<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
(MARK ONE)
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
</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 04-3333365
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
39 HIGH STREET 01845
NORTH ANDOVER, MASSACHUSETTS (Zip Code)
(Address of Principal Executive Offices)
(Registrant's Telephone Number, Including Area Code) (978) 688-6164
Securities Registered Pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
None REGISTERED
N/A
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(TITLE OF CLASS)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of January 31, 2000, 10,773,061 shares of $0.01 par value Common Stock of
the registrant were outstanding. The aggregate market value of the voting
stock held by non-affiliates of the registrant based upon the closing price
of $21.375 per share for the registrant's Common Stock, as reported on the
NASDAQ National Market System as of January 31, 2000 was $91,057,393.13.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The undersigned Interspeed, Inc. (the "Company") hereby amends Part II,
Item 8--Financial Statements and Supplementary Data of its Annual Report on
Form 10-K for the year ended September 30, 1999, for the sole purpose of
amending and restating the accountant's report to provide that the financial
statements are in conformity with generally accepted accounting principles,
which was omitted due to an inadvertent typographical error. All other
sections of this Item 8 remain unchanged.
1
<PAGE>
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INTERSPEED, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ 3
Balance Sheets.............................................. 4
Statements of Operations.................................... 5
Statements of Stockholders' Equity (Deficit)................ 6
Statements of Cash Flows.................................... 7
Notes to Financial Statements............................... 8
</TABLE>
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Interspeed, Inc.
North Andover, MA
We have audited the accompanying balance sheets of Interspeed, Inc., a
subsidiary of Brooktrout, Inc., as of September 30, 1998 and 1999 and the
related statements of operations, stockholders' equity (deficit), and cash flows
for the period from October 23, 1996 (inception) to September 30, 1997 and for
the years ended September 30, 1998 and 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at September 30, 1998 and 1999,
and the results of its operations and its cash flows for the period from
October 23, 1996 (inception) to September 30, 1997 and for the years ended
September 30, 1998 and 1999 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
October 21, 1999
3
<PAGE>
INTERSPEED, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................ $ 132 $ 21,227
Accounts receivable (less allowances of $49 in 1999)........ -- 808
Inventory................................................... 587 2,445
Prepaid expenses and other.................................. 19 168
------- --------
Total current assets........................................ 738 24,648
Property and equipment, net................................. 489 1,178
Other assets................................................ -- 54
------- --------
Total assets................................................ $ 1,227 $ 25,880
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable............................................ $ 350 $ 2,789
Accrued expenses............................................ 175 662
Short-term note payable--due Brooktrout..................... -- 129
Deferred revenue............................................ -- 26
------- --------
Total current liabilities................................... 525 3,606
Long term note payable--due Brooktrout...................... 5,038 --
Deferred rent............................................... -- 104
Commitments and contingencies (Notes 1 and 5)
Stockholders' equity (deficit):
Preferred Stock, $0.01 par value per share; 1,000,000 shares
authorized, no shares issued or outstanding............... -- --
Common stock, $.01 par value, 30,000,000 shares authorized,
8,000,000 and 10,684,526 shares issued and outstanding at
September 30, 1998 and 1999, respectively................. 80 107
Additional paid-in capital.................................. 1,391 41,995
Accumulated deficit......................................... (5,356) (15,825)
Deferred compensation....................................... (451) (4,107)
------- --------
Total stockholders' equity (deficit)........................ (4,336) 22,170
------- --------
Total liabilities and stockholders' equity (deficit)........ $ 1,227 $ 25,880
======= ========
</TABLE>
See notes to financial statements.
4
<PAGE>
INTERSPEED, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23, 1996 YEAR ENDED
(INCEPTION) TO SEPTEMBER 30,
SEPTEMBER 30 -------------------
1997 1998 1999
---------------- -------- --------
<S> <C> <C> <C>
Revenue.................................................... $ -- $ -- $ 1,978
Cost of revenue............................................ -- -- 1,365
------- ------- --------
Gross profit............................................... -- -- 613
------- ------- --------
Operating expenses:
Research and development................................... 878 3,204 5,329
Sales and marketing........................................ -- 401 1,673
General and administrative................................. 165 689 1,738
Stock compensation......................................... -- 19 2,345
------- ------- --------
Total operating expenses................................... 1,043 4,313 11,085
------- ------- --------
Loss before income taxes................................... (1,043) (4,313) (10,472)
Interest Income............................................ -- -- 3
------- ------- --------
Loss from operations....................................... (1,043) (4,313) (10,469)
Income tax expense......................................... -- -- --
------- ------- --------
Net loss................................................... $(1,043) $(4,313) $(10,469)
======= ======= ========
Net loss per share-basic and diluted....................... $ (0.24) $ (0.54) $ (1.29)
======= ======= ========
Shares used to compute net loss per share-basic and
diluted.................................................. 4,364 8,000 8,141
</TABLE>
See notes to financial statements.
5
<PAGE>
INTERSPEED, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID ACCUMULATED DEFERRED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
-------- -------- ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 23, 1996 (inception)... -- $ -- $ -- $ -- $
Common stock issued for cash to
Parent................................ 8,000 80 921 -- -- 1,001
Net loss................................ -- -- -- (1,043) -- (1,043)
------ ---- ------- -------- ------- --------
Balance, September 30, 1997............. 8,000 80 921 (1,043) -- (42)
Unearned compensation related to stock
options............................... -- -- 470 -- (470) --
Amortization of unearned compensation... -- -- -- -- 19 19
Net loss................................ -- -- -- (4,313) -- (4,313)
------ ---- ------- -------- ------- --------
Balance, September 30, 1998............. 8,000 80 1,391 (5,356) (451) (4,336)
Contribution of long-term note payable
by Parent............................. -- -- 13,598 -- -- 13,598
Common stock Issued net of offering
costs of $3,225....................... 2,000 20 20,775 -- -- 20,795
Unearned compensation related to stock
options............................... -- -- 6,001 -- (6,001) --
Stock options exercised................. 685 7 230 -- -- 237
Amortization of unearned compensation... -- -- -- -- 2,345 2,345
Net loss................................ -- -- -- (10,469) -- (10,469)
------ ---- ------- -------- ------- --------
Balance, September 30, 1999............. 10,685 $107 $41,995 $(15,825) $(4,107) $ 22,170
====== ==== ======= ======== ======= ========
</TABLE>
See notes to financial statements
6
<PAGE>
INTERSPEED, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
OCTOBER 23, 1996 YEAR ENDED
(INCEPTION) TO SEPTEMBER 30,
SEPTEMBER 30, -------------------
1997 1998 1999
------------------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(1,043) $(4,313) $(10,470)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation....................................... 52 199 326
Stock compensation................................. -- 19 2,345
Expenses allocated from parent to the Company...... -- -- 1,078
Expenses paid by parent on behalf of the Company... -- -- 1,020
Increase (decrease) in cash from:
Accounts receivable.............................. -- -- (808)
Inventory........................................ -- (587) (1,859)
Prepaid expenses and other....................... (8) (11) (150)
Accounts payable................................. 118 232 2,440
Accrued expenses................................. 66 109 487
Deposits......................................... -- -- (54)
Deferred revenue................................. -- -- 26
Deferred rent.................................... -- -- 104
------- ------- --------
Net cash used for operating activities................. (815) (4,352) (5,506)
------- ------- --------
Cash flows used for investing activities--
Purchases of property and equipment.................... (371) (369) (1,014)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuances of common stock, net........... 1,001 -- 21,033
Proceeds from long term debt-due Brooktrout............ 206 4,832 6,582
------- ------- --------
Net cash provided by financing activities.............. 1,207 4,832 27,615
------- ------- --------
Net increase in cash................................... 21 111 21,095
Cash, beginning of period.............................. -- 21 132
------- ------- --------
Cash, end of period.................................... $ 21 $ 132 $ 21,227
======= ======= ========
Supplemental Disclosure of non-cash financing
activities: Contribution of long-term note payable by
parent -- -- 13,598
</TABLE>
See notes to financial statements.
7
<PAGE>
INTERSPEED, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS
Interspeed, Inc. (the "Company" or "Interspeed"), at September 30, 1999, a
57% owned subsidiary of Brooktrout, Inc. ("Brooktrout"), was founded in
October 1996 and began operations in March 1997. Subsequent to September 30,
1998, the Company was no longer considered a development stage company. The
Company designs, develops, and markets advanced high-speed data communications
solutions based on digital subscriber line, or DSL, technology. The Company's
products enable data communication service providers such as competitive local
exchange carriers, Internet service providers, and owners of multi-tenant units
("MTUs") to deliver high speed data access solutions to their customers
utilizing existing copper wire infrastructure.
BASIS OF PRESENTATION
The accompanying financial statements represent the accounts of Interspeed,
a subsidiary of Brooktrout. Operating expenses include allocations of general
corporate overhead expenses related to Brooktrout's corporate headquarters and
common support activities, including payroll administration, workers'
compensation and general liability insurance, accounting and finance, legal, tax
and human resources. These costs amounted to $165,000, $668,000 and $1,078,000
for the period October 23, 1996 (inception) to September 30, 1997 and for the
years ended September 30, 1998 and 1999, respectively, and have been allocated
to Interspeed using methodologies primarily based on headcount and usage.
Although Interspeed believes the allocations are reasonable, the costs of these
services to Interspeed may not be indicative of the costs that would have been
incurred if Interspeed had been a stand-alone entity. Interspeed has entered
into a Transition Services Agreement with Brooktrout, pursuant to which
Brooktrout will continue to provide certain services to Interspeed during a
transition period. See Note 9.
Since inception and through the completion of its initial public offering on
September 24, 1999 (the "offering"), Interspeed has been or will be included in
the consolidated tax returns of Brooktrout and Brooktrout has realized or will
realize the tax benefits associated with Interspeed's operating losses through
that date. Accordingly, despite its operating losses since inception, Interspeed
does not have available any net operating loss carryforwards nor has it
recognized any tax benefits afforded Brooktrout by these net operating losses.
Subsequent to its IPO, Interspeed is no longer included in the consolidated
return of Brooktrout and income or losses will be included in a separate return
of Interspeed. Any taxes due will be the responsibility of Interspeed and any
benefits associated with losses will inure to Interspeed.
REINCORPORATION IN DELAWARE AND STOCK SPLIT
On June 16, 1999, the Company reincorporated in Delaware with 30,000,000
authorized shares of common stock, par value $0.01. In addition, the Board of
Directors authorized the creation of an unspecified class of preferred stock,
par value $0.01, with a total authorized amount of 1,000,000 shares. No shares
of preferred stock have been issued. On June 17, 1999 the Board of Directors
approved, and on June 18, 1999 effected, a four-for-one stock split of the
common stock. The stock split has been given retroactive recognition in all
periods presented in the accompanying financial statements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
8
<PAGE>
INTERSPEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF THE BUSINESS (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE
The Company generally recognizes revenue from equipment sales upon shipment.
No revenue is recognized on products shipped on a trial basis. The Company's
products generally carry a one year warranty from the date of purchase.
Estimated sales returns and warranty costs are recorded at the time the product
revenue is recognized. Customers may contract for support services over and
above that provided by the Company's warranty policy. Revenue from such
contracts and from extended warranty contracts is recognized ratably over the
service period. The Company does not recognize revenue on beta units until beta
testing on such units is completed.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out basis) or
market.
ADVERTISING EXPENSES
The Company expenses advertising costs in the period in which they are
incurred. Advertising cost for the period from October 23, 1996 (inception) to
September 30, 1997 and for the years ended September 30, 1998 and 1999 was $0,
$2,000 and $89,000, respectively.
PROPERTY AND EQUIPMENT
Purchased property and equipment is carried at cost and depreciation is
provided over the estimated useful lives of the related assets on the
straight-line basis. Leasehold improvements are depreciated over the lesser of
the lease term or the estimated useful life of the improvement.
RESEARCH AND DEVELOPMENT
Research and development costs, other than software development costs, are
expensed as incurred. Software development costs would be capitalized following
attainment of technological feasibility, however, no development costs which
qualify for capitalization were incurred during any of the periods presented.
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 1,126,385 and 1,099,343 for the years ended September 30, 1998 and
1999, respectively.
STOCK-BASED COMPENSATION
Compensation expense associated with awards of stock options to employees is
measured using the intrinsic value method described in Accounting Principles
Board Opinion No. 25.
9
<PAGE>
INTERSPEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF THE BUSINESS (CONTINUED)
CASH FLOWS
There were no cash payments of interest or taxes for any of the periods
presented.
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, MTUs, and other organizations.
CONCENTRATION OF RISK
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 September 30, 1999, 79% of the
receivable balance was comprised of balances due from two customers.
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.
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.
2. INVENTORY
Inventory consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Raw material................................................ $587 $1,622
Work in process............................................. -- 5
Finished goods.............................................. -- 818
---- ------
Total....................................................... $587 $2,445
==== ======
</TABLE>
10
<PAGE>
INTERSPEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
ESTIMATED -------------------
USEFUL LIFE 1998 1999
------------- -------- --------
<S> <C> <C> <C>
Office equipment............................................ 5 years $ 77 $ 342
Computers and software...................................... 3 years 497 786
Test equipment.............................................. 5 years 82 513
Leasehold improvements...................................... up to
5 years 84 114
---- ------
Total....................................................... 740 1,755
Less accumulated depreciation............................... 251 577
---- ------
Total....................................................... $489 $1,178
==== ======
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Compensation................................................ $145 $580
Accrued employee benefits................................... 12 --
Other....................................................... 18 81
---- ----
Total....................................................... $175 $661
==== ====
</TABLE>
5. LEASE OBLIGATIONS
In March 1997, the Company leased office, manufacturing and warehouse space
under a non-cancelable operating lease that expired in February 1999. The
Company subsequently moved operations to a new location and entered into a
non-cancelable operating lease for office, manufacturing and warehouse space in
March 1999, which expires in March 2004. The Company also has an engineering
facility in Texas and entered into a non-cancelable operating lease in
January 1999, which expires in January 2001.
Minimum future lease payments under all non-cancellable operating leases at
September 30, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal Year:
2000........................................................ $ 426
2001........................................................ 481
2002........................................................ 485
2003........................................................ 509
2004 and Thereafter......................................... 216
------
$2,117
======
</TABLE>
11
<PAGE>
INTERSPEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LEASE OBLIGATIONS (CONTINUED)
Rent expense for the period October 23, 1996 (inception) to September 30,
1997 and for the years ended September 30, 1998 and 1999 was $38,000, $80,000
and $360,000, respectively.
6. STOCK OPTION PLANS
In April 1997, the Company's Board of Directors adopted and the stockholder
approved the 1997 Stock Option Plan (the "1997 Stock Plan"), under which the
Company may grant both incentive stock options and non-qualified options to
employees. The 1997 Stock Plan allows for the granting of options to purchase up
to 1,988,000 shares of common stock. The stock options are generally granted
with vesting periods of five years and have an expiration date of ten years from
the date of grant.
STOCK OPTION AND GRANT PLAN
In June 1999, the Company adopted, and the stockholders approved, the
Interspeed 1999 Stock Option and Grant Plan (the "1999 Stock Plan"), under which
the Company may grant both incentive stock options and nonstatutory stock
options to employees, consultants and directors. Options issued under the 1999
Stock Plan can have an exercise price of not less than 85% of the fair market
value, as defined under the 1999 Stock Plan, of the stock at the date of grant.
The 1999 Stock Plan provides for the issuance of up to 1,012,868 shares of the
Company's common stock. At September 30, 1999 grants totaled 209,000 and shares
available for future grant are 803,868.
Certain options have been granted with exercise prices which were less than
the estimated fair value of the Company's common stock at the date of grant.
Compensation cost associated with these options, determined as the difference
between the fair value of the stock and the exercise price, totaled
$6.5 million as of September 30, 1999. This cost was recorded as deferred
compensation and is being charged to expense over the vesting period.
Compensation expense related to such option grants was $19,000 and $2,345,000
for the years ended September 30, 1998 and 1999, respectively.
Compensation cost in the year ended September 30, 1999 included $548,000
related to grants to two directors that were 100% vested on the date of grant
and $1,186,000 related to a grant to the Company's president that vested 40% of
the shares on June 18, 1999 upon the initial filing of a registration statement
with the Securities and Exchange Commission. The remainder of the president's
grant vests 20% of the original grant on January 1 of each of the next three
years.
12
<PAGE>
INTERSPEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTION PLANS (CONTINUED)
Activity under the 1997 Stock Plan and the 1999 Stock Plan is summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Granted..................................................... 962,400 $ .13
Exercised................................................... -- --
Forfeited................................................... -- --
---------
Outstanding at September 30, 1997........................... 962,400 $ .13
Granted..................................................... 381,600 $ .13
Exercised................................................... -- --
Forfeited................................................... 52,000 $ .13
---------
Outstanding at September 30, 1998........................... 1,292,000 $ .13
Granted..................................................... 946,000 $2.57
Exercised................................................... 702,658 .34
Forfeited................................................... 70,135 $ .13
---------
Outstanding at September 30, 1999........................... 1,465,207 $1.60
=========
</TABLE>
The following table sets forth information regarding stock options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE
EXERCISE NUMBER EXERCISE REMAINING NUMBER
PRICES OF SHARES PRICE LIFE (YEARS) EXERCISABLE
- -------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C>
$0.13............................................... 1,027,457 $ 0.13 8.36 35,753
$0.67-0.80.......................................... 208,750 $ 0.78 9.61 8,700
$2.50............................................... 20,000 $ 2.50 9.71 20,000
$9.35-10.00......................................... 209,000 $ 9.58 9.83 45,000
</TABLE>
The following information concerning the Company's stock option plan is
provided in accordance with SFAS 123.
The fair value of each option grant has been estimated on the date of grant
using the minimum value method. Weighted average assumptions used in determining
the fair value of grants for the period from October 23, 1996 (inception) to
September 30, 1997 and for the years ended September 30, 1998 and 1999 include
risk-free interest rates of 5.5%, 4.75% and 5.8%, respectively, expected
volatility of underlying stock of 0%, 0% and 89%, respectively and an expected
life of 5 years. Dividend yields are not considered in the minimum value
calculation.
The weighted average fair value of options granted for the period from
October 23, 1996 (inception) to September 30, 1997 and for the years ended
September 30, 1998 and 1999 was $0.12, $1.20 and $6.38 per share, respectively.
13
<PAGE>
INTERSPEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTION PLANS (CONTINUED)
Had compensation expense for stock options been determined based on fair
value at the grant date in accordance with the provisions of SFAS No. 123, pro
forma net loss and pro forma net loss per share would have been as follows (in
thousands except per share data):
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
OCTOBER 23, 1996 FOR THE YEAR FOR THE YEAR
(INCEPTION) ENDED ENDED
TO SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999
------------------- ------------- ---------------
<S> <C> <C> <C>
Pro forma net loss............................ $(1,045) $(4,340) $(10,484)
Pro forma net loss per share-basic and
diluted..................................... $ (0.24) $ (0.54) $ (1.29)
</TABLE>
7. RETIREMENT PLANS
The Company has a 401(k) retirement plan available to qualified employees.
Employees are allowed to contribute up to 18% of their salary to the plan. The
Company matches contributions equal to $.25 per dollar contributed up to a
maximum of 6% of a participant's salary. The Company contributed $2,000, $18,000
and $53,000 to the plan for the period October 23, 1996 (inception) to
September 30, 1997 and for the years ended September 30, 1998 and 1999,
respectively.
8. SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION
The Company currently targets its sales efforts to data communications
service providers, multi tenant units, and other service organizations to both
public and private network providers and users across four related market
segments. For the year ended September 30, 1999, sales to United States
customers amounted to $1,873,000 and export sales amounted to $105,000. One
customer accounted for 75% and another customer accounted for 15% of revenue for
the year ended September 30, 1999.
9. RELATED PARTY TRANSACTIONS
Since inception, the Company's operations have been funded through
contributions of capital and loans from Brooktrout of $1.2 million,
$4.8 million and $8.7 million for the period October 23, 1996 (inception) to
September 30, 1997 and for the years ended September 30, 1998 and 1999,
respectively. 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 following is an analysis of the intercompany accounts:
<TABLE>
<CAPTION>
PERIOD FROM OCTOBER 23, 1996
(INCEPTION) TO YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
---------------------------- ------------------ ------------------
<S> <C> <C> <C>
Beginning balance................... $ 0 $ (206) $(5,038)
Expenses allocated from Parent...... (165) (668) (1,078)
Cash transfers...................... (694) (3,775) (6,582)
Expenses paid by Parent on behalf
of the Company.................... (348) (389) (1,020)
Capital contribution................ 1,001 -- 13,589
------ ------- -------
Ending balance...................... $ (206) $(5,038) $ (129)
====== ======= =======
</TABLE>
14
<PAGE>
INTERSPEED, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company and Brooktrout have entered into a Transition Services Agreement
(the "Agreement") which outlines certain services that will continue to be
performed on behalf of the Company by Brooktrout for a specified period of time.
The Agreement calls for these services to be phased out over a period beginning
October 1999 to December 1999. The services called for in the Agreement include
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 will be on an "as used"
basis and are included in the agreement.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)
(1) Financial Statements
The financial statements filed as part of the report are listed on the Index
to Financial Statements on page .
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not material, and therefore have been omitted.
(c) Exhibits:
16
<PAGE>
(23) Consent of Deloitte & Touche LLP is filed herewith as Exhibit 23.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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, this 4th day of
February, 2000.
<TABLE>
<S> <C> <C>
INTERSPEED, INC.
BY: /S/ STEPHEN A. IDE
-----------------------------------------
Stephen A. Ide
PRESIDENT
</TABLE>
18
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-91809, 333-93753 and 333-93751 of Interspeed, Inc. on Form S-8 of our
report dated October 21, 1999, appearing in this Annual Report on Form 10-K/A
of Interspeed, Inc. for the year ended September 30, 1999.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 2, 2000
