<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   ------------
                                   FORM 10-Q/A
                                   ------------

(MARK ONE)

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

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999

                                       OR

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

            FOR THE TRANSITION PERIOD FROM ___________ TO ___________

                         COMMISSION FILE NUMBER 0-27401

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

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

             DELAWARE                                        04-3333365
     State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                       Identification No.)

          39 HIGH STREET                                        01845
     NORTH ANDOVER, MASSACHUSETTS                             (Zip Code)
Address of Principal Executive Offices)

                                 (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 February 7, 2000, 10,774,462 shares of $0.01 par value common stock of the
registrant were outstanding.


                                EXPLANATORY NOTE
This amendment on Form 10-Q/A amends the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1999, as filed by the Registrant on
February 14, 2000, and is being filed to reflect the restatement of the
Registrant's condensed financial statements (see Note L to the condensed
financial statements).


                            Page 1 of 25 Total Pages
                       (Exhibit Index appears on Page 24)

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

                                                                                                        PAGE
                                                                                                        ----
<S>                                                                                                 <C>
1. Unaudited Condensed Balance Sheets as of December 31, 1999 and September 30, 1999                     3

2. Unaudited Condensed Statements of Operations
   for the three months ended December 31, 1999 and 1998                                                 4

3. Unaudited Condensed Statements of Cash Flows for the three months ended
   December 31, 1999 and 1998                                                                            5

4. Notes to Unaudited Condensed Financial Statements                                                   6-8

  ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                                      9-22
               CONDITION AND RESULTS OF OPERATIONS

  ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                22


PART II.       OTHER INFORMATION

ITEM 2.        CHANGES IN SECURITIES AND USE OF PROCEEDS                                                23

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K                                                         24

SIGNATURE PAGE                                                                                          25

</TABLE>

                            Page 2 of 25 Total Pages

<PAGE>

                                     PART I

                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>

                                                                                      December 31,      September 30,
                                                                                          1999              1999
                                                                                     --------------    ---------------
                                                                                     (As Restated,
                                                                                     See Note L)
<S>                                                                                 <C>                 <C>
Assets
Current assets:
Cash............................................................................    $    14,634         $    21,227
Accounts receivable, net........................................................          2,014                 808
Inventory.......................................................................          3,072               2,445
Inventory consigned to others...................................................            513                  --
Receivable from Brooktrout......................................................             90                  --
Prepaid expenses and other......................................................            476                 168
                                                                                    -----------         -----------

Total current assets............................................................         20,799              24,648
Property and equipment, net.....................................................          1,501               1,178
Other assets....................................................................              5                  54
                                                                                    -----------         -----------

Total assets....................................................................    $    22,305         $    25,880
                                                                                    ===========         ===========

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable................................................................    $     1,858         $     2,789
Accrued expenses................................................................            913                 662
Short-term note payable - due Brooktrout........................................             --                 129
Deferred revenue................................................................             13                  26
                                                                                    -----------         -----------
Total current liabilities.......................................................          2,784               3,606
Deferred rent...................................................................            127                 104
Contingencies (Note K) .........................................................
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares authorized,
   10,707,132 and 10,684,526 shares issued and outstanding......................            107                 107
Additional paid-in capital......................................................         41,995              41,995
Accumulated deficit.............................................................       (19,018)             (15,825)
Deferred compensation...........................................................        (3,690)              (4,107)
                                                                                    -----------         -----------

Total stockholders' equity......................................................         19,394              22,170
                                                                                    -----------         -----------

Total liabilities and stockholders' equity .....................................    $    22,305         $    25,880
                                                                                    ===========         ===========

</TABLE>

      The Condensed Balance Sheet as of September 30, 1999 has been derived
            from the Company's audited Balance Sheet as of that date.

                  See notes to condensed financial statements.

                            Page 3 of 25 Total Pages

<PAGE>

                                INTERSPEED, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                   THREE MONTHS
                                                                ENDED DECEMBER 31,
                                                              1999              1998
                                                             ------------------------
                                                            (As Restated,
                                                             See Note L)
<S>                                                         <C>         <C>
Revenue                                                       $   1,992  $        64

Cost of revenue                                                   1,256           36
                                                              ---------    ---------

Gross profit                                                        736           28

Operating expenses:

Research and development                                          1,652        1,273
Selling, general and administrative                               2,090          346
Stock compensation                                                  417           32
                                                              ---------    ---------

Loss from operations                                             (3,423)      (1,623)
Interest income                                                     230           --
                                                              ---------    ---------

Loss before income taxes                                         (3,193)      (1,623)
Income tax expense                                                   --           --
                                                              ---------    ---------

Net loss                                                      $  (3,193)   $  (1,623)
                                                              =========    =========

Net loss per share-basic and diluted                          $   (0.30)   $   (0.20)
                                                              =========    =========

Shares used to compute net loss per
Share - basic and diluted                                        10,706        8,000
                                                              =========    =========


</TABLE>


                  See notes to condensed financial statements.

                            Page 4 of 25 Total Pages

<PAGE>

                                INTERSPEED, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                Three months ended
                                                                                  December 31,
                                                                           1999                     1998
                                                                        ------------------------------------
                                                                        (As Restated,
                                                                          See Note L)
<S>                                                                     <C>                     <C>
Cash flows from operating activities:
Net loss........................................................           (3,193)                 (1,623)
  Adjustments to reconcile net loss to cash used by
  operating activities:
     Depreciation and amortization .............................              146                      39
     Amortization of stock compensation.........................              417                      32
     Increase (decrease) in cash from:
     Accounts receivable........................................           (1,206)                    (64)
     Receivable from Brooktrout.................................              (90)                     --
     Inventory..................................................           (1,140)                    (23)
     Prepaid expenses and other.................................             (259)                     14
     Accounts payable...........................................             (931)                    (83)
     Accrued expenses...........................................              251                     226
     Payable to Brooktrout......................................             (129)                     --
     Deferred revenue...........................................              (13)                     --
     Deferred rent..............................................               23                      --
                                                                       ----------            ------------

Net cash used for operating activities..........................           (6,124)                 (1,482)
                                                                       ----------            ------------

Cash flows used for investing activities:
Purchases of property and equipment.............................             (469)                    (15)
                                                                       ----------            ------------

Cash flows from financing activities:
Proceeds from long term debt-due Brooktrout.....................               --                   1,491
                                                                       ----------            ------------

Net decrease in cash............................................           (6,593)                     (6)

Cash, beginning of period.......................................           21,227                     132
                                                                       ----------            ------------

Cash, end of period.............................................       $   14,634          $          126
                                                                       ==========          ==============


</TABLE>

                  See notes to condensed financial statements.

                            Page 5 of 25 Total Pages

<PAGE>

                                INTERSPEED, INC.
                NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

A.  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.

Subsequent to December 31, 1999, the Company has continued to use significant
amounts of cash in operations resulting in a cash balance of approximately
$612,000 as of September 30, 2000. The Company is taking actions to reduce
cash outflows by, among other things, reducing headcount and curtailing
certain marketing activities. Subsequent to September 30, 2000, the Company's
majority stockholder, Brooktrout, Inc. ("Brooktrout"), agreed to provide the
Company with a revolving line of credit which will provide the Company with
up to $2.5 million. Advances under this line of credit are at Brooktrout's
sole discretion and as of November 10, 2000, the Company has drawn down
approximately $600,000. The Company has engaged Broadview International, LLC,
a global merger and acquisition advisor, to assist with the review of
strategic alternatives, including a possible sale of the Company. If the
Company is unable to complete a strategic transaction, secure additional
sources of financing, or achieve positive cash flow from operations, the
Company may be required to significantly curtail operations or cease doing
business as a going concern. The condensed financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.

B. 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, establishes new
standards of accounting and reporting for derivative instruments and hedging
activities and will be effective for the Company in fiscal 2001. Management is
currently evaluating the effect of adopting SFAS No. 133 on the condensed
financial statements.

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 the fourth quarter of fiscal
2001. Management is currently evaluating the effect of adopting SAB No. 101.

C. 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 1,083,000 and 1,197,000 for the quarters ended December 31, 1999
and 1998, respectively.

D. INCOME TAXES

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

E. COMPREHENSIVE INCOME

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

F. 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.

                            Page 6 of 25 Total Pages

<PAGE>

G. CONCENTRATIONS

To date, the Company's activities have been conducted primarily in the United
States. The Company performs ongoing credit evaluations of its customers and
generally requires no collateral. At December 31, 1999, approximately 84% of the
receivable balance was comprised of balances due from one customer.

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.

H. INVENTORY

Inventory consisted of the following (in thousands):


<TABLE>
<CAPTION>

                                                                December 31,       September 30,
                                                                   1999                1999
                                                               -------------       --------------
<S>                                                             <C>                  <C>
Raw material................................................    $  2,253             $  1,622
Work in process.............................................          --                    5
Finished goods..............................................         819                  818
                                                                -----------------------------

Total.......................................................    $  3,072             $  2,445
                                                                =============================
Inventory on consignment (see Note L).......................    $    513             $      0
                                                                =============================
</TABLE>





I. 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 ended December 31, 1999, sales to United States customers amounted to
$1,807,000 and export sales amounted to $185,000. One customer accounted for
approximately 85% of revenue for the three months ended December 31, 1999.

J. 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, 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 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 specified in the Agreement.
During the three months ended December 31, 1999, fees for services totaled
$43,000.

                            Page 7 of 25 Total Pages

<PAGE>

K. CONTINGENCIES

Subsequent to the issuance of the Company's unaudited condensed financial
statements as of and for the three months ended December 31, 1999, certain
shareholder class action complaints have been filed in the United States
District Court for the District of Massachusetts against the Company and certain
other parties, including certain former officers and directors of the Company.
The claims in the litigation include allegations that the Company, and certain
of its former directors and officers, made false or misleading statements
regarding the Company's financial results for each of the prior quarters in the
fiscal year ended September 30, 2000. The Company is currently reviewing the
allegations in those lawsuits.

L. RESTATEMENT

Subsequent to the issuance of the Company's unaudited condensed financial
statements as of and for the three months ended December 31, 1999, the
Company's management has determined that revenue from a transaction with a
reseller was incorrectly recognized. The accompanying unaudited financial
statements have been restated to reflect the transaction as a consignment of
inventory rather than a sale. A summary of the significant effects of the
restatement is as follows:


<TABLE>
<CAPTION>

                                                            As Previously
In thousands, except per share amounts                        Reported          As Restated
<S>                                                         <C>                  <C>
--------------------------------------------------------------------------------------------
For the three months ended December 31, 1999:
     Revenue ................................               $  3,152             $  1,992
     Cost of revenue ........................                  1,769                1,256
     Net loss ...............................                 (2,546)              (3,193)
     Net loss per share - basic and diluted .                  (0.24)               (0.30)
As of December 31, 1999:
     Accounts receivable, net ...............                  3,174                2,014
     Inventory  consigned to others .........                     --                  513
     Accumulated deficit ....................                (18,371)             (19,018)
--------------------------------------------------------------------------------------------

</TABLE>

                            Page 8 of 25 Total Pages

<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. THESE RISKS AND UNCERTAINTIES
INCLUDE, AMONG OTHER THINGS, RISKS RELATED TO MARKET GROWTH, PRODUCT
ACCEPTANCE AND PRODUCT DEMAND, RAPID CHANGES IN TECHNOLOGY, THE IMPACT OF
COMPETITION, RISKS RELATED TO THE COMPANY'S FINANCIAL POSITION AND LIQUIDITY,
THE IMPACT, IF ANY, OF THE ANNOUNCED RESTATEMENT ON INTERSPEED'S STOCK PRICE,
THE OUTCOME OF THE STRATEGIC ALTERNATIVE PROCESS AND THE ABILITY OF THE
COMPANY TO CLOSE A STRATEGIC TRANSACTION OR RAISE ADDITIONAL CAPITAL, THE
UNCERTAINTIES ASSOCIATED WITH THE RECENTLY FILED LITIGATION, THE EFFECT OF
THE RECENTLY ANNOUNCED INTERNAL CONTROLS AND PROCEDURES ON INTERSPEED'S
FUTURE OPERATIONS AND PERFORMANCE, THE IMPACT OF SUBSEQUENT MANAGEMENT
REVIEWS AND OTHER RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION,
THOSE FACTORS DESCRIBED UNDER "RISK FACTORS." 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.

As discussed in Note L to the condensed financial statements, the condensed
financial statements as of and for the three months ended December 31, 1999 have
been restated.

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 when the product has been
shipped, the customer's obligation is fixed and collectibility is considered
probable. No revenue is recognized on either products shipped on a trial basis
or products shipped under consignment type arrangements. 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.

COST OF REVENUE. Cost of revenue consists of direct product costs such as
standard parts and components for our products, 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.

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

                            Page 9 of 25 Total Pages

<PAGE>

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. Stock options have been granted with exercise prices that
were less than the estimated fair value of the Company's common stock.
Compensation cost associated with these options is the difference between the
fair value of the stock and the exercise price.

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 recorded 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 MONTHS ENDED DECEMBER 31, 1999 AND 1998

REVENUE. Revenue for the three months ended December 31, 1999 was $1,992,000,
compared to $64,000 for the three months ended December 31, 1998. During the
first fiscal quarter of 1999, we recognized our first sale after our product
successfully completed beta testing; commencement of commercial operations and
the general release of our products began in February 1999.

COST OF REVENUE. Cost of revenue was $1,256,000, or approximately 63% of
revenue, for the three months ended December 31, 1999, compared to $36,000 for
the three months ended December 31, 1998. The significantly higher cost of
revenue in the first fiscal quarter of 2000 is due to the increased revenue
volume.

GROSS PROFIT. Gross profit was $736,000, and gross profit percentage was
approximately 37%, for the three months ended December 31, 1999, compared to
gross profit of $28,000 for the three months ended December 31, 1998. This
increase was due to the substantially greater revenue recognized in the first
fiscal quarter of 2000.

RESEARCH AND DEVELOPMENT. Research and development expenses increased by
approximately 30% to $1,652,000 during the three months ended December 31, 1999
from $1,273,000 for the three months ended December 31, 1998. This increase was
due primarily to increases in payroll related expenses from growth in the number
of engineering employees from the first fiscal quarter of 1999 to the first
fiscal quarter of 2000, and to a lesser extent, consulting expenses for specific
development projects during the first fiscal quarter of 2000.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three months ended December 31, 1999 were $2,090,000 compared
to $346,000 for the three months ended December 31, 1998, an increase of
$1,744,000. This increase was 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. In prior periods, 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 increased to $417,000 for the three months ended December 31,
1999, from $32,000 for the three months ended December 31, 1998, as the
compensation cost is being charged to expense over the option vesting period.

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

                            Page 10 of 25 Total Pages

<PAGE>

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 benefit in the
current quarter for the losses generated for the three months ended December 31,
1999 as we believe that it is more likely than not that such benefits will not
be recoverable. We will continually evaluate the recoverability of net loss
carryforwards.

NET LOSS. Net loss for the three months ended December 31, 1999 was $3,193,000
compared to net loss of $1,623,000 for the three months ended December 31, 1998,
an increase of $1,570,000. This increase is due primarily to the increases in
operating expenses and stock compensation 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 three months ended December 31, 1999.

                            Page 11 of 25 Total Pages

<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.

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 might 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.

Cash decreased by $6,593,000 to $14,634,000 at December 31, 1999 from
$21,227,000 at September 30, 1999. The decrease in cash is due primarily to a
$1,206,000 increase in accounts receivable, a $1,140,000 increase in inventory,
a $931,000 decrease in accounts payable, and a net loss of $3,193,000.

The increase in accounts receivable was due to substantially higher revenue
billings during the first quarter of fiscal 2000, while the increase in
inventory is due to the increased inventory on consignment to others and the
expectation of increased shipment volumes during subsequent quarters. The
decrease in accounts payable is due to the effort in establishing more standard
payment terms as a newly independent company. For the three months ended
December 31, 1999 and 1998, we purchased approximately $469,000 and $15,000
respectively, of fixed assets. We currently have no material commitments for
additional capital expenditures.

Subsequent to December 31, 1999, we have used significant amounts of cash
in operations resulting in a cash balance of approximately $612,000 as of
September 30, 2000. We are taking actions to reduce cash outflows by, among
other things, reducing headcount and curtailing certain marketing activities.
Subsequent to September 30, 2000, the Company's majority stockholder,
Brooktrout, Inc., agreed to provide the Company with a revolving line of
credit which will provide the Company with up to $2.5 million. Advances under
this line of credit are at Brooktrout's sole discretion and as of November
10, 2000, the Company has drawn down approximately $600,000. We have engaged
Broadview International, LLC, a global merger and acquisition advisor, to
assist us with the review of strategic alternatives, including a possible
sale of the Company. If we are unable to complete a strategic transaction,
secure additional sources of financing, or achieve positive cash flow from
our operations, we may be required to significantly curtail our operations or
cease doing business as a going concern.

In addition, as discussed in Note K to the condensed financial statements,
shareholder class action complaints have been filed in the United States
District Court for the District of Massachusetts against Interspeed and certain
former officers and directors of the Company. While we are currently reviewing
the allegations in those lawsuits, the defense or possible settlement of these
lawsuits could involve significant expenses.

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

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, establishes new
standards of accounting and reporting for derivative instruments and hedging
activities and will be effective for the Company in fiscal 2001. Management is
currently evaluating the effect of adopting SFAS No. 133 on the condensed
financial statements.

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 the fourth quarter of fiscal
2001. Management is currently evaluating the effect of adopting SAB No. 101.


                            Page 12 of 25 Total Pages

<PAGE>

YEAR 2000 READINESS DISCLOSURE

The Year 2000 issue relates to potential problems arising from the way in which
computer software processes functions that are date dependent. These problems
arise from hardware and software unable to distinguish dates in the "2000s" from
dates in the "1900s" and from other sources such as the use of special codes and
conventions in software that use a date field. These problems could result in a
system failure with miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions, send invoices
or engage in other normal business activities. The Year 2000 issue may pose
additional problems due to the fact the Year 2000 is a leap year and some
computers and programs may fail to recognize the extra day.

GENERAL READINESS ASSESSMENT. As a wholly owned subsidiary of Brooktrout prior
to our IPO, we relied on Brooktrout's Year 2000 Plan except with respect to our
products and suppliers where we instituted our independent compliance program.
We no longer rely on any Brooktrout systems. We completed a formal systems
selection process and retained a systems consultant to assist us in determining
our systems requirements and purchasing Year 2000 compliant business systems to
satisfy our present and future needs. However, no assurance can be given that we
or third parties with whom we have a business relationship will successfully
address our or their Year 2000 issues. To date, we have not experienced any
problems with Year 2000 issues with either third party or our internal systems.
Our Year 2000 readiness program is supervised by our Year 2000 compliance
committee which is headed by Rajeev Agarwal, and we review our Year 2000 program
on a periodic basis.

Our overall non-Brooktrout related Year 2000 readiness program has consisted of
the following steps:

        -   purchasing internal systems that are Year 2000 compliant;

        -   developing a complete inventory of our products' hardware and
            software and assessing whether each specific piece of equipment or
            software is Year 2000 compliant;

        -   contacting most of our major equipment vendors to ensure that the
            equipment or software purchased has been tested and verified as
            Year 2000 compliant; and

        -   developing contingency plans to address potential Year 2000 problems
            that are not directly in our control.

The following lists the specific areas in our Year 2000 program that have been
completed:

        -   ensuring our products' hardware and software are Year 2000
            compliant;

        -   contacting most of our major equipment providers and receiving
            disclosure statements that all of the equipment or software
            purchased from these vendors is Year 2000 compliant;

        -   implementing contingency plans ensuring that we have alternative
            suppliers for our products' components; and

        -   purchasing and installing Year 2000 compliant systems.

ASSESSMENT OF INTERNAL INFRASTRUCTURE. With respect to our internal systems,
during the first quarter of fiscal 2000, we relied on Brooktrout's Year 2000
Plan which consists of three phases--assessment, testing and implementation. We
currently have our own internal systems in place. All of the internal systems we
purchased were Year 2000 compliant.

ASSESSMENT OF INTERSPEED'S SOFTWARE AND PRODUCTS. We have gathered, tested and
produced information about our products impacted by the Year 2000 transition. We
believe that all of our products are Year 2000 compliant.

SUPPLIERS. All organizations dealing with the Year 2000 must address the effect
this issue will have on their significant business relationships with key third
parties. Our significant business relationships that may be

                            Page 13 of 25 Total Pages

<PAGE>

adversely impacted by the Year 2000 issue include certain contractual
relationships with key suppliers of components for our products and service
providers for our internal systems. We continue to work with third parties to
understand their ability to continue to provide services and products. If any
significant Year 2000 problems are identified with third parties, contingency
plans will be developed.

COSTS TO ADDRESS YEAR 2000 ISSUES. Prior to the IPO, the primary costs in
achieving Year 2000 compliance had been incorporated into the fees Brooktrout
had charged us for managing our system requirements. During the three months
ended December 31, 1999, we purchased and implemented certain internal Year 2000
compliant systems. Costs of purchasing these systems and consultant fees to
assist with the installation of these systems were approximately $230,000 and
$290,000, respectively. We expect any future costs directly attributable to Year
2000 issues not to be material or to have an adverse effect on our business and
financial results.

CONTINGENCY PLAN. While the implementation of internal Year 2000 compliant
systems was essentially completed by December 31, 1999, we are keeping careful
manual records in the event such systems fail. In addition, with respect to our
suppliers, we have successfully identified at least one alternative supplier for
each of our products' components.

CONSEQUENCES OF YEAR 2000 PROBLEMS. We continue to evaluate potential
disruptions or complications that might result from Year 2000 related problems.
Presently, however, we believe that the most likely worst case scenario related
to the Year 2000 issue is associated with third party vendors. A significant
Year 2000 related disruption of the services provided to us by third party
vendors could prevent us from timely delivering our products to customers, which
in turn could materially and adversely affect our results of operations,
liquidity and financial condition. We are not presently aware of any vendor
related Year 2000 issue that is likely to result in such a disruption.

We anticipate that litigation may be brought against vendors of all component
products of systems that are unable to properly manage data related to the Year
2000. We have not received any threats of such litigation. Although we believe
our products are Year 2000 compliant, no assurance can be given that such
litigation may not be threatened or brought in the future. Our failure or
failure of our key suppliers and/or customers to be Year 2000 compliant may also
result in litigation being brought against us in addition to making it more
difficult and/or costly for us to manufacture and sell our products. Any such
claims, with or without merit, or our failure or the failure of our suppliers or
customers to be Year 2000 compliant could result in a material adverse affect on
our business, financial condition and results of operations, including increased
warranty costs, customer satisfaction issues and potential lawsuits.

Although there continues to be inherent uncertainty in the Year 2000 issue, to
date we have not experienced any impact. However, we continue to monitor and
identify the nature and extent of any material risk to us as a result of any
Year 2000 disruptions. This section contains certain statements that are
forward-looking statements. Our Year 2000 compliance, and the effects of the
Year 2000 on us may be materially different than currently projected. This may
be due to, among other things, the failure of key third parties with whom we
have a significant business relationship to achieve Year 2000 compliance or
address Year 2000 issues.

                            Page 14 of 25 Total Pages

<PAGE>

                                  RISK FACTORS

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

IF CLASS ACTION LAWSUITS RECENTLY FILED AGAINST US ARE DETERMINED OR SETTLED IN
A MANNER ADVERSE TO US, IT MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION

Shareholder class action suits have been filed against Interspeed, which if
determined or settled in a manner adverse to Interspeed could adversely affect
our financial condition. The shareholder class action suits, all of which are
pending in the United States District Court for the District of Massachusetts,
each arise out of the same alleged conduct and pertain to the disclosures made
by the Company in a press release dated October 6, 2000. Each of the actions
alleges that the defendants, which include Interspeed, its former President and
Chief Financial Officer, as well as two of its former Vice Presidents, violated
Section 10(b) of the Securities Exchange Act of 1934, or the 1934 Act, in
connection with the Company's historical recognition of its revenues. In
addition, each complaint alleges that the individual defendants are controlling
persons of the Company under Section 20(a) of the 1934 Act, and as such caused
the Company to engage in conduct which purportedly violated Section 10(b) of
1934 Act. The plaintiffs seek damages in an undisclosed amount. We are currently
reviewing the allegations in those lawsuits. The defense of these lawsuits could
involve significant litigation-related expenses. In the event that any of the
claims set forth in the class action complaints are determined or settled in a
manner adverse to Interspeed, then such determination or settlements could
adversely affect our financial position or results of operations in the period
in which the litigation is resolved.

IF WE ARE UNABLE TO COMPLETE A STRATEGIC TRANSACTION, IT MAY HAVE A MATERIAL
ADVERSE AFFECT ON OUR FINANCIAL CONDITION AND OUR ABILITY TO CONTINUE DOING
BUSINESS AS A GOING CONCERN.

We have engaged Broadview LLC to assist us with the review of strategic
alternatives, including a possible sale of the Company. We are actively
considering all of our strategic alternatives, including a sale or merger of the
Company, sales of certain of the Company's assets, or a potential restructuring,
recapitalization or bankruptcy reorganization of the Company. At this time,
however, we cannot predict the success of any of these alternatives. If we are
unable to complete one of the above mentioned strategic transactions or secure
additional sources of financing, we may have to significantly curtail our
operations or cease doing business as a going concern.

WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES

We have accumulated losses of approximately $19 million since inception in
October 1996 through December 31, 1999 and expect to incur net losses in the
future. Losses were approximately $10.5 million for the year ended September 30,
1999 and approximately $3.2 million of the first quarter of fiscal 2000. We
anticipate continuing to incur significant sales and marketing, research and
development and general and administrative expenses. 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.

                            Page 15 of 25 Total Pages

<PAGE>

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.

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.

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 February 7, 2000, we had a total of 21 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.

                            Page 16 of 25 Total Pages

<PAGE>

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;

         -  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;

                            Page 17 of 25 Total Pages

<PAGE>

        -  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 prospects depend 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. Because
of recent business reversals, retention of our employees may be more
difficult. The loss of the services of any key personnel could materially
adversely affect our business, financial condition and results of operations.

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

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. Because of recent business reversals, retention of
our employees may be more difficult. 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.

                            Page 18 of 25 Total Pages

<PAGE>

INTENSE COMPETITION IN THE MARKET FOR HIGH SPEED DATA ACCESS EQUIPMENT 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;

        -  possible foreign currency exchange 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.

                            Page 19 of 25 Total Pages

<PAGE>

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 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.

                            Page 20 of 25 Total Pages

<PAGE>

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 December 31, 1999, Brooktrout owned approximately 57% 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.

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 February
7, 2000, we had approximately 10,774,462 shares of common stock outstanding, of
which approximately 3,957,400 shares are freely transferable without restriction
or registration under the Securities Act of 1933, unless such shares are held by
our affiliates. The remaining 6,817,062 shares of common stock held by existing
stockholders and 223,882 shares subject to outstanding options vested as of
February 7, 2000, of which 156,685 shares will be 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 and 67,197 shares are
freely transferable without restriction or registration under the Securities Act
of 1933. All of our officers and directors and Brooktrout have agreed with U.S.
Bancorp Piper Jaffray not to sell or otherwise dispose of any of their shares
for 180 days after the IPO. Beginning 180 days after the IPO, under specified
circumstances and subject to customary conditions, Brooktrout will have rights,
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.



                            Page 21 of 25 Total Pages

<PAGE>




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.

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 December 31, 1999, we
were not a party to any derivative arrangement and we do not engage in trading,
market-making or other speculative activities in the derivatives markets. We do
not engage in regular hedging activities to minimize the impact of foreign
currency fluctuations. At December 31, 1999, we had no short-term or long-term
debt obligations.

                            Page 22 of 25 Total Pages

<PAGE>

                                     PART II

                                OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

The Company completed its 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.

The Company 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 the Company's account.

The Company 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, the Company received $20,790,000
in net proceeds for the IPO. From the period commencing on September 23, 1999
through December 31, 1999, the Company has used approximately $6.6 million of
the net proceeds, of which approximately $6.1 million was used to fund operating
activities including the net loss for the first fiscal quarter of 2000, and
approximately $500,000 which was used to purchase equipment.

                            Page 23 of 25 Total Pages

<PAGE>

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 Restated Financial Data Schedule

(b)  Reports on Form 8-K during the quarter ended December 31, 1999. The
     registrant filed the following Current Reports on Form 8-K during the
     quarter ended December 31, 1999:

     1.       On October 7, 1999, the Company filed a Current Report on Form
              8-K, disclosing its estimated revenue for the quarter ended
              September 30, 1999.

     2.       On November 30, 1999, the Company filed a Current Report on Form
              8-K, disclosing its results of operations for the fourth quarter
              and fiscal year ended September 30, 1999.

                            Page 24 of 25 Total Pages

<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.


                                     INTERSPEED, INC.


Dated:  November 29, 2000            By: /s/ RAJEEV AGARWAL
                                         --------------------------
                                         Rajeev Agarwal
                                         President and Chief Executive Officer
                                         (principal executive officer)


Dated:  November 29, 2000            By: /s/ STEVEN E. SARTOR
                                         --------------------------
                                         Steven E. Sartor
                                         Vice President, Finance and
                                         Controller
                                         (chief accounting officer)










                            Page 25 of 25 Total Pages