<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
                                JANUARY 31, 2000

                                       OR

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

                        COMMISSION FILE NUMBER 333-90911

                                 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,                                   02451
            WALTHAM, MASSACHUSETTS                               (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</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  [ ]

                           (2)  Yes  [ ]     No  [X]

     As of January 31, 2000 there were 10,182,002 shares of the Registrant's
Common Stock outstanding.

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<PAGE>   2

                        FIREPOND, INC. AND SUBSIDIARIES

                                   FORM 10-Q
                         QUARTER ENDED JANUARY 31, 2000

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                PAGE NO.
                                                                                --------
<S>      <C>      <C>                                                           <C>
PART I   FINANCIAL INFORMATION
                  Financial Statements
         Item 1.
                  Condensed Consolidated Balance Sheets --                          2
                       October 31, 1999 and January 31, 2000..................
                  Condensed Consolidated Statements of Operations --                3
                       Three Months Ended January 31, 1999 and 2000...........
                  Condensed Consolidated Statements of Cash Flows --                4
                       Three Months Ended January 31, 1999 and 2000...........
                  Notes to Condensed Consolidated Financial Statements........      5
                  Management's Discussion and Analysis of Financial Condition      11
         Item 2.       and Results of Operations..............................
                  Quantitative and Qualitative Disclosures About Market            18
         Item 3.       Risk...................................................
PART II  OTHER INFORMATION
                  Legal Proceedings...........................................     19
         Item 1.
                  Changes in Securities and Use of Proceeds...................     19
         Item 2.
                  Defaults Upon Senior Securities.............................     19
         Item 3.
                  Submission of Matters to a Vote of Security Holders.........     19
         Item 4.
                  Other Information...........................................     20
         Item 5.
                  Exhibits and Reports on Form 8-K............................     20
         Item 6.
SIGNATURES....................................................................     21
</TABLE>

                                        1
<PAGE>   3

                        FIREPOND, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                              OCTOBER 31,    JANUARY 31,
                                                                 1999           2000
                                                              -----------    -----------
<S>                                                           <C>            <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................   $  2,120       $  3,371
  Accounts receivable, net..................................      9,910         11,487
  Unbilled services.........................................      1,191          1,007
  Prepaid expenses and other current assets.................      1,265          1,288
                                                               --------       --------
          Total current asset...............................     14,486         17,153
Property and equipment, net.................................      6,048          6,012
Restricted cash.............................................        550            550
Other assets................................................        576            888
                                                               --------       --------
                                                               $ 21,660       $ 24,603
                                                               ========       ========
                     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Line of credit............................................   $  6,740       $  6,945
  Subordinated notes payable................................         --          4,508
  Current portion of long-term debt.........................      1,313          1,159
  Accounts payable..........................................      3,833          1,548
  Accrued liabilities.......................................      5,700          7,444
  Deferred revenue..........................................      8,280         10,001
                                                               --------       --------
          Total current liabilities.........................     25,866         31,605
Long-term debt, less current portion........................        702            425
Restructuring accrual, less current portion.................        446            392
Stockholders' equity (deficit):
  Preferred stock, $0.01 par value --
     Authorized -- 50,000,000 shares;
     Issued and outstanding -- 19,097,793 shares at October
     31, 1999 and January 31, 2000..........................        191            191
  Common stock, $0.01 par value --
     Authorized -- 100,000,000 shares;
     Issued and outstanding -- 10,072,817 shares at October
     31, 1999 and 10,182,002 shares at January 31, 2000.....        101            102
  Additional paid-in capital................................     62,380         66,566
  Accumulated deficit.......................................    (61,793)       (67,616)
  Deferred compensation.....................................     (5,893)        (6,504)
  Cumulative translation adjustment.........................       (327)          (515)
  Subscription receivables..................................        (13)           (43)
                                                               --------       --------
          Total stockholders' equity (deficit)..............     (5,354)        (7,819)
                                                               --------       --------
                                                               $ 21,660       $ 24,603
                                                               ========       ========
</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
                                                              ENDED JANUARY 31,
                                                              ------------------
                                                               1999       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Revenues:
  Product-related revenues:
     License................................................  $ 1,607    $ 3,907
     Services and maintenance...............................    1,296      4,458
                                                              -------    -------
          Total product-related revenues....................    2,903      8,365
  Custom development services...............................    4,283      3,612
                                                              -------    -------
          Total revenues....................................    7,186     11,977
                                                              -------    -------
Cost of revenues:
  License...................................................       46        129
  Product-related services and maintenance(1)...............      998      2,283
  Custom development services...............................    3,001      1,599
                                                              -------    -------
          Total cost of revenues............................    4,045      4,011
                                                              -------    -------
Gross profit................................................    3,141      7,966
Operating expenses:
  Sales and marketing(1)....................................    4,758      6,418
  Research and development(1)...............................    1,997      3,697
  General and administrative(1).............................    1,531      1,962
  Stock-based compensation..................................      232      1,167
                                                              -------    -------
          Total operating expenses..........................    8,518     13,244
                                                              -------    -------
Loss from operations........................................   (5,377)    (5,278)
Interest expense............................................     (195)      (807)
Other income (expense), net.................................      (40)       262
                                                              -------    -------
Net loss....................................................  $(5,612)   $(5,823)
                                                              =======    =======
Net loss per share (Note 5(a)):
  Basic and diluted net loss per share......................  $ (0.56)   $ (0.58)
                                                              =======    =======
  Basic and diluted weighted average common shares
     outstanding............................................   10,005     10,101
                                                              =======    =======
Pro forma net loss per share (Note 5(b)):
  Pro forma net loss per share..............................  $ (0.25)   $ (0.21)
                                                              =======    =======
  Pro forma basic and diluted weighted average common shares
     outstanding............................................   22,060     27,566
                                                              =======    =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 THREE MONTHS
                                                              ENDED JANUARY 31,
                                                              ------------------
                                                               1999       2000
                                                              ------    --------
<S>                                                           <C>       <C>
Cost of revenues............................................   $ --      $   44
Operating expenses:
  Sales and marketing.......................................     --         640
  Research and development..................................     66         296
  General and administrative................................    166         187
                                                               ----      ------
Total stock-based compensation..............................   $232      $1,167
                                                               ====      ======
</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>
                                                                 THREE MONTHS
                                                              ENDED JANUARY 31,
                                                              ------------------
                                                               1999       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Cash flows from operating activities:
  Net loss..................................................  $(5,612)   $(5,823)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Stock-based compensation expense.......................      232      1,167
     Loss on disposal of property and equipment.............       48         --
     Depreciation and amortization..........................      614        797
     Non-cash interest expense..............................       --        413
     Changes in assets and liabilities:
       Accounts receivables.................................   (3,511)    (1,654)
       Unbilled services....................................     (310)       184
       Prepaid expenses and other current assets............      (71)       (23)
       Accounts payable.....................................      535     (2,332)
       Accrued liabilities..................................     (735)     1,643
       Deferred revenue.....................................    3,782      1,721
                                                              -------    -------
          Net cash used in operating activities.............   (5,028)    (3,907)
                                                              -------    -------
Cash flows from investing activities:
  Purchases of property and equipment.......................     (224)      (688)
  Proceeds from sale of property and equipment..............    2,557         --
  Decrease (increase) in investments and deposits...........      188       (318)
                                                              -------    -------
          Net cash provided by (used in) investing
           activities.......................................    2,521     (1,006)
                                                              -------    -------
Cash flows from financing activities:
  Net borrowings on line of credit..........................    4,452        205
  Proceeds from subordinated notes payable..................       --      6,000
  Payments on long-term debt................................   (3,646)      (431)
  Proceeds from common stock issuance.......................        1        437
  Increase in subscription receivables......................       --        (30)
                                                              -------    -------
          Net cash provided by financing activities.........      807      6,181
                                                              -------    -------
Effect of exchange rate changes on cash and cash
  equivalents...............................................      (10)       (17)
                                                              -------    -------
Net increase (decrease) in cash and cash equivalents........   (1,710)     1,251
Cash and cash equivalents, beginning of period..............    2,324      2,120
                                                              -------    -------
Cash and cash equivalents, end of period....................  $   614    $ 3,371
                                                              =======    =======
Supplemental cash flow information:
  Interest paid.............................................  $   195    $   394
                                                              =======    =======
Noncash investing and financing activities:
  Equipment acquired under capital lease obligations........  $   273    $    --
                                                              =======    =======
  Warrants issued in conjunction with subordinated notes
     payable................................................  $    --    $ 1,904
                                                              =======    =======
</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 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
months ended January 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 statement of the results of these periods. These
condensed consolidated financial statements should be read in conjunction with
our consolidated financial statements and notes thereto included in our
Registration Statement on Form S-1 for the fiscal year ended October 31, 1999.
The results of operations for the three months ended January 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 $115.9 million from these transactions, net of
underwriting discounts and commissions.

     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 in
3,812,532 shares of common stock upon consummation of our initial public
offering. This payment will be accounted for as a stock dividend. 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. The
stock dividend on the preferred stock will increase the loss attributable to
common stockholders, which will result in an increased net loss per share in the
quarter ending April 30, 2000.

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. 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts. The American Institute of Certified Public
Accountants recently issued SOP No. 98-9, which provides amendments to SOP No.
97-2, and was effective for transactions entered into beginning January 1, 2000.
This pronouncement has not materially impacted the Company's revenue recognition
practices.

                                        5
<PAGE>   7
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

     Product-Related Revenues

     Product-related license revenues are generated from licensing the rights to
the perpetual use of the Company's packaged software products. Product-related
service revenues are 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 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 on 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.

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

     Custom Development Services Revenues

     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. Revenues from these
arrangements are 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. Billings in excess of costs represent the amounts billed under
custom development service agreements in advance of the performance of the work
as

                                        6
<PAGE>   8
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

  (c) 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.

  (d) Comprehensive Income (Loss)

     The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
requires that items defined as other comprehensive income, such as foreign
currency translation adjustments, be separately classified in the financial
statements and that the accumulated balance of other comprehensive income be
reported separately from retained earnings and additional paid-in capital in the
equity section of the balance sheet. The components of comprehensive income for
the three months ended January 31, 1999 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                 THREE MONTHS
                                                              ENDED JANUARY 31,
                                                              ------------------
                                                               1999       2000
                                                              -------    -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Comprehensive income:
  Net loss..................................................  $(5,612)   $(5,823)
  Other comprehensive loss
  Foreign currency adjustment...............................      (39)      (188)
                                                              -------    -------
Comprehensive loss..........................................  $(5,651)   $(6,011)
                                                              =======    =======
</TABLE>

4. 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 FirePond Inc.'s
existing series F preferred stock at a rate of $2.97 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

                                        7
<PAGE>   9
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, the Company will record a $1,437,000 loss on
extinguishment of debt for the amount of unamortized discount at the time of
repayment. This will be classified as an extraordinary item.

5. 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 the three months ended January 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>
                                                                 THREE MONTHS
                                                              ENDED JANUARY 31,
                                                              ------------------
                                                               1999       2000
                                                              -------    -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Common stock options and warrants...........................   5,997     11,163
                                                              ======     ======
Convertible preferred stock.................................  12,364     19,098
                                                              ======     ======
Preferred stock warrants....................................     190        864
                                                              ======     ======
</TABLE>

  (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 that converted upon the
completion of the Company's proposed initial public offering in February 2000,
using the if-converted method, from the original date of issuance.

                                        8
<PAGE>   10
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                 THREE MONTHS
                                                              ENDED JANUARY 31,
                                                              ------------------
                                                               1999       2000
                                                              -------    -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Pro forma basic and diluted:
  Weighted average common shares outstanding used in
     computing basic and diluted net loss per share.........  10,005     10,101
  Weighted average common shares issuable upon the
     conversion of preferred stock..........................   8,242     13,403
  Weighted average common shares issuable upon settlement of
     the priority payments..................................   3,813      3,813
  Weighted average common shares issuable upon exercise of
     series F preferred stock warrants......................      --        249
                                                              ------     ------
  Weighted average common shares outstanding used in
     computing pro forma basic and diluted net loss per
     share..................................................  22,060     27,566
                                                              ======     ======
</TABLE>

6. 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

     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 have been reserved for future
issuance, (2) the 1999 director stock option plan under which 500,000 additional
shares of the Company's common stock have been 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.

     During the three months ended January 31, 2000, the Company granted options
to employees and non-employees to purchase 2,605,773 shares of common stock at a
weighted-average exercise price of $10.23 per share. The options granted to
employees are generally subject to vesting over a four-year period and were
granted at exercise prices equal to the fair value of common stock.

  (c) Warrants

     In connection with a consulting arrangement valued at $1.0 million, 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 to two customers in connection with license arrangements to purchase a
total of 36,667 shares of common stock at an exercise price of $11.00 per share.
The estimated value of these warrants totaled $224,000 at the time of

                                        9
<PAGE>   11
                        FIREPOND, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

grant and has been recorded as a reduction in the amount of future revenue to be
recognized associated with these two customers. All of these warrants were
outstanding as of January 31, 2000.

7. 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
revenues 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. Therefore, identifiable assets, capital expenditures and depreciation
and amortization are not reported by segment.

                                       10
<PAGE>   12

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. The Company assumes 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 provider of integrated e-business sales and marketing
solutions for companies wishing to offer complex products and services through
business-to-business and business-to-consumer e-commerce channels. From our
inception in 1983 through 1997, we generated revenues 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 revenues as a percentage of total revenues increased from 1.5%
in fiscal 1997 to 23.6% in fiscal 1998 and to 53.6% in fiscal 1999, and from
40.4% in the three months ended January 31, 1999 to 69.8% in the three months
ended January 31, 2000.

     We anticipate that product-related revenues 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 revenues will be attributable to product-related revenues 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 revenues, as we
have strategically de-emphasized that business and do not plan to accept new
custom development contracts. Custom development services revenues will continue
to represent a material portion of total revenues until existing custom
development contracts and related maintenance agreements are completed. Custom
development services revenues 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
revenues 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 revenues 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 revenues 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 revenues from product-related
license agreements over the implementation period. We recognize these revenues
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
                                       11
<PAGE>   13

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

     We recognize revenues 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 revenues as
the services are performed. Consulting and training revenues are primarily
related to implementation services performed on a time-and-materials basis under
separate service arrangements.

     Revenues from custom software development projects can be either
fixed-price or on a time-and-materials basis. We recognize revenues as the
services are performed when the project is based on time-and-materials. We
recognize revenues 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 revenues 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 revenues 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 customers and to a strategic business partner. 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 $232,000 for the quarter ended January 31,
1999 and $1.2 million for the quarter ended January 31, 2000. As of January 31,
2000, the deferred compensation balance was approximately $6.5 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 $5.8 million for the three months ended January 31,
2000. We expect to continue to incur losses on both a quarterly and annual basis
in the future.

                                       12
<PAGE>   14

     Our previously outstanding series A, series C and series G preferred stock,
as well as shares of our common stock outstanding on May 20, 1997 other than
those shares held by General Atlantic Partners, 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 for the shares of our
common stock outstanding on May 20, 1997 other than those shares held by General
Atlantic Partners. 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 in 3,812,532
shares of common stock upon consummation of the initial public offering. This
payment will be accounted for as a stock dividend. We will charge our additional
paid-in capital account in February 2000 for the fair value of the shares of
common stock issued. At the initial public offering price of $22.00 per share,
the value of the stock dividend totals $65.5 million for the series A, series C
and series G preferred stockholders, and $18.3 million for the stock dividend on
the shares of our common stock outstanding on May 20, 1997 other than those
shares held by General Atlantic Partners. To the extent that the payment relates
to the preferred stock, we will also increase our net loss and basic and diluted
net loss per share attributable to common stockholders.

     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 revenues:

<TABLE>
<CAPTION>
                                                                 THREE MONTHS
                                                              ENDED JANUARY 31,
                                                              ------------------
                                                               1999       2000
                                                              -------    -------
<S>                                                           <C>        <C>
Revenues:
  Product-related revenues:
     License................................................    22.4%      32.6%
     Services and maintenance...............................    18.0       37.2
                                                               -----      -----
          Total product-related revenues....................    40.4       69.8
  Custom development services...............................    59.6       30.2
                                                               -----      -----
          Total revenues....................................   100.0      100.0
                                                               -----      -----
Cost of revenues:
  License...................................................     0.6        1.1
  Product-related services and maintenance..................    13.9       19.1
  Custom development services...............................    41.8       13.3
                                                               -----      -----
          Total cost of revenues............................    56.3       33.5
                                                               -----      -----
Gross profit................................................    43.7       66.5
Operating expenses:
  Sales and marketing.......................................    66.2       53.6
  Research and development..................................    27.8       30.9
  General and administrative................................    21.3       16.4
  Stock-based compensation..................................     3.2        9.7
                                                               -----      -----
          Total operating expenses..........................   118.5      110.6
                                                               -----      -----
Loss from operations........................................   (74.8)     (44.1)
Interest expense............................................    (2.7)      (6.7)
Other income (expense), net.................................    (0.6)       2.2
                                                               -----      -----
Net loss....................................................   (78.1)%    (48.6)%
                                                               =====      =====
</TABLE>

                                       13
<PAGE>   15

COMPARISON OF THREE MONTHS ENDED JANUARY 31, 1999 AND 2000

     Revenues.  Total revenues increased $4.8 million, or 66.7%, to $12.0
million in the three months ended January 31, 2000 from $7.2 million in the
three months ended January 31, 1999. This increase is attributable to a 188.2%
increase in product-related revenues, offset by a planned decrease in custom
development services revenues, associated with our change in focus from
providing custom development services to providing more standardized software
products.

        License.  License revenues increased $2.3 million, or 143.1%, to $3.9
     million in the three months ended January 31, 2000 from $1.6 million in the
     three months ended January 31, 1999. License revenues as a percentage of
     total revenues increased to 32.6% in the three months ended January 31,
     2000 from 22.4% in the three months ended January 31, 1999. The increase in
     license revenues in absolute dollars and as a percentage of total revenues
     is primarily attributable to an increase in the number of licenses
     implemented at higher average selling prices. We anticipate that license
     revenues 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 reference base,
     increased marketing efforts, and increases in both the size and
     productivity of our sales force.

        Product service and maintenance.  Product service and maintenance
     revenues increased $3.2 million, or 244.0%, to $4.5 million in the three
     months ended January 31, 2000 from $1.3 million in the three months ended
     January 31, 1999. Product services revenues as a percentage of total
     revenues increased to 37.2% in the three months ended January 31, 2000 from
     18.0% in the three months ended January 31, 1999. The increase in absolute
     dollars and as a percentage of total revenues is attributable to the
     increase in the number of consulting engagements and maintenance agreements
     related to the increased license sales during the period.

        Custom development services.  Custom development services revenues
     decreased $671,000, or 15.6%, to $3.6 million in the three months ended
     January 31, 2000 from $4.3 million in the three months ended January 31,
     1999. Custom development services revenues as a percentage of total
     revenues decreased to 30.2% in the three months ended January 31, 2000 from
     59.6% in the three months ended January 31, 1999. The decrease in absolute
     dollars and as a percentage of total revenues is due to the change of our
     strategic focus. We expect custom development services revenues to continue
     to decline in absolute dollars and as a percentage of total revenues.

     Cost of revenues.  Total cost of revenues remained consistent at $4.0
million in the three months ended January 31, 2000 and 1999. Total cost of
revenues as a percentage of total revenues decreased to 33.5% in the three
months ended January 31, 2000 from 56.3% in the three months ended January 31,
1999.

        Cost of license revenues.  Cost of license revenues consists primarily
     of costs of royalties, media, product packaging, documentation and other
     production cost. Cost of license revenues in the three months ended January
     31, 1999 also included amortization of capitalized software development
     costs. Cost of license revenues increased $83,000, or 180.0% to $129,000 in
     the three months ended January 31, 2000 from $46,000 in the three months
     ended January 31, 1999. Cost of license revenues as a percentage of license
     revenues increased to 3.3% in the three months ended January 31, 2000 from
     2.9% in the three months ended January 31, 1999. The increase in cost of
     license revenues is due primarily to the increase in license revenue,
     offset by a $44,000 decrease in amortization of software development costs.

        Cost of product-related services and maintenance revenues. Cost of
     product-related services and maintenance revenues 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 revenues
     increased $1.3 million, or 128.8%, to $2.3 million in the three months
     ended January 31, 2000 from $998,000 in the three months ended January 31,
     1999. Cost of product-related services and maintenance revenues as a
     percentage of product-related services and maintenance revenues decreased
     to 51.2% in the three months ended January 31, 2000 from 77.0% in the three
     months ended January 31, 1999. The increase in absolute dollars was
     primarily due to

                                       14
<PAGE>   16

     increased staff to supporting a 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 billing
     rate in the three months ended January 31, 2000.

        Cost of custom development services revenues.  Cost of custom
     development services revenues consists primarily of salaries and related
     costs for development, consulting, training and customer support personnel
     as it relates to our custom development projects, including cost of
     services provided by third-party consultants engaged by us. Cost of custom
     development services revenues decreased $1.4 million, or 46.8%, to $1.6
     million in the three months ended January 31, 2000 from $3.0 million in the
     three months ended January 31, 1999. Cost of custom development services as
     a percentage of custom development services revenues decreased to 44.2% in
     the three months ended January 31, 2000 from 70.1% in the three months
     ended January 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
     January 31, 2000 is less than the same period of fiscal 1999 because the
     custom development engagements in the first quarter of fiscal 2000 are more
     profitable on average and generated more average revenue per hour worked.

     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 $1.7 million,
or 34.9%, to $6.4 million in the three months ended January 31, 2000 from $4.7
million in the three months ended January 31, 1999. Sales and marketing expenses
as a percentage of total revenues decreased to 53.6% in the three months ended
January 31, 2000 from 66.2% in the three months ended January 31, 1999. Sales
and marketing expenses increased in absolute dollars primarily due to increased
headcount in our sales operations, particularly our international direct sales
channel, as well as a $511,000 increase in commissions on the higher level of
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 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 $1.7 million, or 85.1%,
to $3.7 million in the three months ended January 31, 2000 from $2.0 million in
the three months ended January 31, 1999. Research and development expenses as a
percentage of total revenues increased to 30.9% in the three months ended
January 31, 2000 from 27.8% in the three months ended January 31, 1999. These
expenses increased in absolute dollars and as a percentage of total revenue as a
result of increased headcount in our product development operation and increased
utilization of engineering and product development contractors associated with
our investment in the FirePond Application Suite. We expect research and
development expenses will continue to increase as we maintain and enhance our
existing products and conduct research for 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 $431,000, or 28.2%, to $2.0 million in the three months ended
January 31, 2000 from $1.5 million in the three months ended January 31, 1999.
General and administrative expenses as a percentage of total revenues decreased
to 16.4% in the three months ended January 31, 2000 from 21.3% in the three
months ended January 31, 1999. These expenses increased in absolute dollars
primarily as a result of increased headcount in our general administrative
function and increased cost of our infrastructure necessary to support our
growth. The decrease in general and administrative expenses as a percentage of
total revenue is attributable to the increase in our revenue. We expect that
general and administrative expenses will continue to increase as we continue to
add personnel to support our expanding operations, incur additional costs
related to the growth of our business, and assume the responsibility and the
costs associated with being a public company.

                                       15
<PAGE>   17

     Stock-based compensation expense.  Stock-based compensation expense
increased $935,000, or 403.0%, to $1.2 million in the three months ended January
31, 2000 from $232,000 in the three months ended January 31, 1999. Stock-based
compensation expense as a percentage of total revenues increased to 9.7% in the
three months ended January 31, 2000 from 3.2% in the three months ended January
31, 1999. If we had allocated our stock-based compensation to the departments
for which the services were performed in the three months ended January 31,
2000, the allocation would have increased cost of revenues by $44,000, sales and
marketing expenses by $640,000, research and development expenses by $296,000
and general and administrative expenses by $187,000. For the three months ended
January 31, 1999, the allocation would have increased research and development
expenses by $66,000 and general and administrative expenses by $166,000. The
increase in stock-based compensation expense in the first quarter of fiscal 2000
primarily related to sales and marketing activities including $299,000 in awards
to employees at exercise prices below fair market value and $341,000 in awards
to consultants and in connection with strategic business alliances.

     Other expense, net.  Other expense, net consists of interest expense,
interest income, bank fees, and foreign currency transaction gains/losses. Other
expense, net increased $310,000, or 131.9%, to $545,000 in the three months
ended January 31, 2000 from $235,000 in the three months ended January 31, 1999.
The increase is primarily attributed to interest expense related to the issuance
of subordinated notes payable.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have financed our operations and met our capital
expenditure requirements primarily through the sale of private equity
securities, borrowings on our line of credit and capital equipment leases.

     As of January 31, 2000, cash and cash equivalents were $3.4 million,
compared with $2.1 million as of October 31, 1999. Our working capital deficit
at January 31, 2000 was $14.5 million, compared to a working capital deficit of
$11.4 million at October 31, 1999.

     Net cash used in operating activities was $3.9 million in the three months
ended January 31, 2000, compared with $5.0 million in the three months ended
January 31, 1999. Cash used in operating activities in the three months ended
January 31, 2000 was primarily attributable to our net loss, increases in
accounts receivable and decreases in accounts payable, offset in part by an
increase in deferred revenues and accrued liabilities and non-cash expenses
including depreciation, amortization, and stock-based compensation expense.

     Net cash used in investing activities was $1.0 million in the three months
ended January 31, 2000, compared with net cash provided by investing activities
of $2.5 million in the three months ended January 31, 1999. Net cash used in
investing activities in the three months ended January 31, 2000 was primarily
attributable to purchases of property and equipment to support our expanding
operations.

     Net cash provided by financing activities was $6.2 million in the three
months ended January 31, 2000, compared with $807,000 in the three months ended
January 31, 1999. Proceeds from financing activities for the three months ended
January 31, 2000 were primarily from the issuance of subordinated notes payable.

     On February 4, 2000, we 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 $115.9 million from these transactions, net of underwriting
discounts and commissions.

     Effective September 29, 1999, we amended our line of credit agreement with
a financial institution to increase the total commitment to $7.0 million. This
additional commitment was reached by converting $2.0 million outstanding
borrowings on the existing line of credit to a term note and established a new
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. As of January 31, 2000, we had $4.9 million outstanding under
the line of credit and available borrowing capacity of $55,000. In February
2000, we repaid and terminated the line of credit and term note with proceeds
from our initial public offering.
                                       16
<PAGE>   18

     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 the Company's 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 existing cash and cash equivalents, together with 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

  Background of Year 2000 Issue

     The year 2000 issue refers generally to the problems that some software may
have in determining the correct date as a result of the millennium change. We
define year 2000 ready to mean that testing has revealed that the electronic
components at issue will recognize and properly perform date sensitive functions
into and beyond the year 2000. Software with date sensitive information that is
not year 2000 ready may not be able to distinguish whether 00 means 1900 or
2000, which may result in system failures or the creation of erroneous results.
We are subject to potential year 2000 issues affecting our products, our
internal systems and the systems of our suppliers and customers, any of which
could harm our business.

  State of Readiness

     We organized a year 2000 task force to address our year 2000 issues. The
task force concluded all testing and remediation efforts in relation to year
2000 issues on December 15, 1999 as discussed below.

     We tested all custom and product implementations currently being utilized
by customers and, as necessary, remediated and made all of these implementations
year 2000 ready. We further tested all existing and past FirePond products for
year 2000 issues and, as necessary, remediated and made all of these products
year 2000 ready. However, we did not test independently installed third-party
software which may be integrated within our customer's systems. Integrated
software could be susceptible to year 2000 issues and the failure of our
customers' systems to be year 2000 ready could impede the success of our
applications in their systems.

     We tested all internal hardware and software for 2000 issues and, as
necessary, remediated and made all of these systems year 2000 ready. For our
non-information technology, we have obtained year 2000 ready statements from all
of our material suppliers and do not anticipate any year 2000 problems.

  The Risk of Our Year 2000 Issues

     We have assessed, tested and remediated all anticipated year 2000 issues.
Therefore, currently we are not aware of any material operational issues or
costs associated with year 2000 issues. The only potential problems we
anticipate in relation to the year 2000 are minor internal or customer
associated year 2000 issues which may have been overlooked by our year 2000 task
force or year 2000 issues which are beyond our control.

                                       17
<PAGE>   19

  Our Contingency Plan

     We have prepared a contingency plan if we are not year 2000 ready. All key
personnel are available to address all potential problems which may occur with
our own internal systems as well as unanticipated problems with our customers
use of our software products and implementations. We have taken further
contingency plans designed to protect software code that is material to our
business operation.

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 December 1998, the AICPA issued Statement of Position 98-9, Modification
of SOP 97-2 Software Revenue Recognition, With Respect to Certain Transactions.
SOP 98-9 requires use of the residual method of recognition of revenues when
vendor-specific objective evidence exists for undelivered elements but does not
exist for delivered elements of a software arrangement. We will be required to
comply with the provisions of SOP 98-9 for transactions entered into beginning
January 1, 2000. We do not expect the adoption of SOP 98-9 will have a material
effect on our financial position or operating results.

RISK FACTORS

     As defined under Safe Harbor provisions of The Private Securities
Litigation Reform Act of 1995, 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: market acceptance of the FirePond
Application Suite and its components, quarterly fluctuations in operating
results attributable to the timing and amount of orders for our products and
services, our ability to keep pace with changing product requirements and
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 the Company's Registration Statement on Form S-1 (No. 333-90911)
declared effective on February 3, 2000 by the Securities and Exchange
Commission. If any of those risks actually occur, our business, financial
condition or results of operations could be seriously harmed and the trading
price of our common stock could decline.

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 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. Interest income and expense
are sensitive to changes in the general level of U.S. interest rates,
particularly since our investments are in short-term instruments and our
long-term debt and available line of credit require interest payments calculated
at variable rates. Based on the nature and current levels of our investments and
debt, however, we have concluded that there is no material market risk exposure.

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<PAGE>   20

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

     (d) In connection with its initial public offering in February 2000, the
Company filed a Registration Statement on Form S-1, SEC File No. 333-90911 (the
"Registration Statement"), which was declared effective by the Commission on
February 3, 2000. The managing underwriters in the offering were Robertson
Stephens, Dain Rauscher Wessels, SG Cowen and E*Offering.

     Pursuant to the Registration Statement, the Company registered 5,750,000
shares of its Common Stock, $.01 par value per share for its own account. In the
initial public offering, the Company sold 5,000,000 shares of common stock at
$22.00 per share resulting in gross proceeds of $110.0 million, $7.7 million of
which was applied toward the underwriting discount and commissions. Other
expenses related to the offering are estimated to have been $2.0 million and
have been paid or are payable to unaffiliated parties. On February 25, 2000, the
Underwriters exercised their over-allotment options and purchased 750,000
additional shares of common stock at the issuance price of $22.00 per share of
which 666,666 shares were sold by the Company and 83,334 were sold by one of the
Company's stockholders. In conjunction with its sale of the 666,666 shares, the
Company received $13,640,000, net of commissions and costs. The total net
proceeds to the Company from the initial public offering were approximately
$113.9 million. The Company used a portion of the net proceeds to make the
following payments:

     - A payment of $5,882,517 representing principal and accrued interest to
       the holder of our revolving line of credit and term loan.

     - Payments of $6,179,715 representing principal and accrued interest to the
       holders of our subordinated debt obligations.

     We currently expect to use the remaining net proceeds primarily for working
capital and general corporate purposes, including increased research and
development expenditures, increased sales and marketing expenditures, and
capital expenditures made in the ordinary course of business. In addition, we
may use a portion of the net proceeds to fund acquisitions or investments in
complementary businesses, technologies or products. Pending such uses, we will
invest the net proceeds in short-term, investment grade, and interest bearing
securities

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     Not applicable

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

     At a special meeting of stockholders on December 16, 1999, a majority of
the Company's stockholders approved the following proposal:

     - A proposal to approve the Company's reincorporation in the State of
       Delaware.

     By written consent dated as of December 31, 1999, a majority of the
Company's stockholders approved the following proposal:

     - A proposal to approve amendment of the Company's Certificate of
       Incorporation to effect a 2-for-3 reverse stock split with respect to
       each share of the Company's Common Stock and Class A Common Stock.

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<PAGE>   21

     By written consent dated as of January 28, 2000, a majority of the
Company's stockholders approved the following proposal:

     - A proposal to approve amendment of the Company's Certificate of
       Incorporation to, among other things, create a staggered board of
       directors and eliminate the ability of stockholders to act by written
       consent to be effective upon consummation of the initial public offering;

     - A proposal to approve amendment of the Company's Certificate of
       Incorporation to, among other things, eliminate each series of the
       Company's authorized Convertible Preferred Stock to be effective upon the
       closing of the initial public offering;

     - A proposal to approve amendment of the 1997 Stock Option Plan to increase
       the number of authorized shares under the 1997 Stock Option Plan to
       9,396,815 (after giving effect to the 2-for-3 reverse stock split);

     - A proposal to approve the adoption of the 1999 Director Plan;

     - A proposal to approve the adoption of the 1999 Stock Option and Grant
       Plan; and

     - A proposal to elect J. Michael Cline and Gerhard Schulmer as Class I
       Directors, William Grabe and Larry Weber as Class II Directors, and Klaus
       Besier and Paul Butare as Class III Directors.

ITEM 5.  OTHER INFORMATION

     Not applicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     None

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<PAGE>   22

                                   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.

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

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

Dated: March 16, 2000

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