<PAGE>   1

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                                 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 QUARTER ENDED JULY 31, 2000

                                       OR

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

                         COMMISSION FILE NUMBER 0-29251

                                 FIREPOND, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      41-1462409
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

  890 WINTER STREET, WALTHAM, MASSACHUSETTS                        02451
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

                                 (781) 487-8400
              (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.

                             (1)  Yes  [X]  No  [ ]

     As of July 31, 2000 there were 35,558,821 shares of the Registrant's Common
Stock outstanding.

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<PAGE>   2

                        FIREPOND, INC. AND SUBSIDIARIES

                                   FORM 10-Q
                          QUARTER ENDED JULY 31, 2000

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                       PAGE
                                                                       NO.
                                                                       ----
<S>      <C>                                                           <C>
PART I   FINANCIAL INFORMATION
Item 1.  Financial Statements
         Condensed Consolidated Balance Sheets --
           October 31, 1999 and July 31, 2000........................    2
         Condensed Consolidated Statements of Operations --
           Three Months and Nine Months Ended July 31, 1999 and
           2000......................................................    3
         Condensed Consolidated Statements of Cash Flows --
           Nine Months Ended July 31, 1999 and 2000..................    4
         Notes to Condensed Consolidated Financial Statements........    5
Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations.................................   12
Item 3.  Quantitative and Qualitative Disclosures About Market
           Risk......................................................   21

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings...........................................   21
Item 2.  Changes in Securities and Use of Proceeds...................   21
Item 3.  Defaults Upon Senior Securities.............................   21
Item 4.  Submission of Matters to a Vote of Security Holders.........   21
Item 5.  Other Information...........................................   21
Item 6.  Exhibits and Reports on Form 8-K............................   21
         SIGNATURES..................................................   22
         EXHIBIT INDEX...............................................   23
</TABLE>

                                        1
<PAGE>   3

                        FIREPOND, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              OCTOBER 31,    JULY 31,
                                                                 1999          2000
                                                              -----------    --------
<S>                                                           <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................   $  2,120      $ 97,899
  Short-term investments....................................         --        22,008
  Accounts receivable, net..................................      9,910         6,699
  Unbilled services.........................................      1,191         1,605
  Prepaid expenses and other current assets.................      1,265         1,977
                                                               --------      --------
          Total current assets..............................     14,486       130,188
Property and equipment, net.................................      6,048         6,174
Restricted cash.............................................        550           550
Other assets................................................        576           801
                                                               --------      --------
                                                               $ 21,660      $137,713
                                                               ========      ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Line of credit............................................   $  6,740      $     --
  Current portion of long-term debt.........................      1,313         1,249
  Accounts payable..........................................      3,833         2,305
  Accrued liabilities.......................................      5,700        11,867
  Deferred revenue..........................................      8,280        12,092
                                                               --------      --------
          Total current liabilities.........................     25,866        27,513
Long-term debt, less current portion........................        702           164
Restructuring accrual, less current portion.................        446            --
Stockholders' equity (deficit):
  Preferred stock, $0.01 par value --
     Authorized -- 50,000,000 shares at October 31, 1999 and
      5,000,000 at July 31, 2000;
     Issued and outstanding -- 19,097,793 shares at October
      31, 1999 and none at July 31, 2000....................        191            --
  Common stock, $0.01 par value --
     Authorized -- 100,000,000 shares;
     Issued and outstanding -- 10,072,817 shares at October
      31, 1999 and 35,558,821 shares at July 31, 2000.......        101           356
Additional paid-in capital..................................     62,380       192,812
Accumulated deficit.........................................    (61,793)      (74,883)
Deferred compensation.......................................     (5,893)       (7,408)
Subscription receivables....................................        (13)           --
Other comprehensive loss....................................       (327)         (841)
                                                               --------      --------
          Total stockholders' equity (deficit)..............     (5,354)      110,036
                                                               --------      --------
                                                               $ 21,660      $137,713
                                                               ========      ========
</TABLE>

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

                                        2
<PAGE>   4

                        FIREPOND, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS            NINE MONTHS
                                                               ENDED JULY 31,          ENDED JULY 31,
                                                             -------------------    --------------------
                                                              1999        2000        1999        2000
                                                             -------    --------    --------    --------
<S>                                                          <C>        <C>         <C>         <C>
Revenue:
  Product-related revenue:
    License................................................  $ 2,615    $  6,794    $  6,632    $ 15,622
    Services and maintenance...............................    2,359       6,492       5,605      16,008
                                                             -------    --------    --------    --------
         Total product-related revenue.....................    4,974      13,286      12,237      31,630
  Custom development services..............................    3,712       4,029      12,061      11,249
                                                             -------    --------    --------    --------
         Total revenue.....................................    8,686      17,315      24,298      42,879
                                                             -------    --------    --------    --------
  Cost of revenue:
    License................................................       45         159         137         426
    Product-related services and maintenance (1)...........    1,487       4,470       3,890       9,581
    Custom development services (1)........................    2,888       1,366       8,622       4,372
                                                             -------    --------    --------    --------
         Total cost of revenue.............................    4,420       5,995      12,649      14,379
                                                             -------    --------    --------    --------
Gross profit...............................................    4,266      11,320      11,649      28,500
Operating expenses:
  Sales and marketing (1)..................................    5,736       7,918      17,036      21,007
  Research and development (1).............................    2,547       3,485       6,372      10,832
  General and administrative (1)...........................    1,814       2,507       5,062       6,711
  Stock-based compensation.................................      143       1,731         798       4,665
  Restructuring charge (reversal)..........................    2,625          --       2,625        (500)
                                                             -------    --------    --------    --------
         Total operating expenses..........................   12,865      15,641      31,893      42,715
                                                             -------    --------    --------    --------
Loss from operations.......................................   (8,599)     (4,321)    (20,244)    (14,215)
Interest income (expense)..................................     (102)      1,805        (391)      2,203
Other income (expense), net................................       10        (170)        (13)        359
                                                             -------    --------    --------    --------
Net loss before extraordinary item.........................   (8,691)     (2,686)    (20,648)    (11,653)
Loss on extinguishment of debt.............................       --          --          --      (1,437)
                                                             -------    --------    --------    --------
Net loss...................................................   (8,691)     (2,686)    (20,648)    (13,090)
Stock dividend paid to preferred stockholders..............       --          --          --     (65,542)
                                                             -------    --------    --------    --------
Loss applicable to common stockholders.....................  $(8,691)   $ (2,686)   $(20,648)   $(78,632)
                                                             =======    ========    ========    ========
Net loss per share (Note 6(a)):
  Basic and diluted net loss per share before extraordinary
    item...................................................  $ (0.87)   $  (0.08)   $  (2.06)   $  (0.44)
  Extraordinary item.......................................       --          --          --       (0.05)
  Stock dividend paid to preferred stockholders............       --          --          --       (2.47)
                                                             -------    --------    --------    --------
  Basic and diluted net loss per share applicable to common
    stockholders...........................................  $ (0.87)   $  (0.08)   $  (2.06)   $  (2.96)
                                                             =======    ========    ========    ========
  Basic and diluted weighted average common shares
    outstanding............................................   10,019      35,508      10,010      26,550
                                                             =======    ========    ========    ========
Pro forma net loss per share (Note 6(b)):
  Pro forma net loss per share.............................  $ (0.32)   $  (0.08)   $  (0.82)   $  (0.40)
                                                             =======    ========    ========    ========
  Pro forma basic and diluted weighted average common
    shares outstanding.....................................   27,484      35,508      25,211      32,669
                                                             =======    ========    ========    ========
</TABLE>

---------------
(1) The following summarizes the departmental allocation of the stock-based
    compensation charge:

<TABLE>
<CAPTION>
                                                               THREE MONTHS      NINE MONTHS
                                                              ENDED JULY 31,    ENDED JULY 31,
                                                              --------------    --------------
                                                              1999     2000     1999     2000
                                                              ----    ------    ----    ------
<S>                                                           <C>     <C>       <C>     <C>
Cost of revenue.............................................  $ 13    $   27    $ 13    $   79
Operating expenses:
  Sales and marketing.......................................    78     1,017      78     2,983
  Research and development..................................    39       613     110     1,317
  General and administrative................................    13        74     597       286
                                                              ----    ------    ----    ------
Total stock-based compensation..............................  $143    $1,731    $798    $4,665
                                                              ====    ======    ====    ======
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.
                                        3
<PAGE>   5

                        FIREPOND, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                  NINE MONTHS
                                                                 ENDED JULY 31,
                                                              --------------------
                                                                1999        2000
                                                              --------    --------
<S>                                                           <C>         <C>
Cash flows from operating activities:
  Net loss..................................................  $(20,648)   $(13,090)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Non-cash restructuring charges.........................     1,532          --
     Stock-based compensation expense.......................       798       4,665
     Loss on disposal of property and equipment.............        49          --
     Depreciation and amortization..........................     2,166       2,299
     Non-cash interest expense..............................        --         467
     Loss on early extinguishment of debt...................        --       1,437
     Changes in assets and liabilities:
       Accounts receivable..................................    (2,656)      3,022
       Unbilled services....................................    (1,034)       (414)
       Prepaid expenses and other current assets............      (914)       (712)
       Accounts payable.....................................      (338)     (1,644)
       Accrued liabilities..................................       225       5,998
       Deferred revenue.....................................     2,788       3,996
       Restructuring accrual................................        --        (392)
                                                              --------    --------
          Net cash provided by (used in) operating
            activities......................................   (18,032)      5,632
                                                              --------    --------
Cash flows from investing activities:
  Purchases of short term investments.......................        --     (22,059)
  Purchases of property and equipment.......................    (2,520)     (2,339)
  Proceeds from sale of property and equipment..............     2,557          --
  Increase in restricted cash...............................      (550)         --
  Increase in other assets..................................      (245)       (243)
                                                              --------    --------
          Net cash used in investing activities.............      (758)    (24,641)
                                                              --------    --------
Cash flows from financing activities:
  Net proceeds (payments) on line of credit.................     2,933      (6,740)
  Payments on long-term debt................................    (4,379)       (602)
  Proceeds from preferred stock issuance....................    19,819          --
  Proceeds from common stock issuance, net of offering
     costs..................................................        80     113,800
  Proceeds from stock options and warrants exercised........        --       8,359
  Increase (decrease) in subscription receivables...........       (66)         13
                                                              --------    --------
          Net cash provided by financing activities.........    18,387     114,830
                                                              --------    --------
Effect of exchange rate changes on cash and cash
  equivalents...............................................        15         (42)
                                                              --------    --------
Net increase (decrease) in cash and cash equivalents........      (388)     95,779
Cash and cash equivalents, beginning of period..............     2,324       2,120
                                                              --------    --------
Cash and cash equivalents, end of period....................  $  1,936    $ 97,899
                                                              ========    ========
Supplemental cash flow information:
  Interest paid.............................................  $    499    $    639
                                                              ========    ========
Noncash investing and financing activities:
  Series E Preferred stock exchanged for series G preferred
     stock..................................................  $ 19,974    $     --
                                                              ========    ========
  Equipment acquired under capital lease obligations........  $    273    $     --
                                                              ========    ========
  Warrants issued in conjunction with subordinated notes
     payable................................................  $     --    $  1,904
                                                              ========    ========
  Conversion of preferred stock into common stock...........  $     --    $    191
                                                              ========    ========
</TABLE>

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

                                        4
<PAGE>   6

                        FIREPOND, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1.  NATURE OF BUSINESS AND BASIS OF PRESENTATION

     FirePond, Inc. together with its wholly owned subsidiaries (the "Company"),
is a leading global provider of integrated e-business sales and marketing
solutions that enable companies to optimize their customer relationships and
maximize the effectiveness of their Internet-based and traditional sales
channels. The Company provides software and services that allow its customers to
merge their e-commerce selling, customer relationship management, and channel
management strategies on a single, Internet-based platform.

     The accompanying consolidated financial statements include the accounts of
FirePond, Inc. and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in the accompanying financial
statements.

     The accompanying condensed consolidated financial statements for the three
and nine months ended July 31, 2000 and 1999 are unaudited and have been
prepared on a basis consistent with the October 31, 1999 audited financial
statements and include normal recurring adjustments which are, in the opinion of
management, necessary for the fair presentation of the results of these periods.
These condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto for the
fiscal year ended October 31, 1999 included in the Company's Registration
Statement on Form S-1. The results of operations for the three and nine months
ended July 31, 2000 are not necessarily indicative of results to be expected for
the entire year or any other period.

2.  INITIAL PUBLIC OFFERING

     On February 4, 2000, the Company completed its initial public offering of
5,000,000 shares of common stock. Additionally, on February 25, 2000, the
underwriters of the initial public offering exercised their over-allotment
option to purchase an additional 666,666 shares. At the offering price of $22.00
per share, the Company received $113.8 million from these transactions, net of
underwriting discounts and commissions and offering expenses.

     The Company's previously outstanding series A, series C and series G
preferred stock, as well as shares of the Company's common stock held by some
common stockholders, had rights that allowed holders to receive a priority
payment upon the completion of the Company's initial public offering. These
priority payments totaled $35,750,000 for the series A, series C and series G
preferred stockholders, and $10,000,000 to some of the holders of the Company's
common stock. These amounts were payable in cash, or, at the Company's option, a
number of shares of common stock determined by dividing the amount payable by
$12.00. The Company's board of directors elected to make these payments as a
stock dividend of 3,812,532 shares of common stock upon consummation of the
Company's initial public offering. At the initial public offering price of
$22.00 per share, the value of the stock dividend to preferred shareholders
totaled $65,542,000 and the value of the stock dividend to some of the holders
of the Company's common stock totaled $18,334,000. As a result, during the three
months ended April 30, 2000, the Company recorded a stock dividend on the
preferred stock of $65,542,000 increasing the loss attributable to common
stockholders.

3.  SIGNIFICANT ACCOUNTING POLICIES

  (a)  Revenue Recognition

     The Company recognizes revenue based on the provisions of Statement of
Position, or SOP, No. 97-2, Software Revenue Recognition, as amended by SOP No.
98-4 and SOP No. 98-9, and SOP No. 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.

     The Company generates revenue from two primary sources: (1) product-related
license and service revenue and (2) custom development service revenue.

                                        5
<PAGE>   7
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

  Product-Related Revenue

     Product-related license revenue is generated from licensing the rights to
the use of the Company's packaged software products. Product-related service
revenue is generated from sales of maintenance, consulting and training services
performed for customers that license the Company's products.

     The Company has concluded that the implementation services are essential to
the customer's use of the packaged software products in arrangements where the
Company is responsible for implementation services. As such, the Company
recognizes revenue for these arrangements following the percentage-of-completion
method over the implementation period. Percentage of completion is measured by
the percentage of implementation hours incurred to date compared to estimated
total implementation hours. This method is used because management has
determined that past experience has shown expended hours to be the best measure
of progress on these engagements.

     In situations where the Company is not responsible for implementation
services, the Company recognizes revenue on delivery of the packaged software if
there is persuasive evidence of an arrangement, collection is probable, the fee
is fixed or determinable and vendor-specific objective evidence exists to
allocate the total fees to all elements of the arrangement.

     In situations where the Company is not responsible for implementation
services and is also obligated to provide unspecified additional software
products in the future, the Company recognizes revenue as a subscription over
the term of the commitment period.

     Vendor-specific objective evidence is based on the price charged when an
element is sold separately or, in the case of an element not yet sold
separately, the price established by authorized management, if it is probable
that the price, once established, will not change before market introduction.
Elements included in multiple-element arrangements could consist of software
products, upgrades, enhancements, maintenance, consulting and training services.

     Revenue from maintenance services is recognized ratably over the term of
the contract, typically one year. Consulting revenue is primarily related to
implementation services performed on a time-and-materials basis under separate
service arrangements. Revenue from consulting and training services is
recognized as services are performed.

  Custom Development Services Revenue

     The Company performs custom development services under fixed-price
contracts, for which revenue is recognized using the percentage-of-completion
method. These services consist of the development of highly customized
applications utilizing core software technology. These contracts typically range
in terms of one to five years. Percentage of completion is measured by the
percentage of implementation hours incurred to date to estimated total
implementation hours. This method is used because management considers expended
hours to be the best measure of progress on these engagements. When the current
estimates of total contract revenue and contract cost indicate a loss, a
provision for the entire loss on the contract is recorded.

     The Company also provides ongoing services related to custom development
projects including software and data maintenance. Revenue from these
arrangements is recognized as the services are performed.

     Unbilled services represent amounts due to the Company under custom
development service agreements for work performed that had not been billed as of
the period end. The Company bills customers under custom development contracts
upon achieving performance milestones or by billing dates, as specified in the
contracts.

  (b)  Cash and Cash Equivalents

     The Company accounts for cash equivalents based on the guidance in
Statement of Financial Accounting Standards, or SFAS, No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Cash equivalents are
short-term, highly liquid investments with original maturity dates of three
months or less. Cash

                                        6
<PAGE>   8
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

equivalents are carried at cost, which approximates fair market value. Cash
equivalents at October 31, 1999 and July 31, 2000 consisted of interest-bearing
bank deposits, money market accounts and commercial paper.

<TABLE>
<CAPTION>
                                                           OCTOBER 31,    JULY 31,
                                                              1999          2000
                                                           -----------    --------
                                                               (IN THOUSANDS)
<S>                                                        <C>            <C>
Cash and cash equivalents:
     Cash................................................    $2,120       $ 2,584
     Money market accounts...............................        --        31,728
     Commercial paper....................................        --        63,587
                                                             ------       -------
          Total cash and cash equivalents................    $2,120       $97,899
                                                             ======       =======
</TABLE>

  (c)  Short-term Investments

     In accordance with SFAS No. 115 and based on the Company's intentions
regarding these instruments, the Company has classified all short-term
investments as available-for-sale. These investments consist primarily of
corporate notes and bonds with an original maturity of less than a year. At July
31, 2000, other comprehensive loss in stockholders' equity included an
unrealized holding loss of $51,000.

<TABLE>
<CAPTION>
                                                           OCTOBER 31,    JULY 31,
                                                              1999          2000
                                                           -----------    --------
                                                               (IN THOUSANDS)
<S>                                                        <C>            <C>
Short-term investments:
     Certificates of deposit.............................    $   --       $ 2,546
     Commercial paper....................................        --         4,932
     Corporate notes and bonds...........................        --        14,530
                                                             ------       -------
          Total short-term investments...................    $   --       $22,008
                                                             ======       =======
</TABLE>

  (d)  Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for 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. SFAS No.
133 is not expected to have a material impact on the Company's consolidated
financial statements.

     In March 2000, the FASB issued Interpretation Number 44, Accounting for
Certain Transactions Involving Stock Compensation -An Interpretation of APB No.
25. The Interpretation clarifies the application of APB No. 25 in certain
situations, as defined. The Interpretation was effective on July 1, 2000 but
covers certain events having occurred after December 15, 1998. To the extent
that events covered by the Interpretation occur during the period after December
15, 1998, but before the issuance of the Interpretation, the effects of applying
this Interpretation would be recognized on a prospective basis from the
effective date. Accordingly, upon initial application of the Interpretation, (a)
no adjustment would be made to financial statements for the periods before the
effective date and (b) no expense would be recognized for any additional
compensation cost measured that is attributed to periods before the effective
date. The adoption of this Interpretation did not have a material impact on the
accompanying financial statements.

                                        7
<PAGE>   9
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

  (e)  Comprehensive Income (Loss)

     The components of comprehensive loss for the three and nine months ended
July 31, 1999 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                          THREE MONTHS           NINE MONTHS
                                                         ENDED JULY 31,        ENDED JULY 31,
                                                        -----------------    -------------------
                                                         1999      2000        1999       2000
                                                        -------   -------    --------   --------
                                                         (IN THOUSANDS)        (IN THOUSANDS)
<S>                                                     <C>       <C>        <C>        <C>
Comprehensive loss:
     Net loss.........................................  $(8,691)  $(2,686)   $(20,648)  $(13,090)
     Other comprehensive loss
          Unrealized loss on short-term investments...       --       (10)         --        (51)
          Foreign currency translation................      (56)      107        (139)      (463)
                                                        -------   -------    --------   --------
Comprehensive loss....................................  $(8,747)  $(2,589)   $(20,787)  $(13,604)
                                                        =======   =======    ========   ========
</TABLE>

4.  ACCRUED LIABILITIES

     Accrued liabilities consists of:

<TABLE>
<CAPTION>
                                                              OCTOBER 31,   JULY 31,
                                                                 1999         2000
                                                              -----------   --------
                                                                  (IN THOUSANDS)
<S>                                                           <C>           <C>
Accrued sales incentives....................................    $  440      $ 2,348
Other.......................................................     5,260        9,519
                                                                ------      -------
     Total accrued liabilities..............................    $5,700      $11,867
                                                                ======      =======
</TABLE>

5.  SUBORDINATED NOTES PAYABLE

     On November 12, 1999, the Company issued subordinated notes payable
totaling $6,000,000 to an outside investor and two existing stockholders of the
Company. The subordinated notes bore interest at 12.0% per year and were due
upon the earlier of the closing of the Company's initial public offering or
November 11, 2000. If an initial public offering was not completed by May 11,
2000 or in the event of a sale transaction, as defined, before May 11, 2000, the
subordinated notes, including accrued interest, were convertible into shares of
the Company's preferred stock having rights equivalent to the Company's existing
series F preferred stock at a rate of $4.46 per share. The Company also issued
to the holders of the subordinated notes payable warrants to purchase an
aggregate of 360,000 shares of common stock at an exercise price of $5.25 per
share. The estimated fair value of these warrants totaling $2,789,000 was
determined using the Black-Scholes valuation model with the following variables:
risk-free interest rate of 6.0%, dividend yield rate of 0%, term of five years,
and volatility of 80%. The Company allocated the proceeds from the subordinated
notes payable of $6,000,000 in proportion to the relative fair values of both
the warrants and the subordinated notes payable. As a result, the Company
recorded the warrants as a discount totaling $1,904,000 against the carrying
value of the subordinated notes payable, with the discount amortized to interest
expense over the term of the subordinated notes payable.

     In conjunction with the Company's initial public offering in February 2000,
the Company repaid the $6,000,000 of subordinated notes plus accrued interest of
$180,000. As a result, in the quarter ended April 30, 2000, the Company recorded
a $1,437,000 loss on extinguishment of debt as an extraordinary item for the
amount of unamortized discount at the time of repayment.

                                        8
<PAGE>   10
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

6.  REVERSAL OF RESTRUCTURING CHARGE

     During its fiscal year ended October 31, 1999, the Company recorded a
restructuring charge in connection with the relocation of its corporate office
from Mankato, Minnesota to Waltham, Massachusetts and in doing so accrued the
present value of the future lease payments relating to idle space in the Mankato
facility. In March 2000, the Company negotiated a new lease for less space,
eliminating the future obligation for the idle space in its Mankato facility. As
a result, during the nine months ended July 31, 2000, the Company reversed
$500,000 of the restructuring accrual representing the remaining obligation for
the idle lease space.

7.  NET LOSS PER SHARE

  (a)  Net Loss Per Share

     Net loss per share is computed based on the guidance of SFAS No. 128,
Earnings per Share. SFAS No. 128 requires companies to report both basic loss
per share, which is based on the weighted average number of common shares
outstanding, and diluted loss per share, which is based on the weighted average
number of common shares outstanding and the weighted average dilutive potential
common shares outstanding using the treasury stock method. As a result of the
losses incurred by the Company for both the three and nine months ended July 31,
1999 and 2000, all potential common shares were antidilutive and were excluded
from the diluted net loss per share calculations.

     Under Securities and Exchange Commission Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued or granted for nominal
consideration before the effective date of a company's initial public offering
must be included in the calculation of basic and diluted net loss per share as
if they had been outstanding for all periods presented. The Company has
determined that there were no issuances of common stock and convertible
preferred stock for nominal consideration.

     The following table summarizes securities outstanding as of each period end
which were not included in the calculation of diluted net loss per share since
their inclusion would be antidilutive:

<TABLE>
<CAPTION>
                                                                  JULY 31
                                                              ---------------
                                                               1999     2000
                                                              ------    -----
                                                              (IN THOUSANDS)
<S>                                                           <C>       <C>
Common stock options and warrants...........................   6,712    9,793
                                                              ======    =====
Convertible preferred stock.................................  19,098       --
                                                              ======    =====
Preferred stock warrants....................................     864       --
                                                              ======    =====
</TABLE>

     The stock dividend of $65,542,000 paid to preferred stockholders in
February 2000 increased the net loss per share applicable to common stockholders
by $2.47 for the nine months ended July 31, 2000.

  (b)  Pro Forma Net Loss Per Share

     Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of preferred stock upon the completion of the
Company's initial public offering in February 2000, using the if-converted
method, from the original date of issuance. The computation of pro forma net
loss per share excludes the stock dividend of $65,542,000 paid to preferred
stockholders.

                                        9
<PAGE>   11
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

     The following table reflects the reconciliation of the shares used in the
computation of pro forma loss per share:

<TABLE>
<CAPTION>
                                                             THREE MONTHS         NINE MONTHS
                                                            ENDED JULY 31,      ENDED JULY 31,
                                                            ---------------    -----------------
                                                             1999     2000      1999      2000
                                                            ------   ------    ------   --------
                                                            (IN THOUSANDS)      (IN THOUSANDS)
<S>                                                         <C>      <C>       <C>      <C>
Pro forma basic and diluted:
  Weighted average common shares outstanding used in
     computing basic and diluted net loss per share.......  10,019   35,508    10,010     26,550
  Weighted average common shares issuable upon the
     conversion of preferred stock........................  13,403       --    11,243      4,696
  Weighted average common shares issuable upon settlement
     of the priority payments.............................   3,813       --     3,813      1,336
  Weighted average common shares issuable upon exercise of
     series F preferred stock warrants....................     249       --       145         87
                                                            ------   ------    ------   --------
  Weighted average common shares outstanding used in
     computing pro forma basic and diluted net loss per
     share................................................  27,484   35,508    25,211     32,669
                                                            ======   ======    ======   ========
</TABLE>

8.  STOCKHOLDERS' EQUITY (DEFICIT)

  (a)  Recapitalization

     On November 8, 1999, the Company's board of directors approved a
two-for-three reverse stock split of its common stock. The stock split was
effective on January 4, 2000. All shares and per share amounts of common stock
for all periods presented have been retroactively adjusted to reflect the stock
splits.

     Upon the closing of the initial public offering in February 2000, the
Company's certificate of incorporation was amended and restated to change its
authorized capital stock to 100,000,000 shares of $0.01 par value common stock
and 5,000,000 shares of $0.01 par value preferred stock.

  (b)  Stock Options and Warrants

     On November 8, 1999 the board of directors adopted and on January 4, 2000
the stockholders approved (1) the 1999 stock option and grant plan under which
3,000,000 shares of the Company's common stock were reserved for future
issuance, (2) the 1999 director stock option plan under which 500,000 shares of
the Company's common stock were reserved for future issuance and (3) an increase
in the number of shares of the Company's common stock reserved for issuance
under the 1997 stock option plan from 7,896,815 shares to 9,396,815 shares.

     The Company granted stock options to employees and consultants that require
the recognition of stock-based compensation expense. Additionally, the Company
granted stock warrants to certain customers and to strategic business partners.
Stock-based compensation related to grants to employees represents the
amortization, over the vesting period of the option, of the difference between
the exercise price of options granted to employees and the fair market value of
its common stock for financial reporting purposes. Stock-based compensation
related to grants to non-employees represents the fair market value of the
options and warrants granted as computed using an established option valuation
formula. As of July 31, 2000, the deferred compensation balance was $7,408,000
and will be recognized as an expense over the vesting period of the underlying
stock options for options granted to employees and as earned for non-employees
in accordance with EITF 96-18.

                                       10
<PAGE>   12
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)

     The Company granted options to employees and non-employees to purchase
377,318 and 3,339,759 shares of common stock at a weighted-average exercise
price of $19.54 and $13.70 per share during the three and nine months ended July
31, 2000, respectively.

     In connection with a consulting arrangement valued at $1.0 million, in
November 1999 the Company issued warrants to purchase an aggregate of 207,900
shares of common stock at an exercise price of $7.22 per share, exercisable
within one year of the Company's initial public offering. The Company also
issued fully-vested warrants in connection with license arrangements to two
customers in the three months ended January 31, 2000 to purchase a total of
36,667 shares of common stock at an exercise price of $11.00 per share and to
one customer in the three months ended July 31, 2000 to purchase 10,000 shares
of common stock at an exercise price of $35.94 per share. The estimated value of
these warrants totaled $409,000 at the times of grant and were recorded as
reductions in the amount of future revenue to be recognized associated with
these customers. In addition, during February 2000 in connection with a
strategic business alliance, the Company issued 33,333 shares of common stock at
an exercise price of $14.00 per share. In accordance with EITF 96-18, the
Company adjusts the value of these grants to market over the vesting period of
these grants. During the three months ended July 31, 2000, options to purchase
17,194 shares vested and, accordingly, the Company recorded a stock-based
compensation charge of $306,000.

9.  SEGMENT REPORTING

     The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes standards for reporting
information related to operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial reports issued to stockholders. SFAS No. 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are defined as components of an enterprise about which
separate, discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The Company's chief operating
decision maker, as defined under SFAS No. 131, is its chief executive officer.

     The Company views its operations and manages its business as two segments,
product-related licenses and services and custom development services. The
Company's reportable segments are strategic business units that provide distinct
services to the end customer. They are managed separately because each business
segment requires different marketing and management strategies. The Company's
approach is based on the way that management organizes the segments within the
Company for making operating decisions and assessing performance.

     The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company does not allocate
operating expenses between its two reportable segments. Therefore, the Company's
measure of performance for each reportable segment is based on total net revenue
and direct costs of services, which are reported separately in the accompanying
condensed consolidated statements of operations and no additional disclosure is
required. The Company does not identify assets and liabilities by segment and
therefore, identifiable assets, capital expenditures and depreciation and
amortization are not reported by segment.

                                       11
<PAGE>   13

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

     Certain statements in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements
that involve risks and uncertainties. Words such as anticipates, expects,
intends, plans, believes, seeks, estimates and similar expressions identify such
forward-looking statements. The forward-looking statements contained herein are
based on current expectations and entail various risks and uncertainties that
could cause actual results to differ materially from these expressed in such
forward-looking statements. Factors that might cause such a difference include,
among other things, those set forth under "Overview", "Liquidity and Capital
Resources" and "Risk Factors" included in these sections and those appearing
elsewhere in this Form 10-Q. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's analysis only as
of the date hereof. We assume no obligation to update these forward-looking
statements to reflect actual results or changes in factors or assumptions
affecting forward-looking statements.

OVERVIEW

     We are a leading global provider of integrated e-business sales and
marketing solutions that enable companies to optimize their customer
relationships and maximize the effectiveness of their Internet-based and
traditional sales channels. We provide software and services that allow its
customers to merge their e-commerce selling, customer relationship management,
and channel management strategies on a single, Internet-based platform. From our
inception in 1983 through 1997, we generated revenue primarily through providing
custom development services. These services consisted of the development of
highly customized applications utilizing core software technology, and related
software maintenance and data maintenance services. In early fiscal 1997, we
undertook a plan to change our strategic focus from a custom development
services company to a software product company providing more standardized
solutions. As a result, we exited several of our unrelated business activities,
changed our management team and reduced our workforce to be in line with our
newly defined business strategy. Our first packaged software product was
introduced in May 1997 and we released our current product, the FirePond
Application Suite, in October 1999. As a result of these efforts,
product-related revenue as a percentage of total revenue increased from 1.5% in
fiscal 1997 to 23.6% in fiscal 1998 to 53.6% in fiscal 1999 and to 73.8% in the
nine months ended July 31, 2000.

     We anticipate that product-related revenue from product licenses will
continue to grow as result of increased market acceptance of our products, the
recent introduction of the FirePond Application Suite, and increases in both the
size and productivity of our sales force. Therefore, we expect that a higher
percentage of total revenue will be attributable to product-related revenue in
the future. Unlike our custom development services, our product-related services
represent the implementation of our packaged software products.

     We also anticipate a decline in custom development services revenue, as we
have strategically de-emphasized that business and do not plan to accept new
custom development contracts. Custom development services revenue will continue
to represent a material portion of total revenue until existing custom
development contracts and related maintenance agreements are completed. Custom
development services revenue in the future will be primarily from ongoing
software maintenance and data maintenance services that we provide under custom
development services contracts. The rate of decline in custom development
revenue depends in part on our ability to convert custom development services
customers to our software products. Since the introduction of our first software
product in May 1997, we have converted six custom development customers to our
software products.

     We derive revenue principally from software product licenses;
product-related consulting and training, support and maintenance services; and
custom development services and related support and maintenance.

     We recognize revenue under Statement of Position, or SOP, No. 97-2,
Software Revenue Recognition, as amended by SOP No. 98-4 and SOP No. 98-9, and
SOP No. 81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts. We generally recognize revenue from product-related
license agreements over the implementation period. We recognize this revenue
following the percentage-of-completion method over the implementation period
because we have concluded that the implementation services are essential to our
customers' use of our packaged software products. Percentage of
                                       12
<PAGE>   14

completion is measured by the percentage of implementation hours incurred to
date to total estimated implementation hours.

     We recognize revenue from product-related support and maintenance services
ratably over the term of the contract, typically one year. Product-related
support and maintenance services include technical support and unspecified
upgrade and maintenance rights. We recognize consulting and training revenue as
the services are performed. Consulting and training revenue is primarily related
to implementation services performed on a time-and-materials basis under
separate service arrangements.

     Revenue from custom software development projects can be either fixed-price
or on a time-and-materials basis. We recognize revenue as the services are
performed when the project is based on time-and-materials. We recognize revenue
on a percentage-of-completion method when the project is a fixed-price contract.
Percentage-of-completion is determined based on the number of hours incurred to
date on a project compared to the total estimated hours.

     Since May 1998, we have been investing heavily in the infrastructure
necessary to expand our global operations, including the formation and staffing
of international subsidiaries. We expect to continue to invest in our
international operations as we expand our international direct sales channel and
enhance our marketing effort to increase our worldwide market share.

     We have invested heavily in research and development. Research and
development expenses have been increasing since early fiscal 1997 when we began
the development of our software products. During fiscal 1996 and fiscal 1997, we
capitalized software development costs and amortized these costs over a period
of 18 to 36 months. During fiscal 1997, in connection with our change in focus
from providing custom development services to providing more standardized
software products, we reviewed the software development costs capitalized to
date, which principally related to components of custom solutions, and
determined that these costs were not realizable. In connection with our change
in strategic focus, we wrote off $4.0 million of our capitalized software
development costs to costs of custom development services revenue in fiscal
1997. Through May 1997, we capitalized $532,000 of costs related to the
development of our first software product. We have amortized these costs to cost
of license revenue through the end of fiscal 1999.

     Since the introduction of our first software product, we have determined
that technological feasibility of our software products occurs late in the
development cycle and close to general release of the products, and that the
development costs incurred between the time technological feasibility is
established and general release of the product are not material. Therefore,
beginning in June 1997, we expense these costs as incurred to research and
development expense. To enhance our product offering and market position, we
believe it is essential for us to continue to make significant investment in
research and development. As a result, we anticipate our research and
development expenses will increase in the future.

     We have granted stock options to employees and consultants that require us
to record stock-based compensation expense. We have also granted stock warrants
to certain customers and to strategic business partners. Stock-based
compensation related to grants to employees represents the amortization, over
the vesting period of the option, of the difference between the exercise price
of options granted to employees and the fair market value of our common stock
for financial reporting purposes. Stock-based compensation related to grants to
non-employees represents the fair market value of the options and warrants
granted as computed using an established option valuation formula. We recorded
stock-based compensation expense of approximately $143,000 and $1.7 million for
the three months ended July 31, 1999 and July 31, 2000, respectively, and
$798,000 and $4.7 million for the nine months ended July 31, 1999 and July 31,
2000, respectively. As of July 31, 2000, the deferred compensation balance was
approximately $7.4 million and will be amortized over the remaining vesting
period of the options and warrants.

     We have incurred quarterly and annual losses intermittently since we were
formed, and regularly since we began transitioning to a software product
business in early fiscal 1997. In addition, we moved our headquarters from
Mankato, Minnesota to Waltham, Massachusetts in the third quarter of fiscal
1999, and incurred increased costs associated with that relocation. We incurred
net losses of $27.0 million for fiscal 1997, $9.0 million for fiscal 1998, $28.9
million for fiscal 1999, and $13.1 million for the nine months ended July 31,
2000. We expect to continue to incur losses on both a quarterly and annual basis
in the future.

                                       13
<PAGE>   15

     Our previously outstanding series A, series C and series G preferred stock,
as well as shares of our common stock held by some common stockholders, had
rights that allowed holders to receive a priority payment upon the completion of
our initial public offering. These priority payments totaled $35.8 million for
the series A, series C and series G preferred stockholders, and $10.0 million to
some of the holders of our common stock. These amounts were payable in cash, or,
at our option, a number of shares of common stock determined by dividing the
amount payable by $12.00. Our board of directors elected to make these payments
as a stock dividend of 3,812,532 shares of common stock upon consummation of our
initial public offering. At the initial public offering price of $22.00 per
share, the value of the stock dividend to preferred shareholders totaled $65.5
million and the value of the stock dividend to some of the holders of our common
stock totaled $18.3 million. The stock dividend on the preferred stock increased
the loss attributable to common stockholders by $65.5 million for the nine
months ended July 31, 2000.

     As of October 31, 1999, we had available a net operating loss carryforward
of approximately $36.0 million to reduce future federal and state income taxes,
if any. This carryforward expires beginning in 2012 and may be subject to review
and possible adjustment by the Internal Revenue Service. The Tax Reform Act of
1986 contains provisions that may limit the amount of net operating loss
carryforwards that we may utilize in any one year in the event of cumulative
changes in ownership over a three-year period in excess of 50%.

RESULTS OF OPERATIONS

     The following table presents selected consolidated financial data as a
percentage of total net revenue:

<TABLE>
<CAPTION>
                                                     THREE MONTHS          NINE MONTHS
                                                    ENDED JULY 31,       ENDED JULY 31,
                                                    ---------------      ---------------
                                                     1999     2000        1999     2000
                                                    ------   ------      ------   ------
<S>                                                 <C>      <C>         <C>      <C>
Revenue:
  Product-related revenue:
     License.....................................     30.1%   39.2%       27.3%    36.4%
     Services and maintenance....................     27.2    37.5        23.1     37.4
                                                    ------   -----       -----    -----
          Total product-related revenue..........     57.3    76.7        50.4     73.8
  Custom development services....................     42.7    23.3        49.6     26.2
                                                    ------   -----       -----    -----
          Total revenue..........................    100.0   100.0       100.0    100.0
                                                    ------   -----       -----    -----
Cost of revenue:
  License........................................      0.5     0.9         0.6      1.0
  Product-related services and maintenance.......     17.1    25.8        16.0     22.3
  Custom development services....................     33.2     7.9        35.5     10.2
                                                    ------   -----       -----    -----
          Total cost of revenue..................     50.8    34.6        52.1     33.5
                                                    ------   -----       -----    -----
Gross profit.....................................     49.2    65.4        47.9     66.5
Operating expenses:
  Sales and marketing............................     66.0    45.7        70.1     49.0
  Research and development.......................     29.3    20.1        26.2     25.3
  General and administrative.....................     20.9    14.5        20.8     15.7
  Stock-based compensation.......................      1.6    10.0         3.3     10.9
  Restructuring charge...........................     30.2      --        10.8     (1.2)
                                                    ------   -----       -----    -----
          Total operating expenses...............    148.0    90.3       131.2     99.7
                                                    ------   -----       -----    -----
Loss from operations.............................    (98.8)  (24.9)      (83.3)   (33.2)
Interest income (expense)........................     (1.2)   10.4        (1.6)     5.2
Other income (expense), net......................      0.1    (1.0)       (0.1)     0.8
                                                    ------   -----       -----    -----
Net loss before extraordinary item...............    (99.9)  (15.5)      (85.0)   (27.2)
Loss on extinguishment of debt...................       --      --          --     (3.4)
                                                    ------   -----       -----    -----
Net loss.........................................    (99.9)% (15.5)%     (85.0)%  (30.6)%
                                                    ======   =====       =====    =====
</TABLE>

  Comparison of Three Months Ended July 31, 1999 and 2000

     Revenue. Total revenue increased $8.6 million, or 99.3%, to $17.3 million
in the three months ended July 31, 2000 from $8.7 million in the three months
ended July 31, 1999. This increase is primarily attributable to a 167.1%
increase in product related revenue.

                                       14
<PAGE>   16

          License. License revenue increased $4.2 million, or 159.8%, to $6.8
     million in the three months ended July 31, 2000 from $2.6 million in the
     three months ended July 31, 1999. License revenue as a percentage of total
     revenue increased to 39.2% in the three months ended July 31, 2000 from
     30.1% in the three months ended July 31, 1999. We anticipate that license
     revenue will continue to grow as a result of more license sales and
     increased average transaction size resulting from increased market
     acceptance of our new products, a growing customer base, increased
     marketing efforts, and improved productivity of our sales force.

          Product service and maintenance. Product service and maintenance
     revenue increased $4.1 million, or 175.2%, to $6.5 million in the three
     months ended July 31, 2000 from $2.4 million in the three months ended July
     31, 1999. Product services and maintenance revenue as a percentage of total
     revenue increased to 37.5% in the three months ended July 31, 2000 from
     27.2% in the three months ended July 31, 1999. The increase in absolute
     dollars and as a percentage of total revenue is attributable to the
     increase in the number of consulting engagements and maintenance agreements
     related to the increased license revenue in this period.

          Custom development services. Custom development services revenue
     increased $317,000, or 8.5%, to $4.0 million in the three months ended July
     31, 2000 from $3.7 million in the three months ended July 31, 1999. Custom
     development services revenue as a percentage of total revenue decreased to
     23.3 % in the three months ended July 31, 2000 from 42.7% in the three
     months ended July 31, 1999. The increase in absolute dollars is the result
     of a custom service contract renewal on terms more favorable to us. The
     percentage decrease in custom development services revenue as a percentage
     of total revenue is due to the significant increase in our product-related
     revenue in the three months ended July 31, 2000. We expect custom
     development services revenue to continue to decline as a percentage of
     total revenue.

     Cost of revenue. Total cost of revenue increased $1.6 million, or 35.6%, to
$6.0 million in the three months ended July 31, 2000 from $4.4 million in the
three months ended July 31, 1999. Total cost of revenue as a percentage of total
revenue decreased to 34.6% in the three months ended July 31, 2000 from 50.8% in
the three months ended July 31, 1999.

          Cost of license revenue. Cost of license revenue consists primarily of
     costs of royalties, media, product packaging, and other production cost.
     Cost of license revenue increased $114,000, or 253.3% to $159,000 in the
     three months ended July 31, 2000 from $45,000 in the three months ended
     July 31, 1999. Cost of license revenue as a percentage of license revenue
     increased to 2.3% in the three months ended July 31, 2000 from 1.7% in the
     three months ended July 31, 1999. The increase in cost of license revenue
     is due primarily to an increase in royalty charges associated with the
     increase in license revenue.

          Cost of product-related services and maintenance revenue. Cost of
     product-related services and maintenance revenue consists primarily of
     salaries and related costs for consulting, training and customer support
     personnel, including cost of services provided by third-party consultants
     engaged by us. Cost of product-related services and maintenance revenue
     increased $3.0 million, or 200.6%, to $4.5 million in the three months
     ended July 31, 2000 from $1.5 million in the three months ended July 31,
     1999. Cost of product-related services and maintenance revenue as a
     percentage of product-related services and maintenance revenue increased to
     68.9% in the three months ended July 31, 2000 from 63.0% in the three
     months ended July 31, 1999. The increase in absolute dollars and as a
     percentage of revenue was primarily due to increased staff to support a
     higher number of product-related engagements.

          Cost of custom development services revenue. Cost of custom
     development services revenue consists primarily of salaries and related
     costs for development, consulting, training and customer support personnel
     related to our custom development projects, including cost of services
     provided by third-party consultants engaged by us. Cost of custom
     development services revenue decreased $1.5 million, or 52.7%, to $1.4
     million in the three months ended July 31, 2000 from $2.9 million in the
     three months ended July 31, 1999. Cost of custom development services as a
     percentage of custom development services revenue decreased to 33.9% in the
     three months ended July 31, 2000 from 77.8% in the three months ended July
     31, 1999. The decrease in absolute dollars is primarily due to decreased
     staff supporting fewer custom development services engagements. The cost as
     a percentage of revenue in the three months ended July 31, 2000 is less
     than the same period of fiscal 1999 due to a higher average billing rate on
     the fiscal 2000 engagements.

                                       15
<PAGE>   17

     Sales and marketing expenses. Sales and marketing expenses consist
primarily of salaries, commissions and bonuses for sales and marketing personnel
and promotional expenses. Sales and marketing expenses increased $2.2 million,
or 38.0%, to $7.9 million in the three months ended July 31, 2000 from $5.7
million in the three months ended July 31, 1999. Sales and marketing expenses as
a percentage of total revenue decreased to 45.7% in the three months ended July
31, 2000 from 66.0% in the three months ended July 31, 1999. Sales and marketing
expenses increased in absolute dollars primarily due to the increase in
headcount in the sales area and the increase in commissions on our
product-related sales. Sales and marketing expenses decreased as a percentage of
total revenue primarily due to our revenue increasing at a greater rate than our
sales and marketing expense. We believe sales and marketing expenses will
continue to increase in absolute dollars as we expand our sales and marketing
organization and initiate additional marketing programs.

     Research and development expenses. Research and development expenses
consist primarily of salaries and personnel-related costs and the costs of
contractors associated with the development of new products, the enhancement of
existing products, and the performance of quality assurance and documentation
activities. Research and development expenses increased $938,000, or 36.8%, to
$3.5 million in the three months ended July 31, 2000 from $2.5 million in the
three months ended July 31, 1999. Research and development expenses as a
percentage of total revenue decreased to 20.1% in the three months ended July
31, 2000 from 29.3% in the three months ended July 31, 1999. These expenses
increased in absolute dollars as a result of increased utilization of
engineering and product development contractors associated with our investment
in the FirePond Application Suite, as well as the cost related to our product
development activities. Research and development expenses decreased as a
percentage of total revenue primarily due to our revenue increasing at a greater
rate than our research and development expenses in the three months ended July
31, 2000. We expect research and development expenses will continue to increase
in absolute dollars as we enhance our existing products and develop new
products.

     General and administrative expenses. General and administrative expenses
consist primarily of salaries, and other personnel-related cost for executive,
financial, human resource, information services, and other administrative
functions, as well as legal and accounting costs. General and administrative
expenses increased $693,000, or 38.2%, to $2.5 million in the three months ended
July 31, 2000 from $1.8 million in the three months ended July 31, 1999. General
and administrative expenses as a percentage of total revenue decreased to 14.5%
in the three months ended July 31, 2000 from 20.9% in the three months ended
July 31, 1999. These expenses increased in absolute dollars primarily as a
result of increased headcount and increased cost of infrastructure necessary to
support our growth. The decrease in general and administrative expenses as a
percentage of total revenue is attributable to our revenue increasing at a
greater rate than our general and administrative expenses. We expect that
general and administrative expenses will continue to increase to support our
expanding operations.

     Stock-based compensation expense. Stock-based compensation expense
increased $1.6 million, or 1110.5%, to $1.7 million in the three months ended
July 31, 2000 from $143,000 in the three months ended July 31, 1999. Stock-based
compensation expense as a percentage of total revenue increased to 10.0% in the
three months ended July 31, 2000 from 1.6% in the three months ended July 31,
1999. If we had allocated our stock-based compensation to the departments for
which the services were performed in the three months ended July 31, 2000, the
allocation would have increased cost of revenue by $27,000, sales and marketing
expenses by $1.0 million, research and development expenses by $613,000 and
general and administrative expenses by $74,000. For the three months ended July
31, 1999, the allocation would have increased cost of revenue by $13,000, sales
and marketing by $78,000, research and development expenses by $39,000 and
general and administrative expenses by $13,000. The increase in stock-based
compensation expense in the third quarter of fiscal 2000 primarily related to
$854,000 in awards to sales and marketing consultants and in connection with
strategic business alliances and $545,000 in awards to product development
contractors.

     Interest Income (Expense), net. Interest income (expense), net, improved to
$1.8 million of income in the three months ended July 31, 2000 from $102,000 of
expense in the three months ended July 31, 1999. The improvement is primarily
due to interest earned on increased cash and cash equivalents and short-term and
long-term investments as a result of our initial public offering on February 4,
2000.

     Other income (expense), net. Other income (expense), net primarily consists
of bank fees and foreign currency transaction gains and losses. Other income
(expense), net decreased $180,000 to $170,000 in

                                       16
<PAGE>   18

expense in the three months ended July 31, 2000 from $10,000 in income in the
three months ended July 31, 1999. The decline is primarily due to foreign
currency transaction losses in the three months ended July 31, 2000.

  Comparison of Nine Months Ended July 31, 1999 and 2000

     Revenue. Total revenue increased $18.6 million, or 76.5%, to $42.9 million
in the nine months ended July 31, 2000 from $24.3 million in the nine months
ended July 31, 1999. This increase is attributable to a 158.5% increase in
product-related revenue, offset by a planned decrease in custom development
services revenue associated with our change in focus from providing custom
development services to providing more standardized software products.

          License. License revenue increased $9.0 million, or 135.6%, to $15.6
     million in the nine months ended July 31, 2000 from $6.6 million in the
     nine months ended July 31, 1999. License revenue as a percentage of total
     revenue increased to 36.4% in the nine months ended July 31, 2000 from
     27.3% in the nine months ended July 31, 1999. The increase in license
     revenue in absolute dollars and as a percentage of total revenue is
     attributable to an increase in the number of licenses implemented at higher
     average selling prices.

          Product service and maintenance. Product service and maintenance
     revenue increased $10.4 million, or 185.6%, to $16.0 million in the nine
     months ended July 31, 2000 from $5.6 million in the nine months ended July
     31, 1999. Product services and maintenance revenue as a percentage of total
     revenue increased to 37.4% in the nine months ended July 31, 2000 from
     23.1% in the nine months ended July 31, 1999. The increase in absolute
     dollars and as a percentage of total revenue is attributable to an increase
     in the number of consulting engagements and maintenance agreements related
     to the increased license revenue during the period.

          Custom development services. Custom development services revenue
     decreased $812,000, or 6.7%, to $11.2 million in the nine months ended July
     31, 2000 from $12.1 million in the nine months ended July 31, 1999. Custom
     development services revenue as a percentage of total revenue decreased to
     26.2% in the nine months ended July 31, 2000 from 49.6% in the nine months
     ended July 31, 1999. The decrease in absolute dollars and as a percentage
     of total revenue is due to the change of our strategic focus.

     Cost of revenue. Total cost of revenue increased $1.7 million, or 13.7%, to
$14.4 million in the nine months ended July 31, 2000 from $12.6 million in the
nine months ended July 31, 1999. Total cost of revenue as a percentage of total
revenue decreased to 33.5% in the nine months ended July 31, 2000 from 52.1% in
the nine months ended July 31, 1999.

          Cost of license revenue. Cost of license revenue increased $289,000,
     or 210.9% to $426,000 in the nine months ended July 31, 2000 from $137,000
     in the nine months ended July 31, 1999. Cost of license revenue as a
     percentage of license revenue increased to 2.7% in the nine months ended
     July 31, 2000 from 2.1% in the nine months ended July 31, 1999. The
     increase in cost of license revenue is due primarily to an increase in
     royalty charges associated with the increase in license revenue.

          Cost of product-related services and maintenance revenue. Cost of
     product-related services and maintenance revenue increased $5.7 million, or
     146.3%, to $9.6 million in the nine months ended July 31, 2000 from $3.9
     million in the nine months ended July 31, 1999. Cost of product-related
     services and maintenance revenue as a percentage of product-related
     services and maintenance revenue decreased to 59.9% in the nine months
     ended July 31, 2000 from 69.4% in the nine months ended July 31, 1999. The
     increase in absolute dollars is primarily due to increased staff to support
     the higher number of product-related engagements. The decrease in cost as a
     percentage of revenue is due to increased utilization of professional
     services staff and a higher average billing rate in the nine months ended
     July 31, 2000.

          Cost of custom development services revenue. Cost of custom
     development services revenue decreased $4.3 million, or 49.3%, to $4.4
     million in the nine months ended July 31, 2000 from $8.6 million in the
     nine months ended July 31, 1999. Cost of custom development services as a
     percentage of custom development services revenue decreased to 38.9% in the
     nine months ended July 31, 2000 from 71.5% in the nine months ended July
     31, 1999. The decrease in absolute dollars is primarily due to decreased
     staff supporting fewer custom development services engagements. The cost as
     a

                                       17
<PAGE>   19

     percentage of revenue in the nine months ended July 31, 2000 is less than
     the same period of fiscal 1999 due to a higher average billing rate on the
     fiscal 2000 engagements.

     Sales and marketing expenses. Sales and marketing expenses increased $4.0
million, or 23.3%, to $21.0 million in the nine months ended July 31, 2000 from
$17.0 million in the nine months ended July 31, 1999. Sales and marketing
expenses as a percentage of total revenue decreased to 49.0% in the nine months
ended July 31, 2000 from 70.1% in the nine months ended July 31, 1999. Sales and
marketing expenses increased in absolute dollars primarily due to increased
headcount in our sales operations, as well as increase in commissions on
product-related sales. Sales and marketing expenses decreased as a percentage of
total revenue primarily due to our revenue increasing at a greater rate than our
sales and marketing expenses.

     Research and development expenses. Research and development expenses
increased $4.5 million, or 70.0%, to $10.8 million in the nine months ended July
31, 2000 from $6.4 million in the nine months ended July 31, 1999. Research and
development expenses as a percentage of total revenue decreased to 25.3% in the
nine months ended July 31, 2000 from 26.2% in the nine months ended July 31,
1999. These expenses increased in absolute dollars as a result of increased
headcount in product development and increased utilization of engineering and
product development contractors associated with our investment in the FirePond
Application Suite. Research and development expenses decreased as a percentage
of total revenue primarily due to our revenue increasing at a greater rate than
our research and development expenses.

     General and administrative expenses. General and administrative expenses
increased $1.6 million, or 32.6%, to $6.7 million in the nine months ended July
31, 2000 from $5.1 million in the nine months ended July 31, 1999. General and
administrative expenses as a percentage of total revenue decreased to 15.7% in
the nine months ended July 31, 2000 from 20.8% in the nine months ended July 31,
1999. These expenses increased in absolute dollars primarily as a result of
increased headcount in our general and administrative functions and increased
cost of infrastructure necessary to support our growth. The decrease in general
and administrative expenses as a percentage of total revenue is attributable to
our revenue increasing at a greater rate than our general and administrative
expenses.

     Stock-based compensation expense. Stock-based compensation expense
increased $3.9 million, or 484.6%, to $4.7 million in the nine months ended July
31, 2000 from $798,000 in the nine months ended July 31, 1999. Stock-based
compensation expense as a percentage of total revenue increased to 10.9% in the
nine months ended July 31, 2000 from 3.3% in the nine months ended July 31,
1999. If we had allocated our stock-based compensation to the departments for
which the services were performed in the nine months ended July 31, 2000, the
allocation would have increased cost of revenue by $79,000, sales and marketing
expenses by $3.0 million, research and development expenses by $1.3 million and
general and administrative expenses by $286,000. For the nine months ended July
31, 1999, the allocation would have increased cost of revenue by $13,000, sales
and marketing by $78,000, research and development expenses by $110,000 and
general and administrative expenses by $597,000. The increase in stock-based
compensation expense in the first nine months of fiscal 2000 primarily related
to $1.8 million in awards to sales and marketing consultants and in connection
with strategic business alliances, $1.1 million in awards to development
contractors, and a stock-for-stock option exercise which triggered a new
measurement date resulting in a $676,000 charge for the value of the exercised
stock options.

     Interest Income (Expense), net. Interest income (expense), net, improved to
$2,203,000 of income in the nine months ended July 31, 2000 from $391,000 of
expense in the nine months ended July 31, 1999. The improvement is primarily due
to interest earned on increased cash and cash equivalents and short and long-
term investments as a result of our initial public offering partially offset by
interest expense primarily related to the issuance of subordinated notes
payable.

     Other income (expense), net. Other income (expense), net improved to
$359,000 of income in the nine months ended July 31, 2000 from $13,000 of
expense in the nine months ended July 31, 1999. The improvement is primarily
attributed to foreign currency transaction net gains in the nine months ended
July 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

     On February 4, 2000, we completed our initial public offering of 5,000,000
shares of common stock. Additionally, on February 25, 2000, the underwriters of
the initial public offering exercised their over-

                                       18
<PAGE>   20

allotment option to purchase an additional 666,666 shares. At the offering price
of $22.00 per share, we received $113.8 million from these transactions, net of
underwriting discounts and commissions and offering expenses.

     As of July 31, 2000, cash and cash equivalents were $97.9 million and
short-term investments were $22.0 million as compared with $2.1 million of cash
and cash equivalents as of October 31, 1999. Our working capital at July 31,
2000 was $102.7 million, compared to a working capital deficit of $11.4 million
at October 31, 1999.

     Net cash provided by operating activities was $5.6 million in the nine
months ended July 31, 2000, compared with net cash used in operating activities
of $18.0 million in the nine months ended July 31, 1999. Cash provided by
operating activities in the nine months ended July 31, 2000 was primarily
attributable to a decrease in accounts receivable, an increase in accrued
liabilities and deferred revenue, and non-cash expenses including depreciation,
amortization, stock-based compensation expense and the loss on early
extinguishment of debt, offset in part by our net loss and a decrease in
accounts payable.

     Net cash used in investing activities was $24.6 million in the nine months
ended July 31, 2000, compared with $0.8 million in the nine months ended July
31, 1999. Net cash used in investing activities in the nine months ended July
31, 2000 was primarily attributable to utilizing the proceeds from our initial
public offering to purchase short-term investments and to a lesser extent the
purchase of property and equipment to support our expanding operations.

     Net cash provided by financing activities was $114.8 million in the nine
months ended July 31, 2000, compared with $18.4 million in the nine months ended
July 31, 1999. Proceeds from financing activities for the nine months ended July
31, 2000 were primarily from the sale of common stock during our initial public
offering and the exercise of stock options and warrants, partially offset by
payment on the line of credit. Net cash provided by financing activity for the
nine months ended July 31, 1999 was primarily from our sale of 6,734,008 shares
of series F preferred stock at $2.97 per share totaling $20.0 million in
February 1999.

     Effective September 29, 1999, we amended our line of credit agreement with
a financial institution to increase the total commitment to $7.0 million
consisting of a $2.0 million term note and a line of credit based on 80% of
qualifying accounts receivables, as defined, up to $5.0 million. The amended
line of credit and term loan matured on October 21, 2000 and charged interest at
prime rate plus 2.0%, limited to a minimum of 8.0% per year, payable monthly. We
also paid a fee of 0.5% per year on the unused line of credit. In February 2000,
we repaid and terminated the line of credit and term note with the proceeds from
our initial public offering.

     On November 12, 1999, we borrowed $6.0 million of subordinated indebtedness
from an outside investor and two of our existing stockholders. The indebtedness
bore interest at 12.0% and was due upon the closing of our initial public
offering. We also issued to these lenders warrants to purchase an aggregate of
360,000 shares of our common stock at an exercise price of $5.25 per share. We
recorded the warrants as a discount totaling $1.9 million against the carrying
value of the subordinated notes payable. In February 2000, we repaid the
subordinated notes with the proceeds from our initial public offering.

     We anticipate a substantial increase in our capital expenditures consistent
with anticipated growth in operations, infrastructure and personnel. We believe
that the net proceeds of our initial public offering will be sufficient to meet
our anticipated cash need for working capital and capital expenditures for at
least the next 12 months. However, we may need to raise additional funds in the
next 12 months or in the future to support more rapid expansion of our sales
force, develop new or enhanced products or services, respond to competitive
pressures, acquire complementary businesses or technologies or respond to
unanticipated requirements. If we seek to raise additional funds, we may not be
able to obtain funds on terms which are favorable or acceptable to us. If we
raise additional funds through the issuance of equity securities, the percentage
ownership of our existing stockholders would be reduced. Furthermore, these
securities may have rights, preferences or privileges senior to our common
stock.

YEAR 2000 READINESS

     We experienced no significant disruptions in either information technology
systems or non-information systems as a result of the date change to the year
2000. We continue to monitor these systems to ensure any latent date-related
matters that may arise are properly addressed. Costs associated with the
evaluation and

                                       19
<PAGE>   21

modification of information and non-information systems were expensed as
incurred and were not material to the financial position or results of our
operations.

     To date, we have not experienced any problems with our computer systems
relating to the Year 2000 issue. We also are unaware of any material Year 2000
problems with our clients or vendors. Accordingly, we do not anticipate
incurring material expenses or experiencing any material operational disruptions
as a result of any Year 2000 problems.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for 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. SFAS No. 133 is not expected to
have a material impact on our consolidated financial statements.

     In March 2000, the FASB issued Interpretation Number 44, Accounting for
Certain Transactions Involving Stock Compensation -An Interpretation of APB No.
25. The Interpretation clarifies the application of APB No. 25 in certain
situations, as defined. The Interpretation is effective July 1, 2000 but covers
certain events having occurred after December 15, 1998. To the extent that
events covered by the Interpretation occur during the period after December 15,
1998, but before the issuance of the Interpretation, the effects of applying
this Interpretation would be recognized on a prospective basis from the
effective date. Accordingly, upon initial application of the Interpretation, (a)
no adjustment would be made to financial statements for the periods before the
effective date and (b) no expense would be recognized for any additional
compensation cost measured that is attributed to periods before the effective
date. The adoption of this Interpretation did not have a material impact on the
accompanying financial statements.

RISK FACTORS

     As defined under Safe Harbor provisions of The Private Securities
Litigation Reform Act of 1995, except for the historical information contained
herein, some of the matters discussed in this filing contain forward-looking
statements regarding future events that are subject to risks and uncertainties.
The following factors, among others, could cause actual results to differ
materially from those described by such statements. These factors include, but
are not limited to: quarterly fluctuations in operating results attributable to
the timing and amount of orders for our products and services, the timing of the
implementation of the software in the customers' applications, market acceptance
of the FirePond Application Suite and its components, , our ability to keep pace
with changing product requirements, factors affecting the demand for e-business
sales and marketing solutions, , and those risks factors contained in the
section titled "Risk Factors" beginning on page 4 of our Registration Statement
on Form S-1 (No. 333-90911) declared effective by the Securities and Exchange
Commission.

                                       20
<PAGE>   22

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We develop products in the United States and Belarus and sell them
worldwide. As a result, our financial results could be affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. Since the majority of our sales are currently priced in U.S.
dollars and are translated to local currency amounts, a strengthening of the
dollar could make our products less competitive in foreign markets. Our interest
income is sensitive to changes in the general level of U.S. interest rates,
particularly since the majority of our investments are in short-term
instruments. Due to the short-term nature of our investments, we do not believe
that we have a material risk exposure.

                          PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     We are engaged in legal proceedings incidental to the normal course of
business. Although the ultimate outcome of these matters cannot be determined,
we believe that the final outcome of these proceedings will not seriously harm
our business.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     Not applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     Not applicable

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

     Not applicable

ITEM 5.  OTHER INFORMATION

     Not applicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     See the Exhibit Index attached thereto.

                                       21
<PAGE>   23

                                   SIGNATURES

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

                                          FIREPOND, INC.

                                          /s/ KLAUS P. BESIER
                                          --------------------------------------
                                          Klaus P. Besier
                                          Chairman, President, Chief Executive
                                          Officer and Director (Principal
                                          Executive Officer)

                                          /s/ PAUL K. MCDERMOTT
                                          --------------------------------------
                                          Paul K. McDermott
                                          Chief Financial Officer and Vice
                                          President of Finance and
                                          Administration (Principal Financial
                                          Officer and Principal Accounting
                                          Officer)

Dated: September 14, 2000

                                       22
<PAGE>   24

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
  NO.                            DESCRIPTION
-------                          -----------
<S>      <C>
27.1     Financial Data Schedule for the nine months ended July 31,
         2000
</TABLE>

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