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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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 No. 000-20698

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BROOKTROUT, INC.(Exact name of registrant as specified in its charter)

|Massachusetts                                                  |  | 04-2814792                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction
of incorporation or organization) |  | (I.R.S. employer
identification number)
|250 First Avenue, Suite 300
Needham, Massachusetts             |  | 02494-2814                             
|(Address of principal executive offices)                       |  | (Zip code)                             

Registrant's
telephone number, including area code:(781) 449-4100

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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 / /

As
of April 30, 2001, 12,130,993 shares of Common Stock, $.01 par value per share, were outstanding.

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BROOKTROUT, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001

TABLE OF CONTENTS



|        |  |                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------
|PART I  |  | FINANCIAL INFORMATION                                                                                                           
|Item 1. |  | Condensed Consolidated Financial Statements                                                                                     
|        |  | Unaudited Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000                                      
|        |  | Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and March 31, 2000          
|        |  | Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2001 and March 31, 2000
|        |  | Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001and March 31, 2000           
|        |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                  
|Item 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                           
|        |  | Introduction                                                                                                                    
|        |  | Three Months Ended March 31, 2001 and March 31, 2000                                                                            
|        |  | Liquidity and Capital Resources                                                                                                 
|        |  | Risk Factors                                                                                                                    
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                                                      
|PART II |  | OTHER INFORMATION                                                                                                               
|Item 1. |  | Legal Proceedings                                                                                                               
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                
|        |  | Signatures                                                                                                                      

2

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Brooktrout, Inc.        Unaudited Condensed Consolidated Balance Sheets        (In thousands, except share data)

|                                                                        |                                                                                                                                       | March 31,
2001                             |        | December 31,
2000 |        
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------------- | -------
|ASSETS                                                                  |                                                                                                                                      
|Current assets:                                                         |                                                                                                                                       |                                            |        |                   |        
|                                                                        | Cash and equivalents                                                                                                                  |                                            | $      | 26,053            |        
|                                                                        | Marketable securities                                                                                                                 |                                            |        | 2,699             |        
|                                                                        | Accounts receivable (less allowance for doubtful accounts and sales returns of $2,651 in 2001 and $2,647 in 2000)                     |                                            |        | 16,818            |        
|                                                                        | Inventory                                                                                                                             |                                            |        | 18,978            |        
|                                                                        | Deferred tax assets                                                                                                                   |                                            |        | 6,509             |        
|                                                                        | Prepaid expenses and other current assets                                                                                             |                                            |        | 3,295             |        
|                                                                        |                                                                                                                                       |                                            |        |                   |        
|                                                                        |                                                                                                                                       | Total current assets                       |        |                   | 74,352 
|Equipment and furniture, less accumulated depreciation and amortization |                                                                                                                                       |                                            | 7,230  |                   |        
|Deferred taxes                                                          |                                                                                                                                       |                                            | 6,584  |                   |        
|Intangible assets, less accumulated amortization                        |                                                                                                                                       |                                            | 10,743 |                   |        
|Investments                                                             |                                                                                                                                       |                                            | 1,605  |                   |        
|Other assets                                                            |                                                                                                                                       |                                            | 2,264  |                   |        
|                                                                        |                                                                                                                                       |                                            |        |                   |        
|                                                                        |                                                                                                                                       | Total assets                               |        | $                 | 102,778
|                                                                        |                                                                                                                                       |                                            |        |                   |        
|LIABILITIES AND SHAREHOLDERS' EQUITY                                    |                                                                                                                                      
|Current liabilities:                                                    |                                                                                                                                       |                                            |        |                   |        
|                                                                        | Accounts payable and other accruals                                                                                                   |                                            | $      | 12,674            |        
|                                                                        | Accrued compensation and commissions                                                                                                  |                                            |        | 3,491             |        
|                                                                        | Customer deposits                                                                                                                     |                                            |        | 551               |        
|                                                                        | Accrued warranty costs                                                                                                                |                                            |        | 1,430             |        
|                                                                        | Net liabilities of discontinued operations                                                                                            |                                            |        | 853               |        
|                                                                        |                                                                                                                                       |                                            |        |                   |        
|                                                                        |                                                                                                                                       | Total current liabilities                  |        |                   | 18,999 
|Deferred rent                                                           |                                                                                                                                       |                                            | 257    |                   |        
|Contingencies (note 11)                                                 |                                                                                                                                       |                                            |        |                   |        
|Shareholders' equity:                                                   |                                                                                                                                       |                                            |        |                   |        
|                                                                        | Common stock, $0.01 par value; authorized, 40,000,000 shares; issued and outstanding 12,386,377 shares in 2001 and 12,366,927 in 2000 |                                            |        | 124               |        
|                                                                        | Additional paid-in capital                                                                                                            |                                            |        | 63,382            |        
|                                                                        | Loans to officers                                                                                                                     |                                            |        | (11,760           | )      
|                                                                        | Accumulated other comprehensive loss                                                                                                  |                                            |        | (179              | )      
|                                                                        | Retained earnings                                                                                                                     |                                            |        | 35,715            |        
|                                                                        | Treasury stock, 255,384 shares in 2001 and 2000                                                                                       |                                            |        | (3,760            | )      
|                                                                        |                                                                                                                                       |                                            |        |                   |        
|                                                                        |                                                                                                                                       | Total shareholders' equity                 |        |                   | 83,522 
|                                                                        |                                                                                                                                       |                                            |        |                   |        
|                                                                        |                                                                                                                                       | Total liabilities and shareholders' equity |        | $                 | 102,778
|                                                                        |                                                                                                                                       |                                            |        |                   |        

See
notes to unaudited condensed consolidated financial statements.

3

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Brooktrout, Inc.        Unaudited Condensed Consolidated Statements of Operations        (In thousands, except per share data)

|                                          |                                                                                   | Three Months Ended March 31,                   |       
|----------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------- | ------
|
|Revenue                                   |                                                                                   | $                                              | 27,063
|Cost and expenses:                        |                                                                                   |                                                |       
|                                          | Cost of product sold                                                              |                                                |       
|                                          | Research and development                                                          |                                                |       
|                                          | Selling, general and administrative                                               |                                                |       
|                                          |                                                                                   |                                                |       
|                                          |                                                                                   | Total cost and expenses                        |       
|                                          |                                                                                   |                                                |       
|Operating income                          |                                                                                   |                                                | 682   
|Other income (expense):                   |                                                                                   |                                                |       
|                                          | Interest income, net                                                              |                                                |       
|                                          | Equity in loss of affiliates                                                      |                                                |       
|                                          |                                                                                   |                                                |       
|                                          |                                                                                   | Total other income (expense)                   |       
|                                          |                                                                                   |                                                |       
|Income (loss) before income tax provision |                                                                                   |                                                | (63   
|Income tax provision                      |                                                                                   |                                                | 367   
|                                          |                                                                                   |                                                |       
|Income (loss) from continuing operations  |                                                                                   |                                                | (430  
|Discontinued operations:                  |                                                                                   |                                                |       
|                                          | Loss from discontinued operations, net of tax benefit of $594 in 2000             |                                                |       
|                                          | Gain on disposal of discontinued operations, net of tax expense of $1,033 in 2001 |                                                |       
|                                          |                                                                                   |                                                |       
|                                          |                                                                                   | Total gain (loss) from discontinued operations |       
|                                          |                                                                                   |                                                |       
|Net income                                |                                                                                   | $                                              | 1,220 
|                                          |                                                                                   |                                                |       
|Income (loss) per common share:           |                                                                                   |                                                |       
|                                          | Continuing operations, basic                                                      |                                                | $     
|                                          | Continuing operations, diluted                                                    |                                                |       
|                                          | Net income, basic                                                                 |                                                |       
|                                          | Net income, diluted                                                               |                                                |       
|                                          | Shares for basic                                                                  |                                                |       
|                                          | Shares for diluted                                                                |                                                |       

See
notes to unaudited condensed consolidated financial statements.

4

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Brooktrout, Inc.        Unaudited Condensed Consolidated Statements of Comprehensive Income        (In thousands)

|           |                                                                         | Three Months Ended March 31, |      
|---------- | ----------------------------------------------------------------------- | ---------------------------- | -----
|
|Net income |                                                                         | $                            | 1,220
|           | Unrealized gains (losses) on marketable securities                      |                              |      
|           | Foreign currency translation adjustment                                 |                              |      
|           |                                                                         |                              |      
|           | Comprehensive income before income tax provision (benefit)              |                              |      
|           | Income tax provision (benefit) related to items of comprehensive income |                              |      
|           |                                                                         |                              |      
|           | Comprehensive income                                                    |                              | $    
|           |                                                                         |                              |      

See
notes to unaudited condensed consolidated financial statements.

5

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Brooktrout, Inc.        Unaudited Condensed Consolidated Statements of Cash Flows        (In thousands)

|                                                |                                                           | Three Months Ended March 31,                                                            |                                            
|----------------------------------------------- | --------------------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------------------------------
|
|Cash flows from operating activities:           |                                                           |                                                                                         |                                            
|                                                | Net income                                                |                                                                                         | $                                          
|                                                |                                                           | Adjustments to reconcile net income to cash provided by (used in) operating activities: |                                            
|                                                |                                                           |                                                                                         | Gain on disposal of discontinued operations
|                                                |                                                           |                                                                                         | Depreciation and amortization              
|                                                |                                                           |                                                                                         | Equity in loss of affiliates               
|                                                |                                                           |                                                                                         | Non-cash compensation and warrants         
|                                                |                                                           |                                                                                         | Tax benefit of stock options               
|                                                |                                                           |                                                                                         | Minority interest                          
|                                                |                                                           |                                                                                         | Deferred income taxes and other            
|                                                |                                                           |                                                                                         | Increase (decrease) in cash from:          
|                                                |                                                           |                                                                                         |                                            
|                                                |                                                           |                                                                                         |                                            
|                                                |                                                           |                                                                                         |                                            
|                                                |                                                           |                                                                                         |                                            
|                                                |                                                           |                                                                                         |                                            
|Cash provided by (used in) operating activities |                                                           |                                                                                         | 3,395                                      
|                                                |                                                           |                                                                                         |                                            
|Cash flows from investing activities:           |                                                           |                                                                                         |                                            
|                                                | Expenditures for equipment and furniture                  |                                                                                         |                                            
|                                                | Expenditures for acquired software                        |                                                                                         |                                            
|                                                | Purchases of marketable securities                        |                                                                                         |                                            
|                                                | Investment and other assets                               |                                                                                         |                                            
|                                                |                                                           |                                                                                         |                                            
|Cash used in investing activities               |                                                           |                                                                                         | (670                                       
|                                                |                                                           |                                                                                         |                                            
|Cash flows from financing activities:           |                                                           |                                                                                         |                                            
|                                                | Proceeds from the sale of common stock                    |                                                                                         |                                            
|                                                | Proceeds from exercise of Interspeed options and warrants |                                                                                         |                                            
|                                                | Purchase of treasury stock                                |                                                                                         |                                            
|                                                |                                                           |                                                                                         |                                            
|Cash provided by financing activities           |                                                           |                                                                                         | 34                                         
|                                                |                                                           |                                                                                         |                                            
|Increase (decrease) in cash and equivalents     |                                                           |                                                                                         | 2,759                                      
|Cash and equivalents, beginning of period       |                                                           |                                                                                         | 23,294                                     
|                                                |                                                           |                                                                                         |                                            
|Cash and equivalents, end of period             |                                                           | $                                                                                       | 26,053                                     
|                                                |                                                           |                                                                                         |                                            

See
notes to unaudited condensed consolidated financial statements.

6

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Brooktrout, Inc.        Notes to Unaudited Condensed Consolidated Financial Statements        (in thousands, except share and per share data)

1.  Summary of Significant Accounting Policies and Practices

(a) Description of Business

Brooktrout, Inc. (the "Company" or "Brooktrout") delivers communications hardware and software products that enable the development of applications
ranging from Internet Protocol ("IP") telephony and embedded voicemail to wireless messaging for the new global communications network. The Company sells its products to system vendors, service
providers, enterprise customers, original equipment manufacturers ("OEMs"), and value-added resellers ("VARs") through a direct sales force and a two-tiered distribution system. Prior to
February 8, 2001, the Company was organized and reported the results of its operations in the following three business segments: Brooktrout Technology, Inc. ("Brooktrout Technology"),
Brooktrout Software, Inc. ("Brooktrout Software"), and Interspeed, Inc. ("Interspeed"). These segments were differentiated based upon the products provided to the marketplace, the
customers served, and the distribution channels utilized. Two of these segments have been classified as discontinued operations for the periods presented in these condensed consolidated financial
statements (see note 2). As a result of the discontinuance of the Brooktrout Software and Interspeed segments, the Company's operations consist of one reportable operating segment, Brooktrout
Technology.

(b) Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

In
the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the interim periods presented.

The
operating results for the interim periods presented are not necessarily indicative of the results that could be expected for the full year.

(c) Discontinued Operations

The condensed consolidated statements of operations for periods prior to 2001 have been reclassified to separately report the results of discontinued
operations and the results of continuing operations. Disclosures included herein pertain to the Company's continuing operations unless noted otherwise (see note 2).

(d) Earnings Per Share

Basic earnings per common share is computed using the weighted average number of common shares outstanding during each period. Diluted earnings per common
share is calculated by dividing net income by the sum of the weighted average number of common shares outstanding, plus all additional common shares that would have been outstanding if potentially
dilutive securities had been issued, using the treasury method.

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For the quarters ended March 31, 2001 and 2000, the Company is utilizing income (loss) from continuing operations as the "control number" for purposes of determining whether
potential common shares are dilutive for all per share calculations in accordance with SFAS 128. As a result, the net income per share in 2000 includes antidilutive potential common shares in
the calculation, and net income per share in 2001 excludes potential common shares in the calculation.

A
reconciliation of weighted average shares used for the basic and diluted computations is as follows:

Three Months Ended March 31,2001

2000Weighted average shares for basic

12,126,000

11,235,000Dilutive effect of stock options



1,145,000Weighted average shares for diluted

12,126,000

12,380,000


Excluded
from the calculation of diluted weighted average shares in 2001 are 128,000 potential common shares related to stock options.

(e) Cash and Cash Equivalents

Cash and cash equivalents include highly liquid securities with remaining maturities of three months or less at the time of purchase.

(f)  Marketable Securities

Marketable securities are classified as available-for-sale and are carried at fair market value using current market quotes. Unrealized
gains or losses are included in comprehensive income. Marketable securities consist of U.S. government notes and bonds, corporate debt, and marketable equity securities.

(g) Recent Accounting Pronouncements

In June of 1998, the Financial Accounting Standards Board released Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by SFAS 137, which establishes new standards of accounting and reporting for derivative instruments and hedging activities. The Company adopted
SFAS No. 133, as amended, on January 1, 2001, and determined its effect on the condensed consolidated financial statements to be immaterial.

2.  Discontinued Operations

On February 8, 2001, the Company adopted formal plans to discontinue its Brooktrout Software and Interspeed segments. Accordingly, the results of these
segments are presented as discontinued operations in the accompanying condensed consolidated financial statements. At the time the formal plan was adopted, the Company estimated the cost to
discontinue these businesses and accounted for these costs in accordance with Accounting Principles Board No. 30 ("APB 30").

On
April 16, 2001, the Company sold Brooktrout Software to eYak, Inc. ("eYak") for approximately $4,927 in cash and 3,374,054 shares of eYak preferred stock, which
represent approximately 6 percent of eYak's aggregate outstanding shares. The 3,374,054 shares of eYak preferred stock will be classified as a long-term investment and valued based
on an independent valuation.

The
sale of Brooktrout Software will result in a net gain, which includes a gain relating to the excess of the consideration over the book value of Brooktrout Software's net assets,
and a gain net of

8

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taxes of $1,650 for the reversal of accruals for estimated costs charged in 2000, which will no longer be incurred as a direct result of the sale. The net gain of $1,650 related to the reversal of
accruals no longer required has been recorded in the current quarter ended March 31, 2001. In accordance with APB 30, the remaining gain will be recognized in the quarter ending June 30,
2001, the period in which the gain is realized.

As
of March 31, 2001, the balance of net liabilities of discontinued operations consists of $838 of net assets of the Brooktrout Software business, $855 of remaining accruals
for losses to be incurred by Brooktrout Software from April 1, 2001 to April 16, 2001, the date of the sale, and $836 related to liabilities associated with the Interspeed business. See
note 11 for the discussion of shareholder litigation relating to Interspeed.

Three Months EndedMarch 31,
2001

March 31,
2000Discontinued operations income (loss) per common share:Basic

$
0.14

$
(0.30
)Diluted


0.14


(0.27
)


3.  Inventory

Inventory is carried at the lower of cost or market, on a first-in first-out basis, and consisted of the following:

March 31,
2001

December 31,
2000Raw materials

$
2,070

$
3,008Work in process


1,554


1,576Finished goods


15,354


15,025Total

$
18,978

$
19,609


4.  Equipment and Furniture

Equipment and furniture is summarized as follows:

March 31,
2001

December 31,
2000Computer equipment

$
9,328

$
9,172Furniture and office equipment


9,302


8,933Total equipment and furniture


18,630


18,105Less accumulated depreciation and amortization


(11,400
)

(10,531
)Total equipment and furniture, net

$
7,230

$
7,574


5.  Intangible assets

Intangible assets include acquired technology, customer base, trademarks, in-place workforce, and goodwill associated with purchase business
combinations. Acquired technology is amortized on a straight-line basis over 5 to 10 years, while all other intangibles are being amortized over periods of 3 to 5 years.
Accumulated amortization at March 31, 2001 and December 31, 2000 was $4,168 and $3,727, respectively.

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6.  Income Taxes

The Company's tax provision in 2001 is based on the estimated effective tax rate for the full year. The Company's effective tax rate on continuing operations,
excluding the effect of non-deductible equity losses in affiliates, was 37% for the quarter ended March 31, 2001.

7.  Concentration of Credit Risk

The Company sells its products to various customers in several industries. The Company generally requires no collateral; however, to reduce credit risk, the
Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. At March 31, 2001, approximately 34% of the Company's accounts receivable were
from one customer.

8.  Notes ReceivableOfficers

On March 3, 2000, the Board of Directors approved a program under which executive officers of the Company financed the exercise price of stock options
totaling $11,836 in exchange for non-recourse promissory notes. The notes do not bear interest, become due and payable in full no later than the expiration of the remaining term of the
option, and provide for automatic repayment upon the sale of the common stock that is the subject of a note or within 90 days following the termination of the executive officer's employment
with the Company.

9.  Investments

Investments consist of investments in Pelago Networks, Inc. ("Pelago", formerly known as Beacon Networks, Inc.) and Telchemy, Inc.
("Telchemy"), which are accounted for under the equity method. The Company also has one investment recorded under the cost method. The Company's ownership interest in Pelago and Telchemy was 28% and
25%, respectively, as of March 31, 2001.

During
the first quarter of 2000, the Company owned 100% of Pelago and accounted for its investment under the consolidation method. As a result of the subsequent issuance of Pelago
shares in an equity financing on June 29, 2000, the Company's ownership percentage in Pelago was reduced to 28%. Accordingly, the Company accounts for its investment under the equity method of
accounting beginning in the second quarter of 2000.

10. Segment Reporting

Prior to its February 8, 2001 decision to discontinue its Brooktrout Software and Interspeed segments, the Company was organized and reported the
results of its operations in the following three business segments: Brooktrout Technology, Brooktrout Software and Interspeed. As a result of its decision to discontinue Brooktrout Software and
Interspeed, the Company's continuing operations represent one reportable operating segment. The remaining segment, Brooktrout Technology, provides enabling
technologies for customers to deliver voice, fax and data solutions for the electronic communications market.

The
rapid evolution of the world's telecommunication systems has created important market opportunities for the Company. One opportunity consists of core technologies and platforms
primarily for business premise products such as fax, LanFax, and voice mailToday's Network. Another opportunitythe New Networkis the result of the
global investments that are being made to expand the capabilities of today's communication networks. These new capabilities allow data, voice, and fax information to be distributed using packet-based
data networks, such as the Internet, for portions of the transmission and also allow such information to be distributed using the traditional circuit switched telephone network.

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ProductsBrooktrout Technology's products are sold for applications in the New Network and for applications in
Today's Network. For the three months ended March 31, 2001, the products sold for use in the New Network accounted for approximately 52% of total revenue as compared to 60% of total revenue for
the same period in the prior year.

Major CustomersOne customer accounted for approximately 20% and 11% of revenue for the three months ended March 31,
2001 and March 31, 2000, respectively.

International SalesInternational sales, principally exports from the United States, accounted for approximately 18% and
15% of revenue for the three months ended March 31, 2001 and 2000.

11. Contingencies

LitigationIn October 2000, several shareholder class action complaints were filed in the United States District
Court for the District of Massachusetts (the "Court") by certain shareholders of Interspeed and of the Company. Certain of the complaints named, among others, the Company and certain of its current
directors and certain current and former officers as defendants. The lawsuits were filed after Interspeed's October 6, 2000 announcement that it would be restating its unaudited financial
results for certain prior quarters of its fiscal year 2000. The complaints included allegations that the Company or certain of its officers and directors participated in and approved the issuance of
the financial statements of Interspeed, that defendants are "controlling persons" of Interspeed, and that the defendants made false or misleading statements regarding the Company's own consolidated
financial results. In
April 2001, the Court (i) entered final approval of the dismissal of the litigation against the Company and (ii) entered preliminary approval of the settlement of the litigation
against Interspeed. The Interspeed settlement is expected to be finalized in July 2001 and will not have a material adverse effect on the Company's financial position or results of operations.

11

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

Results of Operations

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

This Quarterly Report contains certain statements that are "forward-looking statements" as that term is defined under the Private Securities Litigation Reform
Act of 1995 and releases issued by the Securities and Exchange Commission. The words "believes," "expects," "anticipates," "intends," "estimates" and other expressions that are predictions of or
indications of future events and trends and that do not relate to historical matters, identify forward-looking statements. You should not rely on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors, some of which are beyond the control of Brooktrout, Inc. (the "Company" or "Brooktrout"), which may cause the actual results, performance or
achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements
were based on information, plans, and estimates at the date of this document and the Company undertakes no obligation to update any forward-looking statement, whether as a result of new information,
future events or otherwise.

The
future operating results and performance trends of the Company may be affected by a number of factors, including, without limitation, risks related to the following:
(i) the current telecommunications market slowdown and its impact on our customers' business and financial strength; (ii) the uncertainty of the value of and the lack of liquidity of the
eYak, Inc. shares received in connection with the sale of Brooktrout Software; (iii) the Company's historical dependence on a small number of customers; (iv) market growth, market
acceptance of the Company's products and product demand; (v) rapid changes in technology and the evolution of the telecommunications hardware and software market; and (vi) the impact of
competition. In addition to the foregoing, the Company's actual future results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth
herein and in the Company's various filings with the Securities and Exchange Commission and of changes in general economic conditions and changes in the assumptions used in making such forward-looking
statements.

Introduction

Brooktrout delivers communications hardware and software products that enable the development of applications ranging from Internet Protocol ("IP") telephony
and embedded voicemail to wireless messaging for the new global telecommunications network. The Company's strategy is to collaborate with its partners to help them increase existing business, expand
into new markets and accelerate the delivery of new applications and services. The Company sells its products to system vendors, service providers, enterprise customers, original equipment
manufacturers ("OEMs"), and value-added resellers ("VARs"), both domestically and internationally, through a direct sales force and a two-tiered distribution system.

The
rapid evolution of the world's telecommunications systems has created important market opportunities for the Company. One opportunity involves core technologies and platforms that
are primarily used in business premise products such as fax, LanFax, and voice mailToday's Network.

Another
opportunitythe New Networkis the result of the global investments that are being made to expand the capabilities of today's
communications networks. These new capabilities allow data, voice and fax information to be distributed using packet-based data networks, such as the Internet, for portions of the transmission and
also allow such information to be distributed using the traditional circuit-switched telephone network.

12

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Prior to February 8, 2001, the Company was organized and reported the results of its operations in three operating segments, Brooktrout Technology, Inc. ("Brooktrout
Technology"), Brooktrout Software, Inc. ("Brooktrout Software"), and Interspeed, Inc. ("Interspeed"). On February 8, 2001, the Company's Board of Directors adopted formal plans to
discontinue its Brooktrout Software and Interspeed segments. Accordingly, the Company has reclassified the accompanying condensed consolidated financial statements to reflect the discontinuance of
these two segments. (See note 1(c) and note 2 to the condensed consolidated financial statements). The following discussion focuses on the Company's results from continuing operations;
the historical information presented has been revised to conform to the reclassified condensed consolidated financial statement presentation.

Three Months Ended March 31, 2001 and 2000(in thousands, except share and per share data)

Revenue during the three months ended March 31, 2001 decreased by approximately 19% to $27,063, down from $33,469 for the three months ended
March 31, 2000. The substantial decline in revenue resulted primarily from the overall economic slowdown in the United States and international economies and resulting softening in the
telecommunications market. Due to the decline in the telecommunications market, service providers as well as competitive local exchange carriers have reduced capital equipment expenditures, causing a
decrease in demand from the Company's customers who purchase Brooktrout products and technology to create solutions that are sold into these markets.

In
the current quarter, the products sold for applications in the New Network accounted for approximately 52% of total revenue, as compared to 60% of total revenue for the same period
in 2000. The Company believes that its customers' use of its products will increasingly emphasize New Network applications, and as a result, future revenue related to Today's Network applications may
decrease. Revenue from one customer was approximately 20% of revenue in the current quarter compared to 11% in the prior year. The Company expects that revenue from this customer will be less than 5%
of total revenue for the foreseeable future.

Cost
of product sold was $11,195, or 41% of revenue, for the three months ended March 31, 2001, compared to $12,937, or 39% of revenue, for the quarter ended March 31,
2000. The lower gross margin in the first quarter of 2001 was primarily due to decreased sales volumes across most product lines.

Research
and development expense was $5,478 or 20% of revenue, compared with $5,786 or 17% of revenue, for the quarters ended March 31, 2001 and 2000, respectively. The dollar
decrease is primarily attributable to decreases in staffing related expenses. The Company's continuing development efforts are focused on its switching and access products that allow customers to
create the infrastructure to support the New Network; messaging products that allow integration of voice, fax and e-mail into one location; and IP telephony products. The Company intends
to continue to commit significant resources to product development.

Selling,
general and administrative expense was $9,708 or 36% of revenue, compared with $9,390 or 28% of revenue, for the quarters ended March 31, 2001 and 2000, respectively.
The expense increase is related primarily to staffing increases along with certain other facilities associated expenses.

For
the period ended March 31, 2001, other expense was $745 compared to other income of $606 for the period ended March 31, 2000. During the quarter ended
March 31, 2001, the Company recognized equity in loss of affiliates of $1,055 related to its investments in Pelago Networks, Inc. and Telchemy, Inc. There was no such equity in
losses of affiliates recognized during the quarter ended March 31, 2000. In addition, interest and other income was $310 for the quarter ended March 31, 2001 as compared with $606 for
the same period in 2000, reflecting lower cash balances available for investment.

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The Company's effective tax rate on continuing operations, excluding the effect of non-deductible equity losses in affiliates, was 37% for the quarter ended March 31, 2001.

Liquidity and Capital Resources(in thousands, except share and per share data)

For the quarter ended March 31, 2001, the Company funded its operations principally through operating revenue. Working capital increased to $55,353 at
March 31, 2001 from $52,344 at March 31, 2000, primarily due to decreases in accounts payable and other current liabilities of $7,695, offset by decreases in current assets of $4,686.
Cash generated by operating activities for the quarter ended March 31, 2001 was approximately $3,400 and was primarily generated through the reduction of accounts receivable, as well as
decreased operating expenditures.

In
August 2000, the Company renewed its working capital line of credit. Under the renewed line of credit, the Company may borrow up to $10,000 on an unsecured basis, all of
which may be used for issuance of letters of credit, subject to compliance with certain covenants. The line of credit expires in July 2001 and at that time any outstanding balances are payable
in full. Any amounts borrowed under this line of credit are subject to interest at the lender's prime rate. At March 31, 2001, there were no commitments outstanding on letters of credit; and no
borrowings have been made in the past three years.

During
the quarter ended March 31, 2001, the Company purchased approximately $525 in equipment and $145 in software licenses used in the development of its products. The
Company currently has no material commitments for additional capital expenditures.

The
pricing of the Company's products and costs of its goods are generally determined by current market conditions. Market conditions can be impacted by inflation; however, the
Company believes that inflation has not had a significant effect on its operations to date.

The
Company has operating lease commitments for its office and manufacturing facilities expiring through 2006. Certain lease agreements require the Company to pay all of the
building's taxes, insurance and maintenance costs.

On
April 16, 2001, the Company sold Brooktrout Software to eYak, Inc. ("eYak") for approximately $4,927 in cash and 3,374,054 shares of eYak preferred stock, which represent
approximately 6 percent
of eYak's aggregate outstanding shares. The sale of Brooktrout Software will result in a net gain, which includes a gain relating to the excess of the consideration over the book value of Brooktrout
Software's net assets, and a gain net of taxes of $1,650 for the reversal of accruals for estimated costs charged in 2000, which will no longer be incurred as a direct result of the sale.

The
Company anticipates that cash flows from continuing operations, together with current cash and marketable securities balances and funds available under the Company's line of
credit, will be sufficient to meet the Company's working capital and capital equipment expenditure requirements for the next twelve months.

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Risk Factors

The Company's operating results are likely to fluctuate significantly and cause the Company's stock price to be volatile, which could cause the value of
your investment to decline.

The Company's operating results are likely to fluctuate in the future due to a variety of factors, many of which are outside of its control. If the Company's
operating results do not meet the expectations of securities analysts, the trading price of the Company's common stock could significantly decline. This may cause the value of your investment in the
Company to decline. In addition, the value of your investment could be impacted by investor perception of the Company's industry or its prospects generally, independent of the operating performance of
the Company. Some of the factors that could affect the Company's operating results or impact the market price of the common stock include:



Due
to these and other factors, revenue, expenses and results of operations could vary significantly in the future, and period-to-period comparisons should not
be relied upon as indications of future performance.

The Company is exposed to general economic conditions, and the slowdown in some sectors of the telecommunications industry in particular.

As a result of recent unfavorable economic conditions affecting most technology sectors and the telecommunications sector in particular, many of our customers
are aggressively increasing efficiency in their supply chains and reducing inventory levels. Additionally, we expect the growth of data traffic and the use of the Internet will continue to have a
significant impact on traditional voice networks, which is driving the convergence of data and telephony and giving rise to the demand for New Network applications. We cannot be sure what the rate of
such convergence will be due to the slowdown in the communications industry and the resulting decrease in spending by our customers. If the economic conditions worsen or if a wider economic slowdown
occurs, the Company may experience a material adverse impact on its business, operating results, and financial condition.

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The final outcome of the pending shareholder class action against Interspeed is uncertain and may significantly divert management's time and attention.

In October 2000, several shareholder class action complaints were filed by certain shareholders of Interspeed and the Company naming, among others, the
Company and certain of its current and former officers and certain of its directors as defendants. The lawsuits were filed after Interspeed's October 6, 2000 announcement that it would be
restating its unaudited financial results for certain prior quarters of its fiscal year 2000. In April 2001, the court (i) entered final approval of the dismissal of the litigation
against the Company and (ii) entered preliminary approval of the settlement of the litigation against Interspeed. Although final settlement of the Interspeed litigation is expected in
July 2001, the Company cannot provide any assurances as to the outcome of this securities litigation. Such litigation could substantially divert management's attention and the Company's
resources in general. Uncertainties resulting from the Interspeed litigation or other proceedings could harm the Company's ability to compete in the marketplace and could contribute to the volatility
of the Company's stock price. Any conclusion of the Interspeed litigation in a manner adverse to the Company may have a material adverse effect on the Company's business, financial condition, and
results of operations.

The Company has historically derived the majority of its revenue from a small number of customers.

The Company's failure to generate as much revenue as expected from what has historically been a relatively small number of customers or the failure of these
customers to purchase the Company's products could seriously harm the Company's business. For the quarter ended March 31, 2001, one customer accounted for approximately 20% of the Company's
revenue. The Company expects that revenue from this customer will be less than 5% of total revenue for the foreseeable future. The decline in expected revenue from this customer, as well as the loss
of any one of the Company's other major customers or the delay of significant orders from such customers, even if only temporary, could reduce or delay the Company's revenue, harm the Company's
reputation in the industry and reduce the Company's ability to accurately predict cash flow, and, as a consequence, could seriously harm the Company's business, financial condition and results of
operations.

Present
and future customers may also terminate their purchasing arrangements with the Company, significantly reduce or delay their orders or seek to renegotiate their agreements on
terms less favorable to the Company. Furthermore, in any future negotiations, the Company may be subject to the perceived or actual leverage the customers may have, given their relative size and
importance to the Company. Any termination, change, reduction or delay in orders could seriously harm the Company's business, financial condition and results of operations. Accordingly, unless and
until the Company can diversify and expand its customer base, the Company's future success will significantly depend upon the timing and size of future purchases by the Company's largest customers and
the financial and operational success of these customers.

The Company's markets are highly competitive, and the Company may not be able to compete successfully against new entrants and established companies
with greater resources.

The market for telecommunications equipment is highly competitive. If the Company is unable to differentiate its products from existing and future offerings of
its competitors, and, thereby, effectively compete in the market for telecommunications equipment, the Company's results of operations could be materially adversely affected. Many of the Company's
current and potential competitors have significantly greater selling and marketing, technical, manufacturing, financial, and other resources. Moreover, the Company's competitors may have greater
access to components necessary to manufacture their products. The strength and capabilities of the Company's competitors may be increased as a result of the trend toward consolidation in the
telecommunications market. Capitalizing on and maintaining the Company's technological advantage will require a continued high level of

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investment in research and development, marketing and customer service and support. Due to the rapidly evolving markets in which the Company competes, additional competitors with significant market
presence and financial resources may enter those markets, thereby further intensifying competition. The Company may not have sufficient resources to continue to make the investments or achieve the
technological advances necessary to compete successfully with existing competitors or new entrants.

Internal development efforts by the Company's customers may adversely affect demand for its products.

Many of the Company's customers, including the large OEMs on which the Company focuses a significant portion of its sales and marketing efforts, have
the technical and financial ability to design and produce components replicating or improving on the functionality of most of the Company's products. These customers often consider
in-house development of technologies and products as an alternative to doing business with the Company. The Company cannot assure that its existing customers or potential customers will do
business with the Company, rather than attempting to develop similar technology and products internally or obtaining them through acquisition. The Company cannot be certain that it will be able to
find customers to replace the revenue lost as a result of customers developing technologies or products in-house. Any such occurrence could have a material adverse effect on the Company's
business, financial condition or results of operations.

Unless the Company is able to keep pace with the evolution of the telecommunications hardware and software market, the Company's business may be
adversely impacted.

The telecommunications hardware and software market is characterized by:



The
Company believes that its future success will depend, in part, on its ability to offer products that address the sophisticated and varied needs of its current and prospective
customers and to respond to technological advances and evolving industry standards on a timely and cost-effective basis. The Company intends to continue to invest significantly in product
and technology development. The development of new or enhanced products is a complex and uncertain process. The Company may experience design, manufacturing, marketing and other difficulties that
could delay or prevent its development, introduction or marketing of new products and enhancements. The Company may also not be able to incorporate new technologies on a cost-effective or
timely basis. This may result in unexpected expenses. The introduction of new or enhanced products also requires that the Company manage the transition from older products so as to minimize the
disruption to customers and ensure that adequate supplies of new products can be delivered to meet anticipated customer demand. The Company's inability to develop on a timely basis new products or
enhancements to existing products, or the failure of such new products or enhancements to achieve market acceptance, could have a material adverse effect on the Company's business, financial condition
and results of operations.

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The Company's dependence on sole and single source suppliers and independent manufacturers exposes it to supply interruptions that could result in
product delivery delays.

Although the Company generally uses standard parts and components for its products, some key components are purchased from sole or single source vendors for
which alternative sources are not
currently available or are difficult to obtain. The Company's inability to obtain sufficient quantities of these components may result in future delays or reductions in product shipments that could
materially adversely affect its business, financial condition and results of operations. The Company currently purchases proprietary components from a number of suppliers for which there are no direct
substitutes. These components could be replaced with alternatives from other suppliers, but that could involve redesign of the Company's products. If such redesign was required, the Company would
incur considerable delay and expenses. The Company currently enters into purchase orders with its suppliers for materials based on forecasts of need, but has no guaranteed supply arrangements with
these suppliers.

In
addition, the Company currently uses a number of independent manufacturers to manufacture printed circuit boards, chassis and subassemblies in accordance with the Company's design
and specification. The Company's reliance on independent manufacturers involves a number of risks, including the potential for inadequate capacity, unavailability of, or interruptions in access to,
process technologies, and reduced control over delivery schedules, manufacturing yields and costs. If the Company's manufacturers are unable or unwilling to continue manufacturing its components in
required quantities or to the Company's quality expectations, the Company will have to transfer manufacturing to acceptable alternative manufacturers that it has identified, which could result in
significant delays in shipment of products to customers. Moreover, the manufacture of these components is extremely complex, and the Company's reliance on the suppliers of these components exposes it
to potential production difficulties and quality variations, which could negatively impact the cost and timely delivery of its products. The Company currently enters into purchase orders with
independent manufacturers of materials based on forecasts of need, but has no guaranteed arrangements with these manufacturers. Any significant interruption in the supply, or degradation in the
quality, of any component would have a material adverse effect on the Company's business, financial condition and results of operations.

Defects in the Company's products or problems arising from the use of its products may seriously harm its business and reputation.

Products as complex as the Company's may contain known and undetected errors or performance problems. Defects are frequently found during the period
immediately following introduction and initial implementation of new products or enhancements to existing products. Although the Company attempts to resolve all errors that it believes would be
considered serious by its customers before implementation, the Company's products may not be error-free. The Company also provides warranties against defects in materials and workmanship
on its products that range, depending on the product, generally from twelve months to five years. However, errors or performance problems could result in lost revenue or customer relationships and
could be detrimental to the Company's business and reputation generally. Additionally, reduced market acceptance of the Company's services due to errors or defects in its technology would harm its
business by reducing its revenue and damaging its reputation. In addition, the Company's customers generally use its products together with their own products and products from other vendors. As a
result, when problems occur, it may be difficult to identify the source of the problem. These problems may cause the Company to incur significant warranty and repair costs, divert the attention of its
engineering personnel from the Company's product development efforts and cause significant customer relations problems. To date, defects in the Company's products or those of other vendors' products
with which its products are used by its

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customers have not had a material adverse effect on its business. However, the Company cannot be certain that a material adverse effect will not occur in the future.

Changes to regulations affecting the telecommunications or Internet industries could reduce demand for the Company's products or increase its costs.

Laws and regulations governing telecommunications, electronic commerce and the Internet are beginning to emerge, but remain largely unsettled, even in the
areas where there has been some legislative action. Regulation may focus on, among other things, assessing access or settlement charges, or imposing tariffs or regulations based on the characteristics
and quality of products and services, either of which could restrict the Company's business or increase its cost of doing business. Any changes to existing laws or the adoption of new regulations by
federal or state regulatory authorities or any legal challenges to existing laws or regulations relating to the telecommunications industry could materially adversely affect the market for the
Company's products. Moreover, the Company's VARs or other customers may require, or the Company may otherwise deem it necessary or advisable, that the Company alter its products to address actual or
anticipated changes in the regulatory environment. The Company's inability to alter its products or address any regulatory changes could have a material adverse effect on its business, financial
condition or results of operations.

Provisions in the Company's charter and by-laws may discourage takeover attempts and, thus, depress the market price of the common stock.

Provisions in the Company's Charter may have the effect of delaying or preventing a change of control or changes in the Company's management or Board of
Directors. These provisions include:



These
provisions discourage potential takeover attempts and the ability of stockholders to change management and the Board of Directors. These anti-takeover measures could
adversely affect the market price of the Company's common stock. In addition, even if you desired to participate in a tender offer, change of control or takeover attempt of the Company that the
Company's management and Board of Directors opposed, these provisions may prevent you from doing so.

Limitations on the Company's ability to adequately protect its proprietary rights may prevent it from retaining its competitive advantage and negatively
impact its future operating results.

The Company's success and its ability to compete are dependent, in part, upon its proprietary technology. Taken as a whole, the Company believes its
intellectual property rights are significant and

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any failure to adequately protect the unauthorized use of its proprietary rights could result in the Company's competitors offering similar products, potentially resulting in loss of a competitive
advantage and decreased revenue. The Company relies upon a combination of trademark law, trade secret protections, copyright law and confidentiality agreements with consultants and third parties to
protect its proprietary rights. Notwithstanding its efforts, third parties may infringe or misappropriate the Company's proprietary rights. In addition, each employee of the Company has executed a
proprietary information agreement designed to protect the trade secrets of the Company, inventions created in the course of employment with the Company and other proprietary information of the
Company. Moreover, effective trademark, copyright or trade secret protections may not be available in every country in which the Company operates or intends to operate to the same extent as the laws
of the United States. Also, it may be possible for unauthorized third parties to copy or reverse engineer aspects of the Company's products, develop similar technology independently or otherwise
obtain and use information that it regards as proprietary. Furthermore, detecting unauthorized use of the
Company's proprietary rights is difficult. Litigation may be necessary in the future to enforce the Company's proprietary rights. Such litigation could result in the expenditure of significant
financial and managerial resources and could have a material adverse effect on the Company's future operating results.

Intellectual property claims against the Company can be costly and negatively impact the Company's business.

In the telecommunications business, there is frequent litigation based on allegations of patent infringement. As the number of entrants in the Company's market
increases and the functionality of its products is enhanced and overlaps with the products of other companies, the Company may become subject to claims of infringement or misappropriation of the
intellectual property rights of others. As a result, from time to time, third parties may claim exclusive patent or other intellectual property rights to technologies that the Company uses. In
April 2000, the Company entered into a settlement agreement in connection with such litigation. Although the Company believes that it does not face material liability related to infringement of
the intellectual property of others, any claims asserting that the Company's products infringe or may infringe proprietary rights of third parties, if determined adversely to the Company, could have a
material adverse effect on its business, financial condition or results of operations. Any claims, with or without merit, could be time-consuming, result in costly litigation, divert the
efforts of the Company's engineering and management personnel, cause delays in product shipments or require the Company to enter into royalty or licensing agreements, any of which could have a
material adverse affect upon the Company's operating results. If any legal action claiming patent infringement is commenced against it, the Company cannot assure you that it would prevail in such
litigation given the complex technical issues and inherent uncertainties in patent litigation. In addition, the Company may be required to obtain a license or royalty agreement under the intellectual
property rights of those parties claiming the infringement. In the event a claim against the Company was successful, and it could not obtain a license on acceptable terms or license a substitute
technology or redesign to avoid infringement, the Company may be unable to market its affected products. This could have a material adverse effect on the Company's business, financial condition and
results of operations.

Certain of the Company's products depend upon the continued availability of licensed technology from third parties.

The Company currently licenses and will continue to license certain technology integral to certain of its products from third parties. For example, the Company
has obtained licenses from third parties of software for certain of its voice and fax products. While the Company believes that much of this technology is available from multiple sources, any
difficulties in acquiring third-party technology licenses, or integrating the related third-party technology into its products, could result in delays in product development or upgrade until
equivalent technology can be identified, licensed and integrated.

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The Company may require new licenses in the future as its business grows and technology evolves. The Company cannot assure you that these licenses will continue to be available to it on commercially
reasonable terms, if at all, which could have a material adverse effect on the Company's business, financial condition and results of operations.

If the Company is unable to attract or retain key personnel, it may be unable to successfully operate its business.

The Company's success depends on a large part upon the continued contributions of its key management, sales and marketing, and engineering personnel, many of
who perform important functions and would be difficult to replace. The Company does not have employment contracts with its key personnel. In addition, in order to grow its business, the Company must
increase the number of engineering, sales, customer support and administrative personnel. There is intense competition in the Company's industry for qualified personnel, and, at times, the Company has
experienced difficulty in recruiting qualified personnel. The Company may not be able to attract and retain the necessary personnel to accomplish its business objectives, and it may experience
constraints that will adversely affect its ability to satisfy customer demand in a timely fashion or to support its customers and operations. The Company's inability to hire qualified personnel on a
timely basis, or to retain its key personnel, could materially adversely affect the Company's business, financial condition and results of operations.

The Company's products typically have long sales cycles, causing the Company to expend significant resources before recognizing revenue.

The length of the Company's sales cycle typically ranges from six to eighteen months and varies substantially from customer to customer. Prospective customers
generally must commit significant resources to test and evaluate the Company's products and integrate them into larger systems. This evaluation period is often prolonged due to delays associated with
approval processes that typically accompany the design and testing of new communications equipment by the Company's customers.

In
addition, the rapidly emerging and evolving nature of the markets in which the Company and its customers compete may cause prospective customers to delay their purchase decisions
as they evaluate new technologies and develop and implement new systems. During the period in which the Company's customers are evaluating whether to place an order with the Company, it often incurs
substantial sales and marketing expenses, without any assurance of future orders or their timing. Even after a customer places an order with the Company and its product is expected to be utilized in a
product or service offering being developed by our customer, the timing of the development, introduction and implementation of those products is controlled by, and can vary significantly with the
needs of, the Company's customers. In some circumstances, the customer will not require the product for several months. This complicates the Company's planning processes and reduces the predictability
of the Company's earnings.

The Company derives a significant portion of its revenue from international sales; international business operations entail additional risks.

Risks arising from the Company's international business include currency fluctuation, political instability in other countries, the imposition of trade and
tariff regulations by foreign governments, and the difficulties in managing operations across disparate geographic areas. In addition, most countries require technical approvals from their
telecommunications regulatory agencies for products that operate in conjunction with the telephone system. Obtaining these approvals is generally a prerequisite for sales in a given jurisdiction.
Obtaining requisite approvals may require from two months to a year or more depending on the product and the jurisdiction. These or other factors may limit the Company's ability

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to sell its products and services in other countries, which could have a material adverse effect on the Company's business, financial condition and results of operations.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk from changes in interest rates, foreign currency exchange rates, and equity prices has not changed materially from its
exposure at year-end 2000.

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Part II.  OTHER INFORMATION

Item 1.  Legal Proceedings

In October 2000, several shareholder class action complaints were filed in the United States District Court for the District of Massachusetts (the
"Court") by certain shareholders of Interspeed and of the Company. Certain of the complaints named, among others, the Company and certain of its current directors and certain current and former
officers as defendants. The lawsuits were filed after Interspeed's October 6, 2000 announcement that it would be restating its unaudited financial results for certain prior quarters of its
fiscal year 2000. The complaints included allegations that the Company or certain of its officers and directors participated in and approved the issuance of the financial statements of Interspeed,
that defendants are "controlling persons" of Interspeed, and that the defendants made false or misleading statements regarding the Company's own consolidated financial results. In April 2001,
the Court (i) entered final approval of the dismissal of the litigation against the Company and (ii) entered preliminary approval of the settlement of the litigation against Interspeed.
The Interspeed settlement is expected to be finalized in July 2001 and will not have a material adverse effect on the Company's financial position or results of operations.

Item 6.  Exhibits and Reports on Form 8-K



2.1Agreement
and Plan of Merger among eYak, Inc., Sonexis Technologies, Inc., Brooktrout Software, Inc., Brooktrout Business Trust and
Brooktrout, Inc. is hereby incorporated by reference from Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
April 25, 2001 (File No. 000-20698).



On
April 25, 2001, the Company filed a Current Report on Form 8-K dated April 16, 2001 with respect to the sale of its Brooktrout
Software, Inc. subsidiary.

On
May 4, 2001, the Company filed a Current Report on Form 8-K dated May 4, 2001 with respect to certain pro forma financial data.

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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.

|                   |  | BROOKTROUT, INC.
|------------------ |  | ----------------
|Date: May 15, 2001 |  | By:             
|Date: May 15, 2001 |  | By:             

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