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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-Q

(MARK ONE)

<TABLE>
<C>        <S>
   /X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
                                       OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                         COMMISSION FILE NUMBER 0-27401

                            ------------------------

                                INTERSPEED, INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
               DELAWARE                                     04-333365
    (State or other jurisdiction of             (IRS Employer Identification No.)
    incorporation or organization)

            39 HIGH STREET
     NORTH ANDOVER, MASSACHUSETTS                             01845
    (Address of principal executive                         (zip code)
               offices)
</TABLE>

                                 (978) 688-6164
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                         if changed since last report)

                            ------------------------

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 July 31, 2000, 10,958,904 shares of $0.01 par value common stock of the
registrant were outstanding.

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<TABLE>
<S>       <C>                                                           <C>
PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS
</TABLE>

<TABLE>
<CAPTION>
                                                                     PAGE
                                                                   --------
<S>  <C>                                                           <C>
1.   Condensed Balance Sheets as of June 30, 2000 (unaudited) and
     September 30, 1999..........................................       3

2.   Condensed Statements of Operations (unaudited) for the three
     and nine months ended June 30, 2000 and 1999................       4

3.   Condensed Statements of Cash Flows (unaudited) for the nine
     months ended
     June 30, 2000 and 1999......................................       5

4.   Notes to Condensed Financial Statements.....................     6-8
</TABLE>

<TABLE>
<S>       <C>                                                           <C>
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS.........................    9-20

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...      20

PART II.  OTHER INFORMATION

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS...................      21

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K............................      21

SIGNATURE PAGE........................................................      22
</TABLE>

                                       2
<PAGE>
                                     PART I
                             FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                INTERSPEED, INC.
                            CONDENSED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                               JUNE 30,     SEPTEMBER 30,
                                                                 2000           1999
                                                              -----------   -------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
                                         ASSETS
Current assets:
Cash........................................................    $ 6,426        $21,227
  Accounts receivable, net..................................     10,233            808
  Inventory.................................................      3,284          2,445
  Prepaid expenses and other................................        244            168
                                                                -------        -------
  Total current assets......................................     20,187         24,648
  Property and equipment, net...............................      1,972          1,178
  Other assets..............................................         --             54
                                                                -------        -------
    Total assets............................................    $22,159        $25,880
                                                                =======        =======

                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $ 4,350        $ 2,789
  Accrued expenses..........................................      1,418            662
  Short-term note payable--due Brooktrout...................         --            129
  Deferred revenue..........................................         44             26
                                                                -------        -------
  Total current liabilities.................................      5,812          3,606
  Deferred rent.............................................        154            104
Stockholders' equity:
  Common stock, $.01 par value, 30,000,000 shares
    authorized, 10,950,578, and 10,702,658 shares issued and
    outstanding.............................................        110            107
  Additional paid-in capital................................     43,607         41,995
  Accumulated deficit.......................................    (24,405)       (15,825)
  Deferred compensation.....................................     (3,119)        (4,107)
                                                                -------        -------
    Total stockholders' equity..............................     16,193         22,170
                                                                -------        -------
    Total liabilities and stockholders' equity..............    $22,159        $25,880
                                                                =======        =======
</TABLE>

    The Condensed Balance Sheet as of September 30, 1999 has been summarized
           from the Company's audited Balance Sheet as of that date.
                  See notes to condensed financial statements.

                                       3
<PAGE>
                                INTERSPEED, INC.

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

<TABLE>
<CAPTION>
                                                              THREE MONTHS           NINE MONTHS
                                                             ENDED JUNE 30,        ENDED JUNE 30,
                                                           -------------------   -------------------
                                                             2000       1999       2000       1999
                                                           --------   --------   --------   --------
<S>                                                        <C>        <C>        <C>        <C>
Revenue before sales discounts--warrants.................  $ 7,007    $   950    $14,162    $ 1,341
Sales discounts--warrants................................       --         --       (439)        --
                                                           -------    -------    -------    -------
Net revenue..............................................    7,007        950     13,723      1,341
Cost of revenue..........................................    4,596        514      8,558        826
                                                           -------    -------    -------    -------
Gross profit.............................................    2,411        436      5,165        515
Operating expenses:
Research and development.................................    1,793      1,335      5,385      3,747
Selling, general and administrative......................    2,626        976      7,020      1,898
Stock compensation and warrant charges...................      285      1,850      1,837      1,944
                                                           -------    -------    -------    -------
Loss from operations.....................................   (2,293)    (3,725)    (9,077)    (7,074)
Interest income..........................................      111         --        497         --
                                                           -------    -------    -------    -------
Loss before income taxes.................................   (2,182)    (3,725)    (8,580)    (7,074)
Income tax expense.......................................       --         --         --         --
                                                           -------    -------    -------    -------
Net loss.................................................  $(2,182)   $(3,725)   $(8,580)   $(7,074)
                                                           =======    =======    =======    =======
Net loss per share-basic and diluted.....................  $ (0.20)   $ (0.47)   $ (0.79)   $ (0.88)
                                                           =======    =======    =======    =======
Shares used to compute net loss per share--basic and
  diluted................................................   10,891      8,001     10,793      8,001
                                                           =======    =======    =======    =======
</TABLE>

                  See notes to condensed financial statements.

                                       4
<PAGE>
                                INTERSPEED, INC.

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

<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED
                                                                   JUNE 30,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Cash flows from operating activities:
Net loss....................................................  $(8,580)   $(7,074)
  Adjustments to reconcile net loss to cash used by
  operating activities:
    Depreciation and amortization...........................      619        212
    Amortization of stock compensation and warrant
      charges...............................................     1864      1,944
    Sales discounts--warrants                                     439         --
  Increase (decrease) in cash from:
    Accounts receivable.....................................   (9,425)    (1,302)
    Inventory...............................................     (839)      (235)
    Prepaid expenses and other..............................      (22)       (91)
    Deferred offering costs.................................       --       (463)
    Accounts payable........................................    1,561      1,164
    Accrued expenses........................................      756        487
    Payable to Brooktrout...................................     (129)        --
    Deferred revenue........................................       17         39
    Deferred rent...........................................       50         60
                                                              -------    -------
Net cash used for operating activities......................  (13,689)    (5,259)
                                                              -------    -------
Cash flows used for investing activities:
Purchases of property and equipment.........................   (1,413)      (588)
                                                              =======    =======
Cash flows from financing activities:
Proceeds from the issuance of common stock..................      301          2
Proceeds from long-term debt-due Brooktrout                        --      5,849
                                                              -------    -------
Net cash provided by financing activities...................      301      5,851
                                                              -------    -------
Net decrease in cash........................................  (14,801)         4
Cash, beginning of period...................................   21,227        132
                                                              -------    -------
Cash, end of period.........................................  $ 6,426    $   136
                                                              =======    =======
</TABLE>

                  See notes to condensed financial statements.

                                       5
<PAGE>
                                INTERSPEED, INC.

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

    The accompanying unaudited condensed financial statements have been prepared
by Interspeed, Inc. (the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting. They
should be read in conjunction with the audited financial statements included in
the Company's Annual Report on Form 10-K/A for the year ended September 30,
1999.

    In the opinion of management, the accompanying unaudited condensed financial
statements have been prepared on the same basis as the audited 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 which could be expected for the full year.

NET LOSS PER SHARE

    Basic net loss per share is computed using the weighted average number of
common shares outstanding during each period. Outstanding stock options have
been excluded from the computation of diluted per share amounts since the effect
would be antidilutive. Had the impact of stock options, using the treasury stock
method, been included in the computation, weighted average shares would have
increased by 804,000, 957,000, 1,233,000, and 1,205,000 for the three and nine
months ended June 30, 2000 and 1999, respectively.

INCOME TAXES

    The Company's quarterly effective tax rate is based on the estimated tax
rate for the fiscal year.

COMPREHENSIVE INCOME

    There was no difference between the Company's net loss and its total
comprehensive loss for any of the periods presented.

SEGMENT INFORMATION

    The Company currently operates in one business segment: designing,
developing and marketing advanced communications products which enable service
providers to deliver high speed data access to small and medium sized
businesses, multi-tenant units ("MTUs"), and other organizations.

CONCENTRATIONS OF CREDIT RISK

    Until the three months ended June 30, 2000, the Company's activities had
been conducted primarily in the United States. The Company performs ongoing
credit evaluations of its customers and generally requires no collateral. At
June 30, 2000, approximately 92% of accounts receivable were comprised of
balances due from three customers and approximately 67% of accounts receivable
were denominated in a foreign currency.

    The Company relies on contract manufacturers and some single source
suppliers of materials for certain product components. As a result, should the
Company's current manufacturers or suppliers not produce and deliver inventory
for the Company to sell on a timely basis, operating results could be adversely
impacted.

                                       6
<PAGE>
                                INTERSPEED, INC.

              NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
effective for fiscal years beginning after June 15, 2000. The new standard
requires that all companies record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for based on the use of the
derivative and whether it qualifies for hedge accounting. Management is
currently assessing the impact of SFAS No. 133 on the financial statements of
the Company. The Company will adopt this accounting standard on October 1, 2000,
as required.

    In December 1999, the Securities and Exchange Commission (the "SEC")
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements and will be effective for the Company in fiscal 2001.
Management is currently evaluating the effect of adopting SAB No. 101 on the
financial statements.

INVENTORY

    Inventory consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                         JUNE 30,   SEPTEMBER 30,
                                                           2000         1999
                                                         --------   -------------
<S>                                                      <C>        <C>
Raw material...........................................   $1,397       $1,622
Work in process........................................      140            5
Finished goods.........................................    1,747          818
                                                          ------       ------
      Total............................................   $3,284       $2,445
                                                          ======       ======
</TABLE>

SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION

    The Company currently targets its sales efforts to data communications
service providers, MTUs, and other service organizations to both public and
private network providers and users across four related market segments. For the
three months and nine months ended June 30, 2000, gross sales to customers in
the United States amounted to $400,000 and $7,200,000, and export sales for the
same periods amounted to $6,600,000 and $6,900,000, respectively. For the three
months ended June 30, 2000, one international customer accounted for
approximately 92% of gross revenue. For the nine months ended June 30, 2000,
three customers, two domestic and one international, accounted for approximately
15%, 25% and 46% of gross revenues, respectively.

RELATED PARTY TRANSACTIONS

    From its inception through the completion of its initial public offering on
September 24, 1999 ("IPO"), the Company's operations were funded through
contributions of capital and loans from Brooktrout, Inc. ("Brooktrout"), its
parent company. At September 24, 1999, in connection with the Company's IPO,
Brooktrout contributed $13,598,000, the majority of the outstanding note
balance, to the capital of the Company.

    The Company and Brooktrout entered into a Transition Services Agreement (the
"Agreement") which expired on December 31, 1999. The Agreement outlined certain
services that would continue to be performed on behalf of the Company by
Brooktrout through December 31, 1999. The Agreement required that these services
be phased out over a period beginning on October 1999 to December 1999. The
services

                                       7
<PAGE>
                                INTERSPEED, INC.

              NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)

included payroll processing and administration, human resources, benefits,
marketing, information technology and telecommunications, accounts receivable,
accounting and finance and order entry. The fees for such services were on an
"as used" basis and were included in the Agreement. During the three and nine
months ended June 30, 2000 and 1999, fees for these services totaled $0,
$43,000, $469,000 and $1,102,000, respectively

WARRANTS

    During the three months ended March 31, 2000, in consideration for entering
into certain long-term reseller agreements, the Company granted to the customers
vested warrants to purchase 55,000 shares of the Company's common stock at the
market price of the Company's common stock on the dates the warrants were
granted. The value of the warrants was calculated by applying the Black-Scholes
option pricing model using the fair market value of the Company's common stock
on the date the agreements were executed. The value of the warrants has been
charged to expense as a component of stock compensation and warrant charges in
the condensed statement of operations.

    The Company, during the three months ended March 31, 2000, also granted to
the customers warrants to purchase up to 150,000 shares of the Company's common
stock that vest in installments as the customers attain certain revenue
milestones over the terms of the agreements. The Company is accounting for these
warrants as a sales discount. As revenue is recognized on sales to these
customers, the Company is recording a sales discount based on the relationship
of the customers' sales to date to the specified revenue milestone. The amount
of the discount is being estimated by valuing the warrants using the Black-
Scholes option pricing model at the end of each fiscal period. The value of the
warrants is being adjusted in each fiscal period until the revenue levels are
attained and the warrants vest. The exercise price of the warrants is the fair
market value of the Company's common stock on the date that the warrants vest.

                                       8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
        OF OPERATIONS

    THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED FINANCIAL
STATEMENTS AND NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS QUARTERLY
REPORT. THIS DOCUMENT CONTAINS CERTAIN STATEMENTS THAT ARE "FORWARD-LOOKING
STATEMENTS" AS THAT TERM IS DEFINED UNDER THE PRIVATE SECURITIES LEGISLATION
REFORM ACT OF 1995 AND RELEASES ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION. THE WORDS "BELIEVE," EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE,"
AND OTHER EXPRESSIONS, WHICH ARE PREDICTIONS OF OR INDICATE FUTURE EVENTS AND
TRENDS AND WHICH DO NOT RELATE TO HISTORICAL MATTERS, IDENTIFY FORWARD-LOOKING
STATEMENTS. FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE ANTICIPATED FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD
LOOKING STATEMENTS. SOME OF THE FACTORS DESCRIBED UNDER "RISK FACTORS" MAY
RESULT IN THESE DIFFERENCES. THE READER SHOULD CAREFULLY REVIEW ALL OF THESE
FACTORS, AND SHOULD BE AWARE THAT THERE MAY BE OTHER FACTORS THAT COULD CAUSE
THESE DIFFERENCES. WE DO NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENTS
TO REFLECT CHANGES IN UNDERLYING ASSUMPTIONS OR FACTORS, NEW INFORMATION, FUTURE
EVENTS OR OTHER CHANGES.

OVERVIEW

    REVENUE.  Our revenue is generated primarily from sales of our products and
related maintenance services to data communications service providers and their
customers. Revenue from product sales is recognized upon shipment of the
product. No revenue is recognized on products shipped on a trial basis. Our
products generally carry a one year warranty from the date of purchase. We
estimate sales returns and warranty costs at the time the product revenue is
recognized and an accrual is recorded. Customers may contract for support
services over and above that provided by our warranty policy. Revenue from such
contracts and from the extended warranty contracts is recognized ratably over
the service period. We do not recognize revenue on beta units until beta testing
on such units is completed.

    SALES DISCOUNTS--WARRANTS.  We have granted to the customers warrants to
purchase up to 150,000 shares our common stock that vest in installments as the
customers attain certain revenue milestones over the terms of the agreements,
with an exercise price equal to the fair market value of the common stock at the
time of vesting. We are accounting for these warrants as a sales discount. As
revenue is recognized on sales to these customers, we are recording a sales
discount based on the relationship of the customers' sales to date to the
specified revenue milestone. The amount of the discount is being estimated by
valuing the warrants using the Black-Scholes option pricing model at the end of
each fiscal period. The value of the warrants is being adjusted in each fiscal
period until the revenue levels are attained and the warrants vest. The exercise
price of the warrants is the fair market value of the Company's common stock on
the date that the warrants vest.

    COST OF REVENUE.  Cost of revenue consists of direct product costs such as
standard parts and components for our products and the cost of third party
products purchased for resale, salaries and employee benefits for manufacturing
personnel and overhead such as equipment and facility costs.

    GROSS PROFIT.  We expect our gross profit to be affected by many factors
including pricing, product mix, cost factors such as component prices, internal
and external manufacturing costs as well as manufacturing efficiencies due to
higher volume of product shipments which we believe will result in the
improvement of overhead absorption.

    RESEARCH AND DEVELOPMENT.  Research and development expenses consist
primarily of salaries and employee benefits for engineering personnel and costs
relating to prototypes including components, non-recurring engineering charges
and tools. Product enhancements and new features are key objectives. We expect
research and development expenses to increase in absolute dollars in the future.

                                       9
<PAGE>
    SALES AND MARKETING.  Sales and marketing expenses consist primarily of
salaries, employee benefits, trade shows, public relations, marketing materials,
travel and other marketing expenses. Future sales and marketing activities will
involve additional costs related to the expansion of the sales and sales
engineering organization, product branding, advertising and public relations
costs. We expect sales and marketing expenses to increase in absolute dollars in
the future.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses consist of
personnel costs for executive officers, administrative and support activities
including payroll administration, workers' compensation and general liability
insurance, accounting and finance, legal, tax, human resources and transaction
processing.

    STOCK COMPENSATION AND WARRANT CHARGES.  Stock options have been granted
with exercise prices that were less than the estimated fair value of our common
stock. Compensation cost associated with these options is the difference between
the fair value of the stock and the exercise price.

    In consideration for entering into certain long-term reseller agreements, we
granted to the customers vested warrants to purchase 55,000 shares of our common
stock at the market value of our stock on the dates the warrants were granted
The value of the warrants was calculated by applying the Black-Scholes option
pricing model using the fair market value of our common stock on the date the
agreements were executed. The value of the warrants has been charged to expense
as a component of stock compensation and warrant charges in the condensed
statement of operations.

    INCOME TAX EXPENSE.  Prior to our IPO, we had been included in Brooktrout's
consolidated income tax filings and these losses have been used to reduce the
group's taxes payable. Brooktrout has not and does not intend to reimburse us
for the value of the net losses used to reduce Brooktrout's consolidated taxable
income. Accordingly, we have not recognized any benefit related to these losses.
We are no longer to be included in Brooktrout's consolidated income tax filings.
We do not anticipate recognizing any benefits from losses generated in the short
term due to our limited operating history. We expect to continually evaluate the
recoverability of net loss carryforwards.

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED JUNE 30, 2000 AND 1999

    GROSS REVENUE.  Gross revenue for the three and nine months ended June 30,
2000 was $7,007,000 and $14,162,000, compared to $950,000 and $1,341,000 for the
same three and nine month periods in fiscal year 1999, which represented
increases of $6,057,000 and $12,821,000, respectively. These increases are
attributable to increased revenue shipments during the fiscal periods of 2000,
including the sale of a significantly higher proportion of third-party equipment
during the three months ended June 30, 2000, versus the comparatively low level
of revenue during the first nine months in fiscal 1999. For the three months
ended June 30, 2000, one international customer accounted for approximately 92%
of gross revenue. We recognized our first sale in the quarter ended
December 31, 1998 after our product successfully completed beta testing, and
commenced commercial operations and the general release of our products in
February 1999. We believe that the proportion of third-party equipment of
revenue in future fiscal periods will revert to the lower levels recognized
during the fiscal periods prior to the three months ended June 30, 2000.

    SALES DISCOUNTS--WARRANTS.  During the nine months ended June 30, 2000, we
recognized $439,000 of sales discounts related to warrants granted to certain
customers. Since these equipment purchase contracts were executed during fiscal
year 2000, no such sales discounts were recorded in the prior fiscal year.

    COST OF REVENUE.  Cost of revenue was $4,596,000 and $8,558,000, or
approximately 66% and 60% of gross revenue, for the three and nine months ended
June 30, 2000, compared to $514,000 and $826,000 for the three and nine months
ended June 30, 1999. The significantly higher cost of revenue in the fiscal

                                       10
<PAGE>
periods of 2000 is due to the increased revenue volume, including substantial
sales of third party products at relatively low margin.

    GROSS PROFIT.  Gross profit was $2,411,000 and $5,165,000, and gross profit
percentage on gross revenue was approximately 34% and 36%, for the three months
and nine months ended June 30, 2000, compared to gross profit of $436,000 and
$515,000 for the three and nine months ended June 30, 1999. These increases in
gross profit were due to the substantially greater revenue recognized during the
fiscal periods of 2000. Gross profit percentage for the three and nine months
ended June 30, 2000 declined from prior fiscal periods in fiscal year 2000 due
to unfavorable product mix and the non-recurring sale of lower margin
third-party equipment during the three months ended June 30, 2000.

    RESEARCH AND DEVELOPMENT.  Research and development expenses increased by
approximately 34% and 44% to $1,793,000 and $5,385,000, respectively, during the
three months and nine months ended June 30, 2000 from $1,335,000 and $3,747,000
for the three and nine months ended June 30, 1999. These increases were due
primarily to increases in payroll-related expenses from the year-to-year growth
in the number of engineering employees, and to third-party consulting expenses
for specific development projects during the three and nine months of fiscal
2000.

    SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses for the three and nine months ended June 30, 2000 were $2,626,000 and
$7,020,000, compared to $976,000 and $1,898,000 for the three and nine months
ended June 30, 1999, increases of $1,650,000 and $5,122,000, respectively. These
increases were due primarily to payroll-related expenses, travel,
advertising/marketing and trade show expenses associated with the build-up in
sales and marketing staff and activities, as well as expenses relating to the
implementation of internal Year 2000 compliant systems.

    STOCK COMPENSATION AND WARRANT CHARGES.  In prior fiscal years, stock
options have been granted with exercise prices that were less than the estimated
fair value of our common stock. Compensation cost associated with such options
was determined as the difference between the fair value of the stock and the
exercise price. Stock compensation costs were $285,000 and $988,000 for the
three and nine months ended June 30, 2000, as compared to $1,850,000 and
$1,944,000 for the three and nine months ended June 30, 1999, as the
compensation cost is being charged to expenses over the option vesting period.

    During the nine months ended June 30, 2000, we recognized $849,000 in
warrant charges related to certain long-term reseller agreements. Since the
equipment purchase contracts containing the warrant grant provisions were
executed during fiscal year 2000, no such charges were recorded in fiscal year
1999.

    INCOME TAX EXPENSE.  Prior to our IPO, we had been included in Brooktrout's
consolidated income tax filings and the losses associated with the Company have
been used to reduce the group's taxes payable. Brooktrout has not and does not
intend to reimburse us for the value of the net losses used to reduce
Brooktrout's consolidated taxes. Accordingly, we have not recorded any benefit
related to these prior losses. We have not recognized any for the losses
generated for the three and nine months ended June 30, 2000 as we believe that
it is more likely than not that such benefits will not be recoverable. We will
continue to evaluate the recoverability of net loss carryforwards.

    NET LOSS.  Net losses for the three and nine months ended June 30, 2000 were
$2,182,000 and $8,580,000 compared to net losses of $3,725,000 and $7,074,000
for the three and nine months ended June 30, 1999. The increased net loss for
the nine months ended June 30, 2000 is due primarily to the increases in
operating expenses, and warrant-related charges, as described above, that more
than offset the increase in gross profit from increased revenue resulting from
the shipment of our product during the nine months ended June 30, 2000.

                                       11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

    From inception through the IPO, our operations had been funded through
contributions of capital and loans from Brooktrout. Subsequent to the IPO, our
operations have been funded through the proceeds from the IPO.

    Cash decreased by $14,801,000 to $6,426,000 at June 30, 2000 from
$21,227,000 at September 30, 1999. The decrease in cash is due primarily to a
$9,425,000 increase in accounts receivable, an $839,000 increase in inventory,
and the net loss for the nine months ended June 30, 2000, being partially offset
by non-cash operating charges and a net increase in current liabilities.

    The increase in accounts receivable was due to substantially higher gross
revenue billings during the first nine months of fiscal 2000, while the increase
in inventory was due to the expectation of increased shipment volumes during
subsequent quarters. For the nine months ended June 30, 2000 and 1999, we
purchased fixed assets of approximately $1,413,000 and $588,000, respectively.
We currently have no material commitments for additional capital expenditures.

    We believe that the remaining net proceeds will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures at least
until September 30, 2000. Thereafter, if cash generated from operations is
insufficient to satisfy our liquidity requirements, we may need to raise
additional funds through public or private financing, strategic relationships or
other arrangements. There can be no assurance that such additional funding, if
needed, will be available on terms that we believe are attractive, or at all. If
we fail to raise capital when needed, it could harm our business, operating
results and financial condition. If we raise additional funds through the
issuance of equity securities, the percentage ownership of our stockholders
would be reduced.

    We do not believe that inflation has had a significant effect on our
operations to date.

                                       12
<PAGE>
                                  RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER
INFORMATION IN THIS QUARTERLY REPORT. OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE HARMED BY ANY OF THE FOLLOWING RISKS.

WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES

    We have accumulated losses of approximately $24.4 million since inception in
October 1996 through June 30, 2000 and expect to incur net losses in the future.
Losses were approximately $10.5 million for the year ended September 30, 1999
and approximately $8.6 million for the nine months ended June 30, 2000. We
anticipate continuing to incur significant sales and marketing, research and
development and general and administrative expenses and, as a result, we will
need to generate higher revenues to achieve and sustain profitability. We cannot
be certain we will realize sufficient revenues to achieve profitability.

BECAUSE OF OUR LIMITED OPERATING HISTORY IT IS DIFFICULT FOR US TO PREDICT
  FUTURE RESULTS OF OPERATIONS

    We commenced operations in March 1997 and our first product became generally
available in February 1999. Due to our limited operating history, it is
difficult for us to predict future results of operations. You should consider
our business and prospects in light of the risks typically encountered by
companies in their early stages of development, particularly those in rapidly
evolving markets such as the data communications equipment market. We cannot be
certain that we will successfully address these risks.

OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND CAUSE OUR STOCK
  PRICE TO BE VOLATILE WHICH COULD CAUSE THE VALUE OF YOUR INVESTMENT IN OUR
  COMPANY TO DECLINE

    Our quarterly or annual operating results are likely to fluctuate
significantly in the future due to a variety of factors, many of which are
outside of our control. If our operating results do not meet the expectations of
securities analysts, the trading price of our common stock could significantly
decline which may cause the value of your investment in our company to decline.
In addition, the value of your investment could be impacted by investor
perception of the Internet and emerging data communications sectors generally,
independent of the operating performance of our company or other similar
companies. Some of the factors that could affect our quarterly or annual
operating results or impact the market price of our common stock include:

    - our ability to develop, manufacture, market and support our products and
      product enhancements;

    - the timing and amount of, or cancellation or rescheduling of, orders for
      our products, particularly large orders from key customers;

    - our ability to retain key management, sales and marketing and engineering
      personnel;

    - announcements, new product introductions and price reductions in products
      offered by our competitors;

    - our ability to obtain sufficient supplies of sole or limited source
      components for our products;

    - a decrease in the average selling prices of our products;

    - changes in costs of components which we include in our products; and

    - the mix of products that we sell and the mix of distribution channels
      through which they are sold.

    Due to these and other factors, quarterly or annual revenues, 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.

                                       13
<PAGE>
THE LOSS OF ANY SIGNIFICANT CUSTOMER COULD CAUSE OUR REVENUE TO DECLINE

    The loss of any of our significant customers could cause our revenue to
decline and thus have a material adverse effect on our business, financial
condition and results of operations. Our products became generally available in
February 1999 and to date we have only sold products to a limited number of
customers. Unless and until we diversify and expand our customer base, our
future success will significantly depend upon a limited number of customers.
During the three months ended June 30, 2000, one international customer
accounted for approximately 92% of gross revenue.

FAILURE TO ADEQUATELY DEVELOP OUR SALES CHANNELS COULD CAUSE OUR REVENUE TO
  DECLINE

    We sell our products directly through our sales force and indirectly through
original equipment manufacturers, value added resellers and system integrators.
Our failure to adequately develop these sales channels may cause our revenue to
decline and, thus, have a material adverse effect on our business, financial
condition and results of operations. We are currently continuing to develop
these sales channels and expect to expend significant resources in this area. As
of July 31, 2000, we had a total of 24 employees responsible for direct sales,
marketing and sales engineering in the United States and international markets.
To the extent we are able to enter into agreements with additional original
equipment manufacturers, value added resellers or systems integrators, the
amount and timing of resources which they devote to the sale of our products may
not be within our control, and they may not perform their obligations as
expected.

IF WE ARE UNABLE TO DEVELOP AND OPERATE AN EFFECTIVE CUSTOMER SUPPORT
  ORGANIZATION, SALES OF OUR PRODUCTS MAY BE REDUCED

    Purchasers of data communications equipment assign significant weight in
their purchasing decisions to a vendor's capabilities and reputation in
supporting its products. We will be required to expend significant resources and
management attention on developing and operating a customer support
organization. If our level of customer support does not satisfy customer
expectations, our reputation and future sales could be adversely affected.
Accordingly, we have emphasized customer support in our business strategy and
marketing. Because our products were recently introduced for sale, we have
limited experience in operating a customer support program.

IF OUR TARGET CUSTOMERS DO NOT ACCEPT DSL TECHNOLOGY, WE MAY BE UNABLE TO
  SUSTAIN OR GROW OUR BUSINESS

    Our future success is substantially dependent upon whether digital
subscriber line, or DSL, technology gains widespread market acceptance by data
communications service providers and the small to medium sized business users to
whom they market their services. In the event that our customers or potential
customers adopt technologies other than digital subscriber line, or DSL, we may
be unable to sustain or grow our business. Our business strategy and current
products are focused on DSL technology. Various alternative technologies,
including T-1, cable and broadband wireless, are currently available to deliver
high speed data communications, and each of the alternatives has comparative
advantages and disadvantages. Data communications service providers continually
evaluate alternative high speed data access technologies and may at any time
adopt technologies other than DSL.

IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MARKET, OUR REVENUES MAY DECLINE

    We have recently introduced our products to the market. Market acceptance of
our products is critical to our future success. Factors that may affect the
market acceptance of our products include:

    - market acceptance of DSL technology;

    - the features, performance, price and total cost of ownership of our
      products;

                                       14
<PAGE>
    - the availability of competing products and technologies;

    - the success and development of our direct sales force and distribution
      channels;

    - the quality of our customer service and support of our products; and

    - the breadth and depth of our product offerings.

    Failure of our existing or future products to achieve and maintain
meaningful levels of market acceptance would materially adversely affect our
business, financial condition and results of operations.

BECAUSE WE CURRENTLY DEPEND ON A SINGLE FAMILY OF PRODUCTS, ANY DECLINE IN
  DEMAND FOR THOSE PRODUCTS MAY HARM OUR OPERATING RESULTS

    We expect to derive substantially all of our revenues from our DSL access
routers, or DSLARs, product family and related modules for the foreseeable
future. The market may not continue to demand our current products, and we may
not be successful in marketing any new or enhanced products. Any reduction in
the demand for our current products or our failure to successfully develop or
market and introduce new or enhanced products could materially adversely affect
our business, financial condition and results of operations.

UNLESS WE ARE ABLE TO KEEP PACE WITH THE EVOLUTION OF THE DATA COMMUNICATIONS
  EQUIPMENT MARKET WE WILL NOT BE ABLE TO GROW OR SUSTAIN OUR BUSINESS

    The data communications equipment market is characterized by:

    - rapid technological advances;

    - evolving industry standards;

    - changes in end-user requirements;

    - frequent new product introductions; and

    - evolving offerings by data communications service providers.

    We believe our future success will depend, in part, on our ability to
anticipate or adapt to such changes and to offer, on a timely basis, products
that meet customer demands. We intend to continue to invest significantly in
product and technology development. The development of new or enhanced products
is a complex and uncertain process requiring the anticipation of technological
and market trends. We may experience design, manufacturing, marketing and other
difficulties that could delay or prevent our development, introduction or
marketing of new products and enhancements and result in unexpected expenses.
The introduction of new or enhanced products also requires that we manage the
transition from older products in order to minimize disruption in customer
ordering patterns and ensure that adequate supplies of new products can be
delivered to meet anticipated customer demand. Our 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 our business, financial condition and results of
operations.

IF WE LOSE KEY PERSONNEL, WE MAY BE UNABLE TO SUCCESSFULLY OPERATE OUR BUSINESS

    Our success depends to a significant degree upon the continued contributions
of our principal management, engineering and sales personnel, many of whom
perform important management functions and would be difficult to replace. We do
not have employment contracts with our key personnel. The loss of the services
of any key personnel could materially adversely affect our business, financial
condition and results of operations.

                                       15
<PAGE>
IF WE ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL QUALIFIED PERSONNEL, WE MAY BE
  UNABLE TO SATISFY CUSTOMER DEMANDS WHICH MAY CAUSE OUR REVENUES TO DECLINE

    Our business strategy will require us to attract and retain additional
engineering, sales, customer support and administrative personnel. We have at
times experienced, and continue to experience, difficulty in recruiting
qualified personnel. Recruiting qualified personnel is an intensely competitive
and time consuming process. We may not be able to attract and retain the
necessary personnel to accomplish our business objectives, and we may experience
constraints that will adversely affect our ability to satisfy customer demand in
a timely fashion or to support our customers and operations. In addition,
companies in the data communications industry whose employees accept positions
with competitors frequently claim that such competitors have engaged in unfair
hiring practices. We could incur substantial costs in defending ourselves
against any such litigation, regardless of the merits or outcome of such
litigation.

FAILURE TO MANAGE OUR GROWTH EFFECTIVELY MAY PREVENT US FROM MAXIMIZING OUR
  EARNINGS

    We have expanded and plan to continue to expand our operations, including
our sales and marketing activities, our accounting, billing and human resource
departments and the establishment of additional sales offices. This expansion
may place significant strains on our ability to manage our growth, including our
ability to monitor operations, bill customers, control costs and maintain
effective quality controls. Until the end of December 1999, we relied upon
Brooktrout, our parent company, to provide us with administrative and support
services, including accounting, human resources and computer systems. Since
then, we have implemented systems that provide the functions and services that
were previously provided by Brooktrout. If we fail to manage our growth
effectively, it could have a material adverse effect on our business, financial
condition and results of operations.

INTENSE COMPETITION IN THE MARKET FOR HIGH SPEED DATA ACCESS EQUIPMENT MAY
  PREVENT US FROM ACHIEVING OR SUSTAINING PROFITABILITY

    The market for data communications equipment is highly competitive,
particularly in the emerging DSL equipment market. If we are unable to compete
effectively in the market for high speed data access equipment, our results of
operations could be materially adversely affected. We compete directly with
Ascend Communications, Inc., which was acquired by Lucent Technologies Inc.;
Copper Mountain Networks, Inc.; Diamond Lane, which was acquired by
Nokia, Inc.; Paradyne Networks, Inc.; and Tut Systems, Inc. Many of our current
and potential competitors have significantly greater selling and marketing,
technical, manufacturing, financial, and other resources. Moreover, our
competitors may foresee the course of market developments more accurately than
we do and could in the future develop new technologies that compete with our
products. The strength and capabilities of our competitors may be increased as a
result of the trend toward consolidation in the data communications market.
Capitalizing on and maintaining our technological advantage will require a
continued high level of investment in research and development, marketing and
customer service and support. Due to the rapidly evolving markets in which we
compete, additional competitors with significant market presence and financial
resources may enter those markets, thereby further intensifying competition. We
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 competitors.

IF WE ARE UNABLE TO DEVELOP INTERNATIONAL MARKETS FOR OUR PRODUCTS, WE MAY BE
  UNABLE TO GROW AS PLANNED

    Our strategy emphasizes the development of international markets for our
products. We may be unsuccessful in marketing, selling and distributing our
products in foreign markets. Conducting business outside of the United States is
subject to risks, including:

    - longer accounts receivable collection cycles;

                                       16
<PAGE>
    - possible foreign currency exchange risk and conversion issues;

    - difficulties in managing operations across disparate geographic areas;

    - difficulties associated with enforcing agreements and collecting
      receivables through foreign legal systems;

    - changes in a specific country's or region's political or economic
      conditions;

    - trade protection measures;

    - import or export licensing requirements;

    - potential adverse tax consequences;

    - unexpected changes in regulatory requirements; and

    - reduced or limited protection of our intellectual property rights in some
      countries.

    We cannot be certain that one or more of such factors will not have a
material adverse effect on our future international operations, and
consequently, our business, financial condition and results of operations.

OUR DEPENDENCE ON SOLE AND SINGLE SOURCE SUPPLIERS AND INDEPENDENT MANUFACTURERS
  EXPOSES US TO SUPPLY INTERRUPTIONS THAT COULD RESULT IN PRODUCT DELIVERY
  DELAYS

    Although we generally use standard parts and components for our products,
some key components are purchased from sole or single source vendors for which
alternative sources are not currently available. Our inability to obtain
sufficient quantities of these components may result in future delays or
reductions in product shipments which could materially adversely affect our
business, financial condition and results of operations. We currently purchase
proprietary components from Conexant and Motorola for which there are no direct
substitutes. These components could be replaced with alternatives from other
suppliers, but that would involve redesign of our products. Such redesign would
involve considerable time and expense. We currently enter into purchase orders
with our suppliers for materials based on forecasts, but have no guaranteed
supply arrangements with these suppliers.

    In addition, we currently use a small number of independent manufacturers to
manufacture printed circuit boards, chassis and subassemblies to our design. Our
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 our manufacturers are unable or unwilling to
continue manufacturing our components in required volumes, we will have to
transfer manufacturing to acceptable alternative manufacturers whom we have
identified, which could result in significant interruption of supply. Moreover,
the manufacture of these components is extremely complex, and our reliance on
the suppliers of these components exposes us to potential production
difficulties and quality variations, which could negatively impact cost and
timely delivery of our products. We currently enter into purchase orders with
independent manufacturers of materials based on forecasts, but have 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 our business, financial condition and results of
operations.

OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY PREVENT US FROM
  RETAINING OUR COMPETITIVE ADVANTAGE

    Our success and our ability to compete are dependent, in part, upon our
proprietary technology. Taken as a whole, we believe our intellectual property
rights are significant and any failure to adequately protect our proprietary
rights could result in our competitors offering similar products, potentially
resulting in loss of a competitive advantage and decreased revenues. In
addition, the laws of many foreign

                                       17
<PAGE>
countries do not protect our intellectual property 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 our products, develop similar
technology independently or otherwise obtain and use information that we regard
as proprietary. Furthermore, policing the unauthorized use of our products is
difficult. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or patents that we may obtain, or
to determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our future operating results.

INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND RESTRICT OUR BUSINESS

    The data communications industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of patent
infringement. As the number of entrants in our market increases and the
functionality of our products is enhanced and overlaps with the products of
other companies, we may become subject to claims of infringement or
misappropriation of the intellectual property rights of others. Any claims
asserting that our products infringe or may infringe proprietary rights of third
parties, if determined adversely to us, could have a material adverse effect on
our 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 our technical and management personnel, cause product shipment delays
or require us to enter into royalty or licensing agreements, any of which could
have a material adverse effect upon our operating results. Legal action claiming
patent infringement may be commenced against us. We cannot assure you that we
would prevail in such litigation given the complex technical issues and inherent
uncertainties in patent litigation. In the event a claim against us was
successful, and we could not obtain a license to the relevant technology on
acceptable terms or license a substitute technology or redesign to avoid
infringement, this could have a material adverse effect on our business,
financial condition and results of operations.

CHANGES TO REGULATIONS AFFECTING THE TELECOMMUNICATIONS INDUSTRY COULD REDUCE
  DEMAND FOR OUR PRODUCTS

    Any changes to the legal requirements relating to the telecommunications
industry, including the adoption of new regulations by federal or state
regulatory authorities under current laws or any legal challenges to existing
laws or regulations relating to the telecommunications industry, could have a
material adverse effect upon the market for our products. Moreover, our
distributors or customers may require, or we may otherwise deem it necessary or
advisable, that we modify our products to address actual or anticipated changes
in the regulatory environment. Our inability to modify our products or address
any regulatory changes could have a material adverse effect on our business,
financial condition or results of operations.

CONTROL BY BROOKTROUT MAY LIMIT STOCKHOLDERS' ABILITY TO INFLUENCE THE OUTCOME
  OF MATTERS REQUIRING STOCKHOLDER APPROVAL

    At June 30, 2000, Brooktrout owned approximately 56% of the outstanding
shares of common stock. Accordingly, Brooktrout will be able to control or
significantly influence matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions. This concentration of ownership could have
the effect of delaying or preventing a change in our control or otherwise
discouraging a potential acquiror from attempting to obtain control of us, which
in turn could have a material adverse effect on the market price of our common
stock or prevent our stockholders from realizing a premium over the market
prices for their shares of common stock.

                                       18
<PAGE>
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
  OUR STOCK PRICE TO FALL

    The market price of our common stock could fall as a result of future sales
of a large number of shares of our common stock in the public market. As of
July 31, 2000, we had approximately 10,958,904 shares of common stock
outstanding, of which approximately 4,003,311 shares are freely transferable
without restriction or registration under the Securities Act of 1933, unless
such shares are held by our affiliates. The remaining 6,955,593 shares of common
stock held by existing stockholders and 141,735 shares subject to outstanding
options vested as of July 31, 2000 are restricted securities and may only be
sold in the public market if registered or if they qualify for an exemption from
registration under the Securities Act; 122,326 shares subject to outstanding
options vested as of July 31, 2000 are freely transferable without restriction
or registration under the Securities Act of 1933. Under specified circumstances
and subject to customary conditions, Brooktrout has the right, with respect to
6,075,000 shares of common stock, to require us to register its shares of common
stock under the Securities Act, and Brooktrout will have rights to participate
in any future registrations of securities by us.

PROVISIONS IN OUR CHARTER AND BYLAWS MAY DISCOURAGE TAKEOVER ATTEMPTS AND THUS
  DEPRESS THE MARKET PRICE OF OUR COMMON STOCK

    Provisions in our amended and restated Certificate of Incorporation may have
the effect of delaying or preventing a change of control or changes in our
management. These provisions include:

    - the right of the Board of Directors, without stockholder approval, to
      issue shares of preferred stock and to establish the voting rights,
      preferences, and other terms thereof;

    - the right of the Board of Directors to elect a director to fill a vacancy
      created by the expansion of the Board of Directors;

    - the ability of the Board of Directors to alter our bylaws without prior
      stockholder approval;

    - the election of three classes of directors to each serve three year
      staggered terms;

    - the elimination of stockholder voting by consent;

    - the removal of directors only for cause;

    - the vesting of exclusive authority in the Board of Directors (except as
      otherwise required by law) to call special meetings of stockholders; and

    - certain advance notice requirements for stockholder proposals and
      nominations for election to the Board of Directors.

    These provisions discourage potential takeover attempts and could adversely
affect the market price of our common stock.

BECAUSE WE HAVE NO SPECIFIC PLAN FOR ANY SIGNIFICANT PORTION OF THE NET PROCEEDS
  OF OUR IPO, OUR MANAGEMENT WILL HAVE THE DISCRETION TO ALLOCATE THE NET
  PROCEEDS OF OUR IPO TO USES THE STOCKHOLDERS MAY NOT DEEM DESIRABLE

    Although we expect to use the net proceeds of our IPO for general corporate
purposes such as working capital, product development and sales and marketing,
we currently have no other specific plan for any significant portion of the net
proceeds of our IPO. As a consequence, our management will have the discretion
to allocate the net proceeds of our IPO to uses the stockholders may not deem
desirable. We may not be able to invest these net proceeds to yield a
significant return. Substantially all of the net proceeds of our IPO will be
invested in short-term, interest-bearing, investment grade securities or
guaranteed obligations of the U.S. government for an indefinite period of time.

                                       19
<PAGE>
WE DO NOT INTEND TO PAY DIVIDENDS

    To date, we have never declared or paid any cash dividends on shares of our
common stock. We currently intend to retain our earnings for future growth and
development of our business and, therefore, do not anticipate declaring or
paying any dividends in the foreseeable future.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Market risk is the potential change in a financial instrument's value caused
by fluctuations in interest and currency exchange rates and equity and commodity
prices. Our operating activities expose us to many risks that are continually
monitored, evaluated, and managed. Proper management of these risks helps reduce
the likelihood of earnings volatility.

    At June 30, 2000, approximately 67% of our accounts receivable were
denominated in Australian dollars due to the sale of product to a foreign
customer during the three months ended June 30, 2000. We are not a party to any
derivative arrangement and we do not engage in trading, market-making or other
speculative activities in the derivatives markets. At June 30, 2000, we had no
outstanding foreign currency exchange contracts, and no short-term or long-term
debt obligations.

                                       20
<PAGE>
                                    PART II
                               OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

    (a) We completed our IPO in September 1999. The IPO was made pursuant to a
registration statement on Form S-1, originally filed with the Securities and
Exchange Commission on June 18, 1999, as amended (Commission File
No. 333-81071), which was declared effective on September 23, 1999. The IPO
commenced on September 24, 1999 and terminated shortly thereafter after the sale
into the public market of all of the registered shares of common stock. The
shares of common stock sold in the IPO were offered for sale by a syndicate of
underwriters represented by U.S. Bancorp Piper Jaffray, Warburg Dillon Read LLC,
Tucker Anthony Cleary Gull and DLJdirect Inc. We registered an aggregate of
3,500,000 shares of common stock (including 1,500,000 sold by Brooktrout as a
selling shareholder) in the IPO at a per share price of $12.00, for an aggregate
offering price of $42,000,000. As of the date of the filing of this report,
3,925,000 registered shares (including 425,000 shares previously owned by
Brooktrout that were sold upon the exercise of the underwriters' overallotment
option) have been sold at an aggregate offering price of $47,100,000. Of the
3,925,000 shares sold in the IPO, 2,000,000 shares were registered for our
account. We incurred the following expenses in connection with the IPO:

<TABLE>
<S>                                                           <C>
Underwriting discounts and commissions......................  $1.68 million
Other expenses..............................................   1.53 million
                                                              -------------
Total expenses..............................................  $3.21 million
</TABLE>

    After deducting the expenses set forth above, we received $20,790,000 in net
proceeds for the IPO. From the period commencing on September 23, 1999 through
June 30, 2000, we have used approximately $14.8 million of the net proceeds, of
which approximately $13.7 million was used to fund operating activities
including the net loss for the three months ended June 30, 2000, and
approximately $1.4 million which was used to purchase equipment.

    (b) Recent Sales of Unregistered Securities

    (1) In January 2000, we granted a warrant to purchase 50,000 shares of the
       common stock to a customer at an exercise price of $18.75 per share in
       reliance upon the exemption from registration under Section 4(a) of the
       Securities Act of 1933.

    (2) In February 2000, we granted a warrant to purchase 5,000 shares of the
       common stock to a customer at an exercise price of $21.25 per share in
       reliance upon the exemption from registration under Section 4(a) of the
       Securities Act of 1933.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 The Amended and Restated Certificate of Incorporation of the Company is
    incorporated herein by reference to Exhibit 3.1 to the Company's Annual
    Report on Form 10-K, filed with the Securities and Exchange Commission on
    December 29, 1999 ("10-K").

3.2 The Amended and Restated By-Laws of the Company are incorporated herein by
    reference to Exhibit 3.2 to the 10-K.

27.1 Financial Data Schedule

(b) Reports on Form 8-K during the quarter ended June 30, 2000. The registrant
    filed no Reports on Form 8-K during the quarter ended June 30, 2000.

                                       21
<PAGE>
                                   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.

<TABLE>
<S>                                                    <C>  <C>
                                                       INTERSPEED, INC.

                                                       By:              /s/ STEPHEN A. IDE
                                                            -----------------------------------------
                                                                          Stephen A. Ide
                                                                            PRESIDENT
Dated: August 4, 2000                                             (Principal Executive Officer)

                                                       By:             /s/ WILLIAM J. BURKE
                                                            -----------------------------------------
                                                                         William J. Burke
                                                               CHIEF FINANCIAL OFFICER, SENIOR VICE
                                                                 PRESIDENT-FINANCE, AND TREASURER
Dated: August 4, 2000                                             (Principal Financial Officer)
</TABLE>

                                       22