<PAGE>

===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(MARK ONE)

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

    FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       OR

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

    FOR THE TRANSITION PERIOD FROM                   TO

                        COMMISSION FILE NUMBER: 000-31097

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

           DELAWARE                                            04-3239151
  (STATE OR OTHER JURISDICTION                              (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)

                      695 ATLANTIC AVENUE, BOSTON, MA 02111
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

                                 (617) 428-4444
               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 |_|

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     As of May 9, 2001, the registrant had 32,050,907 shares of common stock,
par value $0.001 per share, outstanding.

===============================================================================

<PAGE>

                 SPEECHWORKS INTERNATIONAL, INC. & SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                          PAGE NO.
<S>                                                                                                       <C>
PART I--FINANCIAL INFORMATION

                 Consolidated Balance Sheet as of March 31, 2001 and December 31, 2000....................    3

                 Consolidated Statement of Operations for the Three Months Ended
                   March 31, 2001 and 2000................................................................    4

                 Consolidated Statement of Cash Flows for the Three Months Ended
                   March 31, 2001 and 2000................................................................    5

                 Notes to Consolidated Financial Statements...............................................    6

     Item 2.     Management's Discussion and Analysis of Financial Condition and Results of
                   Operations.............................................................................   10

     Item 3.     Quantitative and Qualitative Disclosures about Market Risk ..............................   15

PART II--OTHER INFORMATION................................................................................   15

     Item 2.     Changes in Securities and Use of Proceeds................................................   15

     Item 6.     Exhibits and Reports on Form 8-K.........................................................   16

SIGNATURES................................................................................................   17

EXHIBIT INDEX.............................................................................................   18
</TABLE>

                                       2
<PAGE>

                         SPEECHWORKS INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                       MARCH 31,      DECEMBER 31,
                                                                                     -------------  -----------------
                                                                                         2001            2000
                                                                                     --------------------------------
                                                                                          (IN THOUSANDS, EXCEPT
                                                                                            SHARE INFORMATION)
<S>                                                                                      <C>               <C>
ASSETS
Current assets:
   Cash and cash equivalents........................................................        $85,831           $99,203
   Marketable securities............................................................         12,256            14,370
   Accounts receivable, net of allowance for doubtful accounts
     of $584 and $600, respectively.................................................         13,722            12,502
   Prepaid expenses and other current assets........................................          2,496             2,488
                                                                                          ---------         ---------
      Total current assets..........................................................        114,305           128,563
Fixed assets, net...................................................................          5,885             5,337
Intangible assets, net..............................................................         26,705             9,581
Other assets........................................................................            982               893
                                                                                          ---------         ---------
      Total assets..................................................................       $147,877          $144,374
                                                                                          =========         =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable.................................................................         $1,109              $640
   Accrued compensation.............................................................          2,157             4,639
   Accrued expenses.................................................................          2,417             2,991
   Deferred revenue.................................................................          4,027             3,873
   Current portion of long-term debt................................................            500               500
                                                                                          ---------         ---------
      Total current liabilities.....................................................         10,210            12,643
Long-term debt, net of current portion..............................................            167               292
                                                                                          ---------         ---------
      Total liabilities.............................................................         10,377            12,935
                                                                                          ---------         ---------
Stockholders' equity:
   Preferred stock, $0.001 par value; 10,000,000 shares authorized;
     zero shares issued and outstanding.............................................             --                --
   Common stock, $0.001 par value; 100,000,000 shares authorized;
     31,938,815 and 30,583,333 shares issued and outstanding,
     respectively...................................................................             32                31
   Additional paid-in capital.......................................................        233,632           219,519
   Deferred stock compensation......................................................        (20,086)          (22,151)
   Accumulated other comprehensive loss.............................................            (48)               (8)
   Accumulated deficit..............................................................        (76,030)          (65,952)
                                                                                          ---------         ---------
      Total stockholders' equity....................................................        137,500           131,439
                                                                                          ---------         ---------
      Total liabilities and stockholders' equity....................................       $147,877          $144,374
                                                                                          =========         =========
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.

                                       3
<PAGE>

                         SPEECHWORKS INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                              THREE MONTHS ENDED
                                                                                                   MARCH 31,
                                                                                            -------------------------
                                                                                               2001           2000
                                                                                            -------------   ---------
                                                                                            (IN THOUSANDS, EXCEPT PER
                                                                                                   SHARE DATA)
<S>                                                                                             <C>            <C>
Revenues:
   Product licenses....................................................................           $6,092         $2,607
   Professional services...............................................................            4,368          2,158
   Other revenues......................................................................              952            322
   Non-cash stock compensation.........................................................             (312)            --
                                                                                              ----------        -------
      Total revenues...................................................................           11,100          5,087
                                                                                              ----------        -------
Cost of revenues:
   Cost of product licenses............................................................               54             45
   Cost of professional services-- non-cash stock compensation.........................              154             93
                                -- all other expenses..................................            2,935          1,694
   Cost of other revenues..............................................................              751            150
   Amortization of purchased technology................................................              283             --
                                                                                              ----------        -------
      Total cost of revenues...........................................................            4,177          1,982
                                                                                              ----------        -------
Gross profit...........................................................................            6,923          3,105
                                                                                              ----------        -------
Operating expenses:
   Selling and marketing-- non-cash stock compensation.................................            1,353            193
                        -- all other expenses..........................................            6,313          3,794
   Research and development-- non-cash stock compensation..............................              140             72
                           -- all other expenses.......................................            3,352          1,810
   General and administrative-- non-cash stock compensation............................              106             35
                             -- all other expenses.....................................            5,543          3,308
   Amortization of intangible assets...................................................            1,627             --
                                                                                              ----------        -------
      Total operating expenses.........................................................           18,434          9,212
                                                                                              ----------        -------
Loss from operations...................................................................          (11,511)        (6,107)
Interest income........................................................................            1,504             91
Interest expense.......................................................................              (15)           (36)
Other expenses, net....................................................................              (30)           (47)
                                                                                              ----------        -------
Net loss before income taxes...........................................................          (10,052)        (6,099)
Provision for income taxes.............................................................               26             --
                                                                                              ----------        -------
Net loss...............................................................................          (10,078)        (6,099)
Accretion and deemed dividend on redeemable convertible preferred stock................               --           (600)
                                                                                              ----------        -------
Net loss attributable to common stockholders...........................................         $(10,078)       $(6,699)
                                                                                              ==========        ========
Basic and diluted net loss per common share............................................           $(0.32)        $(1.19)
Shares used in computing basic and diluted net loss per common share...................           31,408          5,644
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.

                                       4
<PAGE>

                         SPEECHWORKS INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED MARCH 31,
                                                                                         ------------------------------
                                                                                               2001          2000
                                                                                         --------------   -------------
                                                                                                 (IN THOUSANDS)
<S>                                                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...............................................................................         $(10,078)      $(6,099)
Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization.......................................................              763           376
   Amortization of intangible assets...................................................            1,910            --
   Stock compensation expense..........................................................            2,065           393
Changes in operating assets and liabilities, net of effect of acquisition:
   Accounts receivable.................................................................           (1,220)       (2,466)
   Prepaid expenses and other current assets...........................................               (8)          (15)
   Other assets........................................................................              (87)           53
   Accounts payable....................................................................              469           (77)
   Accrued compensation................................................................           (2,562)          327
   Accrued other expenses..............................................................             (718)          226
   Deferred revenue....................................................................              154         2,144
                                                                                              ----------       --------
        Net cash used in operating activities..........................................           (9,312)       (5,138)
                                                                                              ----------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of fixed assets...........................................................           (1,292)       (1,173)
   Cash paid to acquire business including acquisition costs, net of cash acquired.....           (5,377)           --
   Purchases of marketable securities..................................................           (9,174)           --
   Maturities of marketable securities.................................................           11,288            --
                                                                                              ----------       --------
        Net cash used in investing activities..........................................           (4,555)       (1,173)
                                                                                              ----------       --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments on capital lease obligations.....................................               --           (90)
   Principal payments on notes payable.................................................             (125)         (166)
   Proceeds from exercise of common stock options and warrants.........................              663           122
                                                                                              ----------       --------
        Net cash provided by (used in) financing activities............................              538          (134)
                                                                                              ----------       --------
   Effects of changes in exchange rates on cash........................................              (43)           --
                                                                                              ----------       --------
        Net decrease in cash and cash equivalents......................................          (13,372)       (6,445)
Cash and cash equivalents, beginning of period.........................................           99,203        11,474
                                                                                              ----------       --------
Cash and cash equivalents, end of period...............................................          $85,831        $5,029
                                                                                              ==========       ========
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.

                                       5
<PAGE>

                         SPEECHWORKS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. BASIS OF PRESENTATION

         The unaudited consolidated financial statements have been prepared by
the Company in accordance with instructions to Form 10-Q and Article 10 of
Regulation S-X. The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments considered
necessary for a fair presentation, have been included. The results of operations
for the three month period ended March 31, 2001 are not necessarily indicative
of the results to be expected for the full year or for any future periods. The
accompanying consolidated financial statements should be read in conjunction
with the audited consolidated financial statements for the year ended December
31, 2000 contained in the Company's 2000 Annual Report on Form 10-K filed with
the Securities and Exchange Commission.

2.       NET LOSS PER SHARE

         Basic net loss per common share is computed by dividing net loss
attributable to common stockholders by the weighted average number of common
shares outstanding. Diluted net loss per share is computed by dividing the net
loss attributable to common stockholders by the weighted average number of
shares of common stock and potential common stock outstanding during the period,
if dilutive. There is no difference between basic and diluted net loss per share
for all periods presented since potential common shares from the conversion of
redeemable convertible preferred stock and the exercise of options and warrants
were anti-dilutive for all periods presented.

         The following table sets forth the potential common stock excluded from
the calculation of diluted net loss per share:

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED MARCH 31,
                                                         ----------------------------------
                                                             2001                2000
                                                         -------------     ----------------
<S>                                                       <C>               <C>
Options to purchase common stock......................     5,729,205           4,699,769
Warrants to purchase common stock.....................       255,141             807,237
Redeemable convertible preferred stock................            --          13,870,477
                                                         -----------        ------------
                                                           5,984,346          19,377,483
                                                         ===========        ============
</TABLE>

         The pro forma net loss per common share for the three months ended
March 31, 2001 and 2000 is calculated assuming the automatic conversion of all
preferred stock outstanding had occurred as of the beginning of the period or as
of the date of issuance of the preferred stock, if later. Therefore, accretion
and deemed dividends on the redeemable convertible preferred stock are excluded
from the calculation of pro forma net loss per common share.

                                       6
<PAGE>

         The following table presents the calculation of basic and pro forma net
loss per common share (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                                             THREE MONTHS ENDED MARCH 31,
                                                                                           ---------------------------------
                                                                                                 2001           2000
                                                                                           ---------------   ---------------
<S>                                                                                         <C>               <C>
Net loss...............................................................................         $(10,078)       $(6,099)
Accretion and deemed dividends on redeemable convertible preferred stock...............               --           (600)
                                                                                               ---------       --------
Net loss attributable to common stockholders...........................................         $(10,078)       $(6,699)
                                                                                               =========       ========
Weighted average shares used in computing basic and diluted net
  loss per common hare.................................................................           31,408          5,644
Basic and diluted net loss per common share............................................           $(0.32)        $(1.19)

Pro forma:
Net loss...............................................................................         $(10,078)       $(6,099)
                                                                                               =========       ========
Shares used above......................................................................           31,408          5,644
                                                                                               ---------       --------
Pro forma adjustment to reflect the weighted average effect
  of assumed conversion of redeemable convertible preferred stock......................               --         13,871
                                                                                               ---------       --------
Weighted average shares used in computing pro forma basic and
  diluted net loss per common share....................................................           31,408         19,515
Pro forma basic and diluted net loss per common share..................................           $(0.32)        $(0.31)
</TABLE>

3.       COMPREHENSIVE INCOME (LOSS)

         For the quarter ended March 31, 2001, the total comprehensive loss was
as follows:

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED
                                                       MARCH 31, 2001
                                                     ------------------
<S>                                                  <C>
Net loss                                                  $(10,078)
                                                     -----------------
Other comprehensive income (loss):
  Unrealized gain on investments                                 3
  Foreign currency translation adjustment                      (43)
                                                     -----------------
  Total other comprehensive loss                               (40)
                                                     -----------------
Total comprehensive loss                                 $ (10,118)
                                                     =================
</TABLE>

         For the quarter ended March 31, 2000, the Company did not have any
items qualifying as other comprehensive income (loss); accordingly,
comprehensive loss equaled net loss.

4.       ACQUISITIONS

         On January 5, 2001, the Company acquired all of the outstanding capital
stock of Eloquent Technology, Inc. ("ETI"), a supplier of speech synthesis or
text-to-speech technology. In connection with the acquisition, the Company

                                       7
<PAGE>

paid $5.25 million in cash and issued 299,873 shares of its common stock
valued at $13.5 million. Additionally, the Company incurred
acquisition-related costs of $132,000, which are included in the total
purchase price for accounting purposes. The acquisition was accounted for
using the purchase method of accounting. Accordingly, the fair market values
of the acquired assets and assumed liabilities have been included in the
Company's financial statements as of the acquisition date, and the results of
operations of ETI have been included in the Company's financial statements
thereafter. The purchase price of $18.8 million has been allocated to net
tangible assets and liabilities acquired of ($196,000), completed technology
of $5.6 million and goodwill of $13.4 million. Goodwill represents the amount
by which the total purchase price exceeded the fair value of acquired net
tangible and intangible assets on the acquisition date. The purchase price
allocation is subject to adjustment until certain additional information on
the value of the intangible assets acquired is finalized. The intangible
assets are being amortized on a straight-line basis over five years,
resulting in amortization expense during the three months ended March 31,
2001 of $669,000 and $283,000 for goodwill and completed technology,
respectively.

The following table presents unaudited pro forma results as if SpeechWorks
and ETI had been combined as of January 1, 2000. The pro forma data are
presented for illustrative purposes only and are not necessarily indicative
of the combined financial position or results of operations of future periods
or of results that actually would have occurred had SpeechWorks and ETI been
a combined company for the periods presented. The pro forma data gives effect
to operating results prior to the transaction and adjustments to reflect
amortization of goodwill and purchased technology.

<TABLE>
<CAPTION>
                                                        Pro Forma Unaudited
                                                (in thousands, except per share amounts)

                                                    Three months ended March 31,
                                                    ----------------------------
                                                         2001            2000
                                                        ------          ------
<S>                                                   <C>              <C>
Total revenues.................................        $ 11,100         $ 5,471

Net loss.......................................        $(10,078)        $(6,890)

Net loss attributable to common stockholders...        $(10,078)        $(7,490)

Basic and diluted net loss per common share....        $  (0.32)        $ (1.26)

Shares used in computing basic and diluted net
  loss per common share........................          31,408           5,944
</TABLE>

In connection with this acquisition, the Company assumed the terms of a
development and royalty agreement between ETI and IBM. Under this agreement, IBM
funded development of certain of ETI's products and the Company is obligated to
pay royalties of between 10% and 12% of revenue received from such funded
products. Total maximum royalties payable under this agreement are $5.0 million.

5.       DEFERRED STOCK COMPENSATION

         In connection with the sale of common stock in private placements to
Net2Phone and America Online (AOL), concurrent with the Company's initial
public offering, the Company recorded deferred stock compensation within
stockholders' equity of $5.4 million. This amount represents the difference
between the price of the public offering of $20.00 per share and the price
paid by Net2Phone and AOL of $12.46 per share. This amount is presented as a
reduction of stockholders' equity and is being amortized to the statement of
operations over the three-year term of the concurrently entered
revenue-producing arrangements. In each quarterly reporting period, such
amortization will be reflected as a reduction of revenues resulting from the
arrangements; to the extent that the amortization exceeds such revenues, the
residual will be reflected in operating expenses. For the three month period
ended March 31, 2001, the Company recognized revenue from Net2Phone and AOL
and, accordingly, the related amortization of $202,000 and $110,000,
respectively, was recorded as a non-cash stock compensation charge which
reduced revenue. Amortization of deferred stock compensation for Net2Phone
and AOL of none and $141,000, respectively, which was in excess of revenue
recognized during the quarter, was recorded as selling and marketing non-cash
stock compensation expense.

6.       INTANGIBLE ASSETS

     The following table summarizes intangible assets (in thousands):

<TABLE>
<CAPTION>
                                                        MARCH 31,          DECEMBER 31,
                                                  --------------------------------------
                                                          2001                2000
                                                  -----------------       --------------
<S>                                                 <C>                  <C>
Acquired intellectual property and
   collaborative rights.......................          $ 11,497            $ 11,497
Purchased technology..........................             5,653                  --
Goodwill......................................            13,381                  --
                                                  --------------        -------------
                                                          30,531              11,497
Less - accumulated amortization ..............             3,826               1,916
                                                  --------------        -------------
                                                        $ 26,705             $ 9,581
                                                  ==============        =============
</TABLE>

         See note 3 "Acquisitions" for information on the intangible assets the
Company acquired relating to its purchase of ETI.

                                       8
<PAGE>

         On June 5, 2000, the Company entered into a development and license
agreement with AT&T Corp. to develop and sell products that use AT&T speech
technology. Pursuant to this agreement, in exchange for 1,045,158 shares of the
Company's common stock, the Company received development and distribution
licenses to AT&T's speech software, text-to-speech software and certain other
technology related to computer processing of the human voice. In addition, the
parties agreed to collaborate in certain marketing efforts and additional
technology development. In connection with this agreement, the Company recorded
$11,497,000 of acquired intellectual property and collaborative rights, equal to
the fair value of the common stock issued, which is being amortized over a
three-year period. Amortization expense for the acquired intellectual property
and collaborative rights was $958,000 for the three months ended March 31, 2001
resulting in accumulated amortization of $2,874,000 at March 31, 2001.

7.       SEGMENT REPORTING

         The Company operates in a single segment and has no organizational
structure dictated by product lines, geography or customer type.

8.       RECENT ACCOUNTING PRONOUNCEMENTS

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133, as recently amended by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," is effective for fiscal years
beginning after June 15, 2000. Because the Company does not currently hold any
derivative instruments and does not currently engage in hedging activities, the
adoption of SFAS No. 133 during the three months ending March 31, 2001 did not
have an impact on its financial position or operating results.

                                       9
<PAGE>

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

         The following discussion should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
report. The results shown herein are not necessarily indicative of the results
to be expected for the full year or any future periods.

         This Report on Form 10-Q contains forward-looking statements, within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, including but not limited to our expectations for results over
the balance of the year, regarding expense trends, cash positions and our
outlook for the Company, as well as our expectations, beliefs, intentions or
strategies regarding the future. All forward-looking statements included in
this Report on Form 10-Q are based on information available to us on the date
hereof, and we assume no obligation to update any such forward-looking
statements. Factors that could cause future results to differ materially from
such expectations include: the timing of sales of the Company's products and
services; market acceptance of the Company's speech-activated systems; the
Company's reliance on a limited number of large orders for much of its
revenue; uncertainties related to current economic conditions; the Company's
ability to develop new products and services in the face of rapidly evolving
technology; the Company's ability to effectively integrate any companies or
technologies acquired; the uncertainties related to the Company's planned
international operations; the Company's ability to manage growth of its
business; the Company's ability to protect its intellectual property; the
Company's reliance on resellers and original equipment manufacturers for a
significant portion of its sales; the Company's ability to respond to
competitive developments; and the Company's reliance on attracting, retaining
and motivating key technical and management personnel. These and other risk
factors are detailed in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 filed with the Securities and Exchange Commission. As
a result of these and other factors, there can be no assurances that the
Company will not experience material fluctuations in future operating results
on a quarterly or annual basis.

OVERVIEW

         We are a leading provider of software products and professional
services that enable enterprises, communications carriers and portals to offer
automated, speech-activated services over any telephone. With our speech
recognition solutions, consumers can direct their own calls, obtain information
and conduct transactions automatically, simply by speaking naturally over any
telephone, anytime. Our solutions are designed to help businesses build
sustainable customer relationships over the telephone, provide improved and
cost-effective customer service systems, increase the returns on their
internet-related investments and capitalize on a variety of new business
opportunities.

         We currently offer two speech recognition solutions for
over-the-telephone applications, the SpeechWorks 6.5 platform and our SpeechSite
package. SpeechWorks 6.5 is a comprehensive set of software tools and core
speech recognition technologies that can be used to build state-of-the-art,
speech-activated services. With our SpeechWorks 6.5 platform, companies can
quickly design and deploy speech-activated applications, in multiple languages,
that enable their customers to buy travel tickets, trade stocks, update account
information, get health care referrals, update account records, send messages
and conduct a myriad of other transactions that extend web-based e-business to
any telephone.

         SpeechSite, which is based on the SpeechWorks 6.5 platform, is a
packaged application that brings the web model of self-service to the telephone.
SpeechSite answers and directs telephone calls and delivers company information.
Like a website, SpeechSite can link to other services and deliver various types
of information services to callers. However, SpeechSite uses a spoken interface
rather than a visual browser.

         In addition to these speech recognition solutions, we offer
text-to-speech, or speech synthesis technology with our Speechify product. Using
Speechify, portals and carriers can allow their callers to hear
dynamically-generated text, such as e-mails and news updates, read to them by a
computer in a natural-sounding voice.

         We complement all of our products with a professional services
organization that offers a range of services including application development,
user-interface design consulting and project management. We offer these services
to shorten our customers time-to-market, reduce project implementation risk and
improve our clients' competitive position. We believe that our ability to
successfully deliver an integrated solution to our clients that includes both
software and professional services provides us with a significant competitive
advantage.

                                       10
<PAGE>

RESULTS OF OPERATIONS

         The following table sets forth consolidated financial data for the
periods indicated as a percentage of our total revenues.

<TABLE>
<CAPTION>
                                                                                       THREE MONTHS ENDED
                                                                                            MARCH 31,
                                                                                      --------------------
                                                                                        2001       2000
                                                                                      ---------  ---------
<S>                                                                                   <C>         <C>
Revenues:
   Product licenses.............................................................          55%        51%
   Professional services........................................................          39         43
   Other revenues...............................................................           9          6
   Non-cash stock compensation..................................................          (3)        --
                                                                                      ------      -----
   Total revenues...............................................................         100%       100%
                                                                                      ======      =====
Cost of revenue:
   Cost of product licenses.....................................................           1%         1%
   Cost of professional services-- non-cash stock compensation..................           1          2
                                -- all other expenses...........................          26         33
   Cost of other revenues.......................................................           7          3
    Amortization of purchased technology........................................           3         --
                                                                                      ------      -----
   Total cost of revenues.......................................................          38         39
                                                                                      ------      -----
      Gross profit..............................................................          62         61
                                                                                      ------      -----
Operating expenses:
   Selling and marketing-- non-cash stock compensation..........................          12          4
                        -- all other expenses...................................          57         75
   Research and development-- non-cash stock compensation.......................           1          1
                           -- all other expenses................................          30         35
   General and administrative-- non-cash stock compensation.....................           1          1
                             -- all other expenses..............................          50         65
   Amortization of intangible assets............................................          15         --
                                                                                      ------      -----
   Total operating expenses.....................................................         166        181
                                                                                      ------      -----
Loss from operations............................................................        (104)      (120)
Interest and other income (expense), net........................................          13         --
                                                                                      ------      -----
Net loss before income taxes....................................................         (91)      (120)
Provision for income taxes......................................................          --         --
                                                                                      ------      -----
Net loss........................................................................         (91)%     (120)%
                                                                                      ======      =====
</TABLE>

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000

         TOTAL REVENUES. Our total revenues, including non-cash stock
compensation, increased by 118.2% to $11.1 million for the three month period
ended March 31, 2001 from $5.1 million for the same period in 2000. Revenue from
international sales increased by 43.3% to $1.0 million for the three month
period ended March 31, 2001 from $718,000 in the same period in 2000.
International sales revenues represented 9.3% and 14.1% of total revenues for
the three months ended March 31, 2001 and 2000, respectively.

         REVENUE FROM PRODUCT LICENSES. Revenue from the licensing of
proprietary software increased 133.7% to $6.1 million for the three month period
ended March 31, 2001 from $2.6 million in the same period in 2000. This growth
in

                                       11
<PAGE>

product license revenue resulted from a growing market acceptance of our speech
activated solutions by enterprises, carriers and portals, our expanded sales and
marketing efforts, and the improved productivity of our distribution channels,
primarily OEMs. We expect that revenue from product licenses will continue to
represent more than 50% of our total revenue in the future.

         REVENUE FROM PROFESSIONAL SERVICES. Revenue from fees we receive for
professional services increased 102.4% to $4.4 million in the three months ended
March 31, 2001 from $2.2 million in the same period in 2000. The growth in
revenue from professional services resulted primarily from the increased demand
for custom speech applications from existing and new clients and the growing
maintenance revenue from an expanding installed license base.

         OTHER REVENUES. Other revenues accounted for 8.6% of total revenue for
the period ended March 31, 2001 and 6.3% of total revenue for the same period in
2000. The increase in other revenue is a result of several client requests to
resell the hardware platform on which our software products run. We anticipate
that other revenues will decline as a percentage of total revenue in the future.

         NON-CASH STOCK COMPENSATION OFFSET TO REVENUE. In connection with the
sale of common stock in private placements to Net2Phone and America Online, Inc.
("AOL"), concurrent with our initial public offering, we recorded deferred stock
compensation within stockholders' equity of $5.4 million. This amount represents
the difference between the price of the public offering of $20.00 per share and
the price paid by Net2Phone and AOL of $12.46 per share. This amount is
presented as a reduction of stockholders' equity and is being amortized to the
statement of operations over the three-year term of the concurrently entered
revenue-producing arrangements. In each quarterly reporting period, such
amortization will be reflected as a reduction of revenues resulting from the
arrangements; to the extent that the amortization exceeds such revenues, the
residual will be reflected in operating expenses. For the three month period
ended March 31, 2001, we recognized revenue from Net2Phone and AOL and,
accordingly, the related amortization of $202,000 and $110,000, respectively,
was recorded as a non-cash stock compensation charge which reduced revenue.
Amortization of deferred stock compensation for Net2Phone and AOL of none and
$141,000, respectively, which was in excess of revenue recognized during the
quarter was recorded as selling and marketing stock compensation expense.

         COST OF PRODUCT LICENSES REVENUES. Cost of product licenses revenue
increased by 20.0% to $54,000 for the three months ended March 31, 2001 from
$45,000 for the same period in 2000. This cost represented 1.0% of product
license revenues for the three months ended March 31, 2001 and 1.7% for the same
period in 2000. The decrease in the percentage of revenue reflects the decrease
in the royalty rate owed to MIT based on achieving a cumulative product license
sales milestone.

         COST OF PROFESSIONAL SERVICES REVENUE. Cost of professional services
revenue increased 73.3% to $2.9 million for the three months ended March 31,
2001 from $1.7 million for the same period in 2000. The increase is due
primarily to the hiring of additional project managers, developers, user
interface designers, speech scientists and technical support staff to expand our
professional services organization. This cost represented 67.2% of professional
services revenue for the three months ended March 31, 2001 and 78.5% for the
same period in 2000. The lower cost of professional services as a percentage of
related revenue reflects more efficient delivery and a higher component of
maintenance revenue.

         COST OF OTHER REVENUES. Cost of resold hardware and resold facilities
management services increased 400.7% to $751,000 for the three months ended
March 31, 2001 from $150,000 for the same period in 2000. The cost of other
revenue as a percent of other revenue increased to 78.9% for the three months
ended March 31, 2001 from 46.6% for the same period in 2000. This decrease in
margin on other revenue reflects a narrowing of the available premium for
reselling hardware and facilities management services.

         AMORTIZATION OF PURCHASED TECHNOLOGY. In connection with the
acquisition of Eloquent Technology, Inc. ("ETI") on January 5, 2001, we acquired
completed technology valued at $5.6 million which we are incorporating with our
products and will continue to sell to third parties. During the three months
ended March 31, 2001, amortization of purchased technology of $283,000 was
recorded as a cost of revenue.

         TOTAL OPERATING EXPENSES. Our total operating expenses increased 100.1%
to $18.4 million for the three months ended March 31, 2001 from $9.2 million for
the same period in 2000. These increases occurred in all categories of operating

                                       12
<PAGE>

expenses as we grew our organization. Total headcount grew to 384 as of March
31, 2001, compared to headcount of 211 as of March 31, 2000. As a percentage of
total revenue, our operating expenses were 166.1% for the three months ended
March 31, 2001 and 181.1% for the same period in 2000. Non-cash charges are also
included for the three months ended March 31, 2001 and 2000 as noted below.

         SELLING AND MARKETING. Selling and marketing expenses consist primarily
of salaries, commissions and related travel costs for selling and marketing
personnel, along with spending on marketing activities, including
advertisements, tradeshows, public relations activities and educational
seminars. These expenses increased 66.4% to $6.3 million for the three months
ended March 31, 2001 from $3.8 million for the same period in 2000. Selling and
marketing expenses, as a percentage of revenue, was 56.9% for the three months
ended March 31, 2001 and 74.6% for the same period in 2000. The overall increase
in selling and marketing expenses resulted primarily from our investment in
sales and marketing personnel and marketing programs. The number of sales
personnel in North America increased from 26 to 70 and the number of employees
in marketing increased from 15 to 33 at March 31, 2000 and March 31, 2001,
respectively. In addition, the cost of engineers devoted to technical sales
support, recorded as a selling expense, has increased steadily with increased
sales.

         RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of labor costs and related travel for personnel involved in new
product development and enhancements. These expenses increased by 85.2% to $3.4
million for the three month period ended March 31, 2001 from $1.8 million for
the same period in 2000. Research and development expenses as a percentage of
revenue decreased to 30.2% for the three months ended March 31, 2001 from 35.6%
for the same period in 2000. The overall increase was driven by the increased
hiring of software developers, quality assurance and testing personnel and
speech scientists to develop and enhance our products. The number of personnel
involved in research and development increased to 112 at March 31, 2001 from 57
at March 31, 2000.

         GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
of labor costs and related travel for personnel involved in supporting the
financial, legal, recruiting and system administration infrastructure, all
occupancy related and corporate overhead costs including costs associated with
being a public company. These expenses increased 67.6% to $5.5 million for the
three month period ended March 31, 2001 from $3.3 million for the same period in
2000. The increases was primarily due to additional infrastructure necessary to
support our growing operations in the United States and internationally, an
increase in professional services fees incurred to support our growth, increased
recruiting costs, and the addition of executive management in North America and
abroad to lead our growth.

         NON-CASH STOCK COMPENSATION. Non-cash stock compensation charges are
being recorded as identified components of professional services costs, selling
and marketing expenses, research and development expenses and general and
administrative expenses. In connection with the grant of certain options to
employees through June 30, 2000, we recorded deferred stock compensation within
stockholders' equity of $10.7 million, representing the difference between the
estimated fair value of the common stock for accounting purposes and the
exercise price of these options at the date of grant. Such amount is presented
as a reduction of stockholders' equity and is being amortized over the vesting
period of the applicable options. We recorded amortization of deferred stock
compensation of $677,000 for the three months ended March 31, 2001 and $393,000
for the same period for 2000. We expect the amortization of deferred stock
compensation relating to employee stock options to be approximately $2.7 million
per year through 2002 and decreasing thereafter through 2004.

         Sales and marketing expenses--non-cash stock compensation charges in
the three month period ending March 31, 2001 also includes non-cash stock
compensation of $935,000 related to warrants issued to AOL, which is being
recognized as expense over the related three-year marketing agreement.
Additionally, sales and marketing expenses--non-cash stock compensation
charges includes none and $141,000 of expense associated with common stock
issued to Net2Phone and AOL, respectively, at below fair market value as
further described above in revenue- non-cash stock compensation.

         AMORTIZATION OF INTANGIBLE ASSETS. On June 5, 2000, we entered into a
development and license agreement with AT&T Corp. to develop and sell products
that use AT&T speech technology. Pursuant to this agreement, in exchange for
1,045,158 shares of our common stock, we received development and distribution
licenses to AT&T's speech software, text-to-speech software and certain other
technology related to computer processing of the human voice. In addition, the
parties agreed to collaborate in certain marketing efforts and additional
technology development. In connection with this agreement we recorded $11.5
million for the acquired intellectual property and collaborative rights, equal
to the fair value of the common stock issued, which is being amortized over a
three-year period. Amortization expense for the acquired intellectual property
and collaborative rights for the three months ended March 31, 2001 was $958,000.

                                       13
<PAGE>

         In connection with the acquisition of ETI, we recorded $13.4 million
of goodwill. For the three months ended, March 31, 2001, amortization of
intangible assets also includes ETI related goodwill amortization expense of
$669,000.

         INTEREST AND OTHER INCOME (EXPENSE), NET. Interest income was $1.5
million for the three months ended March 31, 2001 and $92,000 for the same
period in 2000. Interest expense was $15,000 for the three months ended March
31, 2001 and $36,000 for the same period in 2000. The increase in interest
income was due to higher cash balances available for investing during the three
months ended March 31, 2001 as a result of the initial public offering proceeds.
The decrease in interest expense is primarily due to decreases in debt payable
under our line of credit and capital equipment leases. Other expenses include
other non-operating costs such as foreign currency transaction gains and losses.

LIQUIDITY AND CAPITAL RESOURCES

         From inception through July 31, 2000, we funded our operations
primarily through private placements of convertible preferred stock totaling
$60.0 million and, to a lesser extent, through bank borrowings and capital
equipment lease financing. In August 2000, we raised approximately $109.0
million through completion of our initial public offering of common stock and
the concurrent private placement of common stock with AOL and Net2Phone. As of
March 31, 2001, we had cash and cash equivalents of $85.8 million, marketable
securities of $12.3 million and $515,000 available under our revolving line of
credit, which expires on May 31, 2001. Our operating activities resulted in net
cash outflows of $8.7 million for the three months ended March 31, 2001 and $5.1
million for the same period in 2000. The operating cash outflows for these
periods resulted primarily from our significant investment in research and
development, sales and marketing and infrastructure.

         During the three month period ended March 31, 2001 our investing
activities included the payment of $5.4 million for the acquisition of ETI
including acquisition-related costs incurred. Other investing activities for the
period ended March 31, 2001 included the purchase and redemption of maturing
marketable securities of $9.2 million and $11.3 million, respectively. Capital
expenditures for property and equipment were $1.3 million for the three month
period ended March 31, 2001 and $1.2 million for the same period in 2000. Our
capital expenditures for the three month period ended March 31, 2001 included
building our infrastructure and expanding operations into new locations in the
United States, Canada, and the United Kingdom. These capital expenditures have
consisted primarily of computer hardware, software and furniture and fixtures
for our growing employee base. Total investing activities used cash of $6.7
million, excluding marketable securities investments which generated $2.1
million, for the three month period ended March 31, 2001 and used cash of $1.2
million for the same period in 2000.

         We had an equipment line of credit which we converted into a term loan
in the amount of $1.5 million. The term loan bears interest at an annual rate of
prime plus 0.75% (8.0% at March 31, 2001), and principal and interest under the
term loan are payable in 36 monthly installments through September 2002. As of
March 31, 2001, $667,000 was outstanding under this facility.

         Our financing activities generated cash of $538,000 for the three
months ended March 31, 2001 and used $134,000 for the same period in 2000. The
issuance of common stock through stock option exercises generated net proceeds
of $663,000 and $122,000, for the three months ending March 31, 2001 and 2000,
respectively. Repayment of bank borrowings and capital leases was $125,000 and
$256,000 during the quarter ended March 31, 2001 and 2000, respectively.

         We believe that our existing cash and cash equivalents and marketable
securities will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months. In the event we
require additional financing, we believe that we would be able to obtain such
funding, however, there can be no assurances that we would be successful in
doing so or that we could do so on terms favorable to us.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133,

                                       14
<PAGE>

as recently amended by SFAS 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133,"
is effective for fiscal years beginning after June 15, 2000. Because the Company
does not currently hold any derivative instruments and does not currently engage
in hedging activities, the adoption of SFAS No. 133 during the three months
ending March 31, 2001 did not have an impact on its financial position or
operating results.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         A portion of our business is conducted outside the United States
through our foreign subsidiaries and branches. We have foreign currency exposure
related to our operations in international markets where we transact business in
foreign currencies and accordingly are subject to exposure from adverse
movements in foreign currency exchange rates. The functional currency of our
foreign subsidiaries is the local currency. Substantially all of our revenues
are invoiced and collected in U.S. dollars. Assets and liabilities of foreign
subsidiaries which are denominated in foreign currencies are remeasured into
U.S. dollars at rates of exchange in effect at the end of the year. Revenue and
expense amounts are remeasured using the average exchange rates for the period.
Net unrealized gains and losses resulting from foreign currency remeasurement
are included in other comprehensive income (loss), which is a separate component
of stockholders' equity. Net realized gains and losses resulting from foreign
currency transactions are included in the consolidated statement of operations
as other income or expense.

PART II. OTHER INFORMATION

ITEMS 1, 3, 4, AND 5. NOT APPLICABLE.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On February 6, 2001, the Company issued to InterVoice-Brite, Inc.
("InterVoice-Brite ") 690,052 shares of common stock pursuant to a cashless
exercise of a warrant issued to InterVoice-Brite in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act").

On January 24, 2001, the Company issued to Highgate Ventures I, L.P.
("Highgate") 37,020 shares of common stock pursuant to a cashless exercise of a
warrant issued to Highgate in a transaction exempt from registration pursuant to
Rule 506 of Regulation D under the Securities Act.

On January 5, 2001, the Company completed an acquisition of all the issued and
outstanding capital stock of Eloquent Technology, Inc. and in consideration
therefor issued 299,873 shares of common stock, valued at $13.5 million to Dr.
Susan Hertz, the sole shareholder of Eloquent Technology, Inc. in a private
placement exempt from registration pursuant to Rule 506 of Regulation D under
the Securities Act.

On August 4, 2000, the Company completed its initial public offering of
5,462,500 shares of common stock. The offering raised approximately $100
million, net of offering expenses, for the Company. On July 31, 2000, the
Securities and Exchange Commission declared the Company's Registration
Statement on Form S-1 (File No. 333-35164) effective. The following chart
illustrates the Company's use of the net proceeds from its initial public
offering to date:

<TABLE>
         <S>                                                              <C>
         Purchase and installation of machinery and equipment ..........       $    0
         Acquisition and related transaction costs of other business ...    5,377,000
         Repayment of indebtedness .....................................            0
         Working capital ...............................................            0
         Temporary investments:
                Cash, cash equivalents and marketable securities .......   92,948,000
         All other purposes ............................................            0
</TABLE>

The foregoing use of net proceeds does not represent a material change in the
use of net proceeds described in the Registration Statement on Form S-1.


                                       15
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

<TABLE>
<S>            <C>
Exhibit 10.1   Fifth Amendment to the Fourth Amended and Restated Registration
               Rights Agreement, dated as of January 5, 2001, among the
               Registrant and the investors party thereto

Exhibit 99     Forward-Looking Information, incorporated herein by reference to
               Exhibit 99 to the Registrant's Form 10-K for the fiscal year
               ended December 31, 2000, filed on March 16, 2001
</TABLE>

(b) REPORTS ON FORM 8-K

         On January 19, 2001, the Company filed a report on Form 8-K announcing
its completion of a previously announced acquisition of all the issued and
outstanding capital stock of Eloquent Technology, Inc. pursuant to an Agreement
and Plan of Merger dated as of December 19, 2000.

         On March 20, 2001, the Company filed a report on Form 8-K amending the
report on Form 8-K filed on January 19, 2001.

                                       16
<PAGE>

                                   SIGNATURES

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

                                   SPEECHWORKS INTERNATIONAL, INC.

Date: May 14, 2001                 By: /s/ Richard J. Westelman
                                      -----------------------------------------
                                   Richard J. Westelman
                                   Chief Financial Officer



                                       17
<PAGE>

                SPEECHWORKS INTERNATIONAL, INC. AND SUBSIDIARIES

                                  EXHIBIT INDEX

EXHIBIT

<TABLE>
<S>               <C>
Exhibit 10.1      Fifth Amendment to the Fourth Amended and Restated
                  Registration Rights Agreement, dated as of January 5, 2001,
                  among the Registrant and the investors party thereto

Exhibit 99        Forward-Looking Information, incorporated herein by
                  reference to Exhibit 99 to the Registrant's Form 10-K for the
                  fiscal year ended December 31, 2000, filed on March 16, 2001
</TABLE>



                                       18