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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2004

OR

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-30925

BLUE MARTINI SOFTWARE, INC.

(Exact name of Registrant as specified in its charter)

2600 Campus Drive

San Mateo, California 94403

(Address of principal executive offices)

Telephone Number (650) 356-4000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of April 29, 2003, there were approximately 12,072,334 shares of the Registrant’s common stock outstanding.

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BLUE MARTINI SOFTWARE, INC.

INDEX

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PART I.    FINANCIAL INFORMATION

BLUE MARTINI SOFTWARE, INC.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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BLUE MARTINI SOFTWARE, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Cost of service revenues: $0 in 2004; $128 in 2003.

Sales and marketing: $96 in 2004; $(9) in 2003.

Research and development: $0 in 2004; $105 in 2003.

General and administrative: $0 in 2004; $244 in 2003.

See accompanying notes to condensed consolidated financial statements.

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BLUE MARTINI SOFTWARE, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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BLUE MARTINI SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.    Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for any subsequent quarter or for the entire year ending December 31, 2004.

The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Blue Martini Software, Inc. (“Blue Martini” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission on March 15, 2004 and a subsequent Form 10-K/A filed on March 24, 2004.

Note 2.    Letter of Credit

The Company obtained a letter of credit totaling $1.2 million as of December 31, 2002 in lieu of security deposits to secure facility lease obligations. As of March 31, 2004, the remaining balance on the letter of credit was $847,000, and the Company pledged $940,000 of cash equivalents as security for the letter of credit.

Note 3.    Restructuring Charges

In 2003 and 2002, the Company implemented various restructuring plans that resulted in reductions in force. The following table summarizes the activities related to accrued restructuring charges (in thousands) for the three months ended March 31, 2004:

The remaining lease obligation will be paid over the remaining term of the underlying leases through April 2006.

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BLUE MARTINI SOFTWARE, INC.

Notes To Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

Note 4.    Comprehensive Net Loss

Accumulated other comprehensive net loss refers to revenues, expenses, gains and losses that, under generally accepted accounting principles, are recorded in stockholders’ equity, but are excluded from net loss and consist primarily of unrealized gains or losses on available-for-sale investments and foreign currency translation adjustments. The components of comprehensive net loss are as follows (in thousands):

Note 6.    Net Loss Per Common Share

The following potential common shares have been excluded from the calculation of diluted net loss per share for all periods presented because the effect would have been anti-dilutive (in thousands):

Note 7.    Legal Actions

The Company is subject to legal proceedings and claims, asserted or unasserted, that are in the ordinary course of business and has not booked a loss accrual. The Company cannot predict the outcome of these proceedings and claims or the possible impact on the Company. Please refer to Part II, Item 1, Legal Proceedings, for further discussion of these proceedings and claims.

Note 8.    Stock Option Plans and Accounting for Stock-Based Compensation

Stock Option Plans

Description of Plans. The Company’s stock option program consists of two plans: the 2000 Equity Incentive Plan and the 2000 Non-Employee Directors’ Stock Option Plan. Stock options granted under these plans expire no later than ten years from the grant date and generally vest over two to four years. The Incentive Plan is administered by our board of directors, which has the authority to designate participants and to determine the number and type of options to be granted, the time when options become exercisable, the method of payment and any other terms or conditions of the options. The Directors’ Plan designates participants and specifies the number, type, term and pricing of options granted, the exercisability and vesting schedule of such options, the method of payment and other terms and conditions. The Directors’ Plan is administered by our board of directors, which has the authority to determine provisions of options only to the extent not specified in the

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BLUE MARTINI SOFTWARE, INC.

Notes To Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

Directors’ Plan. Please refer to Note 10, Stockholders’ Equity, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 for further information regarding the Company’s Stock Plans.

The following table summarizes plan activity for the three months ended March 31, 2004 (in thousands, except per share amounts):