goodwill amortization
and the write-off of in-process research and development, net loss was $8.4
million, or $.24 per diluted share. The following table sets forth condensed
consolidated statement of operations data as a percentage of revenues plus
Visteon fees for the periods indicated:

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2001        2000
                                                              ---------    ------
<S>                                                           <C>          <C>
Revenues plus fees under Visteon service contract
  characterized as payment for warrant......................    100.0%      100.0%
     Less fees under Visteon service contract characterized
      as payment for warrant................................      8.5          --
                                                               ------      ------
Revenues....................................................     91.5          --
Operating costs and expenses:
  Cost of revenues..........................................     49.2        58.6
  Research and development, excluding stock compensation....     17.0        26.7
  Sales and marketing, excluding stock compensation.........     37.0        68.7
  General and administrative................................     29.2        47.1
  Stock compensation - research and development.............      0.1         1.3
  Stock compensation and warrant costs - sales and
     marketing..............................................      6.2         0.8
  Goodwill amortization.....................................     89.4        19.8
  Write-off of in-process research and development..........       --        68.4
                                                               ------      ------
     Operating loss.........................................   (136.6)     (191.4)
Interest and other income, net..............................      4.6        24.3
                                                               ------      ------
     Net loss before provision for income taxes.............   (132.0%)    (167.1%)
Provision for income taxes..................................      0.5         0.7
                                                               ------      ------
     Net loss...............................................   (132.5%)    (167.8%)
                                                               ======      ======
</TABLE>

THREE MONTHS ENDED MARCH 31, 2001 AND 2000

     All references to "Q1 2001" and "Q1 2000" are for the three months ended
March 31, 2001 and 2000, respectively.

  REVENUES

     Revenues plus Visteon fees increased 205% from $10.8 million in Q1 2000 to
$33.0 million in Q1 2001. The increase in revenues plus Visteon fees is
primarily attributable to an increased number of new customers for which we
conducted online markets, as well as increased use of our services by existing
customers. The number of customers served increased 136% from 47 in Q1 2000 to
111 in Q1 2001. One additional indicator of our market acceptance is the dollar
volume of materials, commodities and services that we auction for our customers.
Online market volume increased 86% from $1.4 billion in Q1 2000 to $2.6 billion
in Q1 2001. Revenues in Q1 2001 exclude Visteon fees of $2.8 million.

  OPERATING COSTS AND EXPENSES

     COST OF REVENUES. Cost of revenues increased from $6.3 million in Q1 2000
to $16.2 million in Q1 2001. As a percentage of revenues plus Visteon fees, cost
of revenues decreased from 59% to 49%. The increase in absolute dollar amounts
from Q1 2000 to Q1 2001 reflects an increase in the number of market making
staff and the increased cost of our operations due to the expansion of our
office space and our services into international

                                        12
<PAGE>   13

locations. Cost of revenues includes the costs we incur in performing our
obligations under the Visteon service contract, even though the fees we earn
under that contract are excluded from revenues.

     The decrease in cost of revenues as a percentage of revenues plus Visteon
fees from Q1 2000 to Q1 2001 is primarily the result of increased staff
productivity as our personnel became more specialized in various market making
activities. Also, we have attained some operating efficiencies from our
investments in information tools to automate portions of our market making
process, as well as organizing our market making staff in such a way to take
advantage of our domain supply vertical expertise. Although we will continue to
invest in the growth of our business, we expect cost of revenues as a percentage
of revenues plus Visteon fees to continue to decrease in the future.

     RESEARCH AND DEVELOPMENT, EXCLUDING STOCK COMPENSATION. Research and
development costs increased from $2.9 million, or 27% of revenues in Q1 2000 to
$5.6 million, or 17% of revenues plus Visteon fees in Q1 2001. The increase in
absolute dollars relates primarily to an increase in the number of research and
development staff and associated costs for the continued development of our
BidWare software, other market making technology that is designed to further
improve staff productivity, and our QuickSource solution. We expect to increase
our research and development costs in absolute dollars in future periods to
invest in new technology for future product and service offerings, particularly
our e-Sourcing platform, and to adapt and add features to our existing
technology; however, we anticipate these costs will continue to decrease as a
percentage of revenues plus Visteon fees in future periods.

     SALES AND MARKETING, EXCLUDING STOCK COMPENSATION. Sales and marketing
costs increased from $7.4 million, or 69% of revenues in Q1 2000 to $12.2
million or 37% of revenues plus Visteon fees in Q1 2001. The increase in
absolute dollars reflects a significant growth in sales and marketing staff,
public relations costs, trade shows and advertising as we pursued our brand and
business development strategy and accelerated our spending on potential future
growth. We expect to continue to increase our sales and marketing costs in
absolute dollars in future periods to promote our brand, to pursue our business
development strategy and to increase the size of our sales force; however, we
anticipate these costs will continue to decrease as a percentage of revenues
plus Visteon fees in future periods.

     GENERAL AND ADMINISTRATIVE. General and administrative costs increased from
$5.1 million, or 47% of revenues in Q1 2000 to $9.6 million or 29% of revenues
plus Visteon fees in Q1 2001. The increase in absolute dollars is primarily
attributable to the addition of personnel to our general and administrative
staff in the areas of technical operations, human resources, legal, finance and
facilities management. The increase can also be attributed to the expansion of
our infrastructure from four offices at the end of 1999 to eighteen offices at
the end of Q1 2001, many of which are international offices to support our
growing customer base. We expect that general and administrative costs will
continue to increase in absolute dollars in future periods as we continue to add
staff and infrastructure to support our domestic and international business
growth and bear the increased costs associated with being a public company;
however, we anticipate these costs will continue to decrease as a percentage of
revenues plus Visteon fees in future periods.

     STOCK COMPENSATION AND WARRANT COSTS. We recorded $2.0 million of unearned
stock compensation related to employee stock options granted in June and July
1999, which is being amortized over a five-year period ending June 2004. In Q1
2001 and Q1 2000, $78,000 and $226,000, respectively, was amortized related to
these grants. In April 2000, we recorded $95.5 million of unearned warrant costs
related to a warrant granted to Visteon. This value was calculated using the
Black-Scholes pricing model at the date of grant and is being amortized over a
five-year period ending April 2005. In Q1 2001, $4.8 million was amortized
related to this warrant, with $2.8 million reflected as a reduction to our
revenues (reducing the revenues under the Visteon service contract to zero) and
$2.0 million as stock compensation and warrant costs-sales and marketing. In
April 2000, we also recorded $196,000 of unearned stock compensation related to
stock options granted to a consultant, which was amortized over a one-year
period ending March 2001.

     GOODWILL AMORTIZATION. In connection with our acquisitions of iMark and
Surplus Record, in March 2000, we recorded goodwill of $354.3 million, of which
$29.5 million and $2.1 million were amortized in Q1 2001 and Q1 2000,
respectively.

                                        13
<PAGE>   14

     WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT. Also in connection with
our acquisition of iMark in March 2000, we recorded a one-time write-off of
in-process research and development of $7.4 million.

     INTEREST AND OTHER INCOME, NET. Interest and other income decreased from
$2.6 million in Q1 2000 to $1.5 million in Q1 2001. The decrease was primarily
attributable to reduced interest income in Q1 2001.

LIQUIDITY AND CAPITAL RESOURCES

     We have historically satisfied our cash requirements primarily through a
combination of revenues, equity financing transactions and bank borrowings. In
December 1999, we closed our initial public offering, which resulted in net
proceeds of $182.2 million. As of March 31, 2001, we had cash and cash
equivalents of $38.6 million, short-term investments of $59.0 million and
working capital of $99.2 million.

     Net cash used in operating activities totaled $11.8 million in Q1 2000 and
$18.7 million in Q1 2001. The use of cash in Q1 2000 and Q1 2001 related
primarily to the operating loss generated by our investment in the growth of our
business, including an increase in personnel from 497 as of March 31, 2000 to
1,059 as of March 31, 2001. Net cash used in operating activities was positively
offset by $29.5 million of goodwill amortization in Q1 2001. Net cash used in
operating activities in Q1 2001 does not reflect $3.8 million received under our
service contract with Visteon.

     Net cash used in investing activities totaled $60.1 million in Q1 2000,
while net cash provided by investing activities totaled $253,000. Our use of
cash in investing activities in Q1 2000 resulted from our continued additions to
and upgrade of computing and telecommunications equipment. Also in Q1 2000, we
used $39.2 million to purchase short-term investments and $16.7 million related
to acquisitions that closed in March 2000. Cash provided by investing activities
in Q1 2001 resulted primarily from maturities of short-term investments totaling
$38.5 million, partially offset by purchases of short-term investments of $29.2
million and capital expenditures of $9.0 million.

     Net cash used in financing activities totaled $3.1 million in Q1 2000,
while net cash provided by financing activities totaled $4.1 million in Q1 2001.
In Q1 2000, our negative financing cash flows primarily related to the repayment
of debt associated with the acquisition of iMark in March 2000. The positive
financing cash flows in Q1 2001 primarily reflect the $3.8 million received
under our service contract with Visteon. We are required to classify these
receipts as payment for the warrant that we granted to Visteon in April 2000.

     Prior to November 2000, we had in place a $10.0 million bank facility,
consisting of a $5.0 million revolving line of credit and two equipment loans
originally totaling $5.0 million. In November 2000, we terminated the $10.0
million facility and entered into a one-year revolving credit facility with a
maximum borrowing base of $25.0 million. At March 31, 2001, $11.2 million was
available based on eligible accounts receivable. Borrowings under the new
facility bear interest at the lender's prime rate. As of March 31, 2001, $3.7
million was outstanding under the facility and the interest rate was 8.0%.

     Our bank credit facility contains restrictive covenants, including a
limitation on incurring additional indebtedness and paying dividends. We are
also required to satisfy minimum tangible net worth and current and debt service
ratios each month. We have pledged substantially all of our tangible assets as
collateral for the bank credit facility.

     Capital expenditures were $4.2 million in Q1 2000 and $9.0 million in Q1
2001. Capital expenditures over these periods were primarily made to purchase
computer and telecommunications equipment and for furnishings in our new
corporate headquarters and other offices, as well as for expansion of our
network and server capacity. We funded these capital expenditures through a
combination of sales of our equity securities and bank borrowings. We intend to
fund future capital expenditures through a combination of proceeds from our IPO,
bank borrowings and cash from operations. As a result of the significant
investments we have made in our operations, infrastructure and personnel in 2000
and Q1 2001, we anticipate a decrease in our capital expenditures in future
periods.

     We expect to experience growth in our operating costs for the foreseeable
future in order to execute our business plan, particularly in the areas of
research and development and sales and marketing. We also expect to

                                        14
<PAGE>   15

open new domestic and international offices in order to support the needs of our
existing and anticipated customers. As a result, we estimate that these
operating costs, as well as other planned expenditures, will constitute a
significant use of our cash resources. In addition, we may use cash resources to
fund acquisitions of complementary businesses and technologies. We believe that
our current cash resources will be sufficient to meet our working capital and
capital expenditures for at least the next 18 to 24 months. However, in the
event that we consummate our proposed acquisition of Adexa, we expect that we
will need to expend additional amounts of working capital to fund the growth of
the combined business. If we are unable to control costs and achieve the
expected benefits of the acquisition, our cash resources may be depleted more
quickly, and accordingly our current cash resources may be sufficient for a
shorter period. In either event, thereafter, we may find it necessary to obtain
additional financing. In the event that additional financing is required, we may
not be able to raise it on terms acceptable to us, if at all.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133, which is effective for all
quarters beginning January 1, 2001, establishes accounting and reporting
standards for derivative financial instruments and hedging activities related to
those instruments. The adoption of this standard did not have a material impact
on our consolidated financial statements.

     In February 2001, the FASB issued a revision to a previously issued
exposure draft covering business combinations proposing new accounting guidance
related to goodwill. This proposed standard would not allow for amortization of
goodwill. The carrying amount of goodwill would be reduced only if it was found
to be impaired. Goodwill would be tested for impairment when events or
circumstances occur indicating that goodwill might be impaired. A fair-value
based impairment test would be used to measure goodwill for impairment in lieu
of the method for measuring impairment of long-lived assets set forth in SFAS
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed of." As goodwill is measured as a residual amount in an
acquisition, it is not possible to directly measure the fair value of goodwill.
Under this proposed standard, the net assets of a reporting unit should be
subtracted from the fair value of that reporting unit to determine the implied
fair value of goodwill. Impairment loss would be recognized to the extent the
carrying amount of goodwill exceeds the implied fair value. The provisions of
this proposed standard would be effective for fiscal quarters beginning after
the issuance of a final statement. We believe the adoption of this standard, as
it is proposed, will have a material non-cash impact on our financial statements
if the final statement is issued prior to the full amortization of our remaining
goodwill.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

     In addition to the other risks discussed in this Form 10-Q, we are subject
to specific risks relating to our business model, strategies, markets and legal
and regulatory environment. For a detailed discussion of these risks, please see
the risk factors included in our Annual Report on Form 10-K/A for the year ended
December 31, 2000, as filed with the SEC on May 10, 2001. Moreover, our proposed
acquisition of Adexa involves a number of risks and uncertainties. For a
detailed discussion of these risks, please see the risk factors included in our
Registration Statement on Form S-4, as amended, as filed with the SEC on May 10,
2001.

                                        15
<PAGE>   16

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     There have been no material changes in our market risk exposure during the
quarter ended March 31, 2001 that would require an update to the disclosure in
our Annual Report on Form 10-K/A, as filed with the SEC on May 10, 2001.

                                        16
<PAGE>   17

                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Since May 10, 2001, the date of the filing of the Company's Annual Report
on Form 10-K/A for the year ended December 31, 2000, there have been no new
material legal proceedings involving the Company, nor have there been any
material developments in the legal proceedings reported in the Form 10-K/A.
Please see Note 8 to the Condensed Consolidated Financial Statements included in
this Form 10-Q.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                     DESCRIPTION
-------  -------------------------------------------------------------------------------
<S>      <C>
 2.1     Agreement and Plan of Reorganization, dated as of February 7, 2001, by and
         among the registrant, Axe Acquisition Corporation and Adexa, Inc. (1)
</TABLE>

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

(1) Incorporated by reference to exhibit filed with the registrant's
    registration statement on Form S-4 (File No. 333-56124), as amended, as
    filed with the SEC on May 10, 2001.

(b) Reports on Form 8-K.

     On February 12, 2001, we filed with the SEC a current report on Form 8-K to
report our execution of a definitive agreement to acquire Adexa by means of a
merger.

                                  * * * * * *

                                        17
<PAGE>   18

                                   SIGNATURE

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Pittsburgh, Commonwealth of Pennsylvania on May 15, 2001.

                                         FREEMARKETS, INC.

                                         By: /s/ JOAN S. HOOPER
                                           -------------------------------------
                                           JOAN S. HOOPER
                                           Senior Vice President and Chief
                                             Financial Officer
                                           (Principal Financial and Accounting
                                             Officer)

                                        18