<PAGE>


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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q

(Mark One)

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

                  For the quarterly period ended June 30, 1998 

                                      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 0-22871


                                  OMTOOL, LTD.
             (Exact Name of Registrant as Specified in Its Charter)
<TABLE>

<S>                                                      <C>
           Delaware                                             02-0447481
(State or Other Jurisdiction of                              (I.R.S. Employer
 Incorporation or Organization)                           Identification Number)

      8 Industrial Way, Salem, NH                                 03079
(Address of Principal Executive Offices)                       (Zip Code)

                                 (603) 898-8900
               (Registrant's Telephone Number Including Area Code)

</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 ___

There were 12,962,672 shares of the Company's Common Stock, par value $0.01,
outstanding on August 12, 1998.

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


<PAGE>


                          OMTOOL, LTD. AND SUBSIDIARIES

                                    FORM 10-Q
                       For the Quarter Ended June 30, 1998
                                    CONTENTS

<TABLE>
<CAPTION>
           Item Number                                                                            Page
           -----------                                                                           -------
<S>                                                                                              <C> 
PART I: FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements
          Consolidated Balance Sheets as of June 30, 1998 (Unaudited) and
             December 31, 1997                                                                      3
          Consolidated Statements of Income for the three months and six months
             ended June 30, 1998 and 1997 (Unaudited)                                               4
          Consolidated Statements of Stockholders' Equity for the six months ended
             June 30, 1998 (Unaudited)                                                              5
          Consolidated Statements of Cash Flows for the six months ended June 30,
             1998 and 1997 (Unaudited)                                                              6
          Notes to Consolidated Financial Statements                                                7

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

PART II: OTHER INFORMATION

Item 4.  Submission of Matters to Vote of Security Holders                                         18

Item 5.  Other Information                                                                         18

Item 6.  Exhibits and Reports on Form 8-K                                                          18

Signatures                                                                                         19
</TABLE>



                                       2
<PAGE>


                          OMTOOL, LTD. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                              June 30,             December 31,
                                                                                1998                   1997
                                                                          ---------------        ---------------
                                                                            (Unaudited)
ASSETS
Current assets:
<S>                                                                         <C>                    <C>          
   Cash and cash equivalents                                                $   2,515,216          $   2,210,367
   Short-term investments                                                      19,108,921             21,179,766
   Accounts receivable, less reserves of $1,185,000 and 
     $1,037,000 in 1998 and 1997, respectively                                  6,543,044              4,727,089
   Prepaid expenses and other current assets                                    1,819,657              1,492,763
   Deferred tax asset                                                             380,000                380,000
                                                                          ---------------        ---------------
         Total current assets                                                  30,366,838             29,989,985

Property and equipment, net                                                     1,944,221              1,752,986

Other assets                                                                    2,078,252                850,522
                                                                          ---------------        ---------------
         Total assets                                                        $ 34,389,311           $ 32,593,493
                                                                          ---------------        ---------------
                                                                          ---------------        ---------------

LIABILITIES AND STOCKHOLDERS' EQUITY 
Current liabilities:
   Current portion of long-term debt                                        $      20,134          $      36,888
   Accounts payable                                                             1,389,617                919,276
   Accrued liabilities                                                          1,955,731              1,808,362
   Income taxes payable                                                           145,336                809,991
   Deferred revenue                                                             3,157,558              2,080,736
                                                                          ---------------        ---------------
         Total current liabilities                                              6,668,376              5,655,253
                                                                          ---------------        ---------------
Deferred tax liability                                                            253,334                283,000
                                                                          ---------------        ---------------
Long-term liabilities                                                              52,093                 10,043
                                                                          ---------------        ---------------

Stockholders' equity:
   Preferred Stock, $.01 par value -
     Authorized-- 2,000,000; issued and outstanding-- none                              -                      -
   Common Stock, $.01 par value--
     Authorized -- 35,000,000; issued and outstanding -- 12,760,961
     in 1998; 11,846,140 in 1997                                                  127,609                118,461
   Additional paid-in capital                                                  32,581,521             32,255,664
   Accumulated deficit                                                         (5,306,640)            (5,736,632)
   Cumulative translation adjustment                                               13,018                  7,704
                                                                          ---------------        ---------------
         Total stockholders' equity                                            27,415,508             26,645,197
                                                                          ---------------        ---------------

         Total liabilities and stockholders' equity                          $ 34,389,311           $ 32,593,493
                                                                          ---------------        ---------------
                                                                          ---------------        ---------------
</TABLE>

                     The accompanying notes are an integral part of these 
                            consolidated financial statements.


                                       3
<PAGE>


                          OMTOOL, LTD. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)



<TABLE>
<CAPTION>
                                                             Three months ended                      Six months ended
                                                                     June 30,                               June 30,
                                                      ----------------------------------    ---------------------------------
                                                            1998             1997                 1998              1997
                                                            ----             ----                 ----              ----
<S>                                                   <C>               <C>                 <C>               <C>             
Revenues:
   Software license                                   $     4,478,322   $     2,949,945     $     9,306,634   $     5,486,248
   Hardware                                                 1,724,516         1,039,847           3,494,876         1,748,438
   Service and other                                        1,472,380           588,067           2,885,639         1,043,810
                                                      ---------------   ---------------     ---------------   ---------------
         Total revenues                                     7,675,218         4,577,859          15,687,149         8,278,496
                                                      ---------------   ---------------     ---------------   ---------------
Cost of revenues:
   Software license                                           397,583           132,023             765,577           218,090
   Hardware                                                   956,246           714,509           2,001,377         1,208,436
   Service and other                                          676,137           272,757           1,494,406           501,260
                                                      ---------------   ---------------     ---------------   ---------------
         Total cost of revenues                             2,029,966         1,119,289           4,261,360         1,927,786
                                                      ---------------   ---------------     ---------------   ---------------
         Gross profit                                       5,645,252         3,458,570          11,425,789         6,350,710
                                                      ---------------   ---------------     ---------------   ---------------
Operating expenses:
   Sales and marketing                                      3,349,841         1,641,735           5,896,197         2,938,218
   Research and development                                 1,293,593           789,916           2,516,079         1,553,702
   General and administrative                                 917,769           387,864           1,753,727           778,455
   Acquisition costs                                                -               -               182,654                -
                                                      ---------------   -------------       --------------    --------------
         Total operating expenses                           5,561,203         2,819,515          10,348,657         5,270,375
                                                      ---------------   ---------------     ---------------   ---------------
         Income from operations                                84,049           639,055           1,077,132         1,080,335

Interest income                                               183,337            28,820             373,399            47,483
Interest expense                                               (1,068)             (944)             (2,511)          (18,922)
                                                      ---------------   ---------------     ----------------  ---------------
         Income before provision for income taxes             266,318           666,931           1,448,020         1,108,896

Provision for income taxes                                    104,199           235,000             402,228           405,000
                                                      ---------------   ---------------     ---------------   ---------------
         Net income                                   $       162,119   $       431,931     $     1,045,792   $       703,896
                                                      ---------------   ---------------     ----------------  ---------------
                                                      ---------------   ---------------     ----------------  ---------------
Net income per share
         Basic                                        $         0.01    $         0.08      $         0.08    $         0.13
                                                      ---------------   ---------------     ----------------  ---------------
                                                      ---------------   ---------------     ----------------  ---------------
         Diluted                                      $         0.01    $         0.05      $         0.08    $         0.08
                                                      ---------------   ---------------     ----------------  ---------------
                                                      ---------------   ---------------     ----------------  ---------------

Weighted average number of common shares 
  outstanding
         Basic                                             12,750,102         5,376,602          12,667,828         5,372,856
                                                      ---------------   ---------------     ----------------  ---------------
                                                      ---------------   ---------------     ----------------  ---------------
         Diluted                                           13,564,257         9,261,447          13,575,491         9,258,477
                                                      ---------------   ---------------     ----------------  ---------------
                                                      ---------------   ---------------     ----------------  ---------------
</TABLE>



The accompanying notes are an integral part of these consolidated financial
statements.


                                       4
<PAGE>


                                  OMTOOL, LTD.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (UNAUDITED)






<TABLE>
<CAPTION>
                                        Common Stock,
                                       $0.01 Par Value
                                       ---------------             Additional                       Cumulative           Total
                                    Number of                       Paid-in        Accumulated      Translation      Stockholders'
                                      Shares       Amount           Capital          Deficit         Adjustment          Equity
                                      ------       ------          ----------      ------------     -----------      -------------


<S>                               <C>           <C>               <C>             <C>               <C>          <C>           
BALANCE, DECEMBER 31, 1997        11,846,140      $  118,461      $ 32,255,664     $ (5,736,632)     $  7,704      $  26,645,197

   Exercise of stock options         235,551           2,356           130,399                -             -            132,755
   Issuance of common stock
    for acquisitions                 679,270           6,792           195,458         (615,800)            -           (413,550)
   Change in cumulative
    translation adjustment                 -               -                 -                -         5,314              5,314
   Net income                              -               -                 -        1,045,792             -          1,045,792
                                  ----------      ----------      ------------     ------------      --------      -------------
BALANCE, JUNE  30, 1998           12,760,961      $  127,609      $ 32,581,521     $ (5,306,640)     $ 13,018      $  27,415,508
                                  ----------      ----------      ------------     ------------      --------      -------------
                                  ----------      ----------      ------------     ------------      --------      -------------
</TABLE>






            The accompanying notes are an integral part of these 
                      consolidated financial statements.


                                       5
<PAGE>


                          OMTOOL, LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                     Six months ended
                                                                                         June 30,
                                                                              -------------------------------
                                                                                   1998            1997
                                                                                   ----            ----
<S>                                                                             <C>             <C>         
Cash Flows from Operating Activities:
   Net income                                                                   $1,045,792      $    703,896
   Adjustments to reconcile net income to net cash provided by
   (used in) operating activities-
     Depreciation and amortization                                                 957,447           177,396
     Deferred income taxes                                                         (29,666)                -
     Changes in assets and liabilities, net of acquisitions-
       Accounts receivable                                                      (1,599,244)       (1,725,737)
       Prepaid expenses and other current assets                                  (273,651)          (48,788)
       Accounts payable                                                            361,418            25,763
       Accrued liabilities                                                        (106,990)          478,941
       Income taxes payable                                                       (667,983)           80,743
       Deferred revenue                                                            910,359           128,342
       Long-term liabilities                                                       (28,861)         (171,002)
                                                                              ------------    ---------------
              Net cash provided by (used in) operating activities                  568,621          (350,446)
                                                                              ------------    ---------------
Cash Flows from Investing Activities:
   Purchases of property and equipment                                            (989,048)         (555,173)
   Purchases of short-term investments                                         (10,931,914)       (1,234,843)
   Proceeds from sale of short-term investments                                 13,035,000           957,400
   Increase in other assets                                                     (1,346,030)          (14,825)
   Cash acquired in connection with acquisitions of DPSI and TRS                   111,071                 -
                                                                              ------------    --------------
              Net cash used in investing activities                               (120,921)         (847,441)
                                                                              -------------   ---------------
Cash Flows from Financing Activities:
   Payments on long-term debt                                                     (278,799)          (53,609)
   Exercise of stock options                                                       132,755            19,000
                                                                              ------------    --------------
              Net cash used in  financing activities                              (146,044)          (34,609)
                                                                              -------------   ---------------
Foreign exchange effect on cash                                                      3,193                 -
                                                                              ------------    --------------
Net increase (decrease) in cash and cash equivalents                               304,849        (1,232,496)
Cash and cash equivalents, beginning of period                                   2,210,367         2,042,100
                                                                              ------------    --------------
Cash and cash equivalents, end of period                                        $2,515,216      $    809,604
                                                                              ------------    ---------------
                                                                              ------------    ---------------
Supplemental Disclosure of Cash Flow Information:
   Cash paid during the year for-
     Interest                                                                   $    2,511      $     18,922
                                                                              ------------    ---------------
                                                                              ------------    ---------------
     Income taxes                                                               $1,066,883      $    324,324
                                                                              ------------    ---------------
                                                                              ------------    ---------------

Supplemental Disclosure of Noncash Investing and Financing Transactions:
   Accrued dividends on Series B Convertible Redeemable Preferred Stock         $        -      $    200,000
                                                                              ------------    ---------------
                                                                              ------------    ---------------

In connection with the acquisition of DPSI and TRS, the following non-cash
   transactions occurred:
     Fair value of net assets acquired                                          $  524,621      $          -
     Issuance of common stock                                                     (413,550)                -
                                                                              -------------   ---------------
Cash acquired in connection with acquisitions of DPSI and TRS                   $  111,071      $          -
                                                                              ------------    ---------------
                                                                              ------------    ---------------
</TABLE>

                 The accompanying notes are an integral part of these 
                         consolidated financial statements.


                                       6
<PAGE>


                          OMTOOL, LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



(1)   Basis of Presentation

      The accompanying unaudited consolidated financial statements have been 
prepared by Omtool, Ltd. (the "Company" or "Omtool") pursuant to the rules 
and regulations of the Securities and Exchange Commission regarding interim 
financial reporting. Accordingly, they do not include all of the information 
and footnotes required by generally accepted accounting principles for 
complete financial statements and should be read in conjunction with the 
consolidated financial statements and notes thereto for the year ended 
December 31, 1997. The accompanying consolidated financial statements reflect 
all adjustments (consisting of normal recurring adjustments) which are, in 
the opinion of management, necessary for a fair presentation of results for 
the interim periods presented. The results of operations for the six month 
period ended June 30, 1998 are not necessarily indicative of the results to 
be expected for the full fiscal year.

(2)    Summary of Significant Accounting Policies

     (a)  Cash and Cash Equivalents

      The Company considers all highly liquid investments with maturities of 
three months or less at the time of purchase to be cash equivalents. Cash 
equivalents consist primarily of investments in money market funds. In 
accordance with Statement of Financial Accounting Standards (SFAS) No. 115, 
Accounting for Investments in Certain Debt and Equity Securities, the 
Company's cash equivalents are classified as held-to-maturity securities.

     (b)  Short-Term Investments

      As of June 30, 1998 and December 31, 1997, the Company had $19,108,921 
and $21,179,766, respectively, invested in securities consisting of municipal 
bonds. In accordance with SFAS No. 115, the Company has classified its 
short-term investments as available-for-sale. These securities have been 
recorded at cost, which approximates market value at June 30, 1998 and 
December 31, 1997.

      (c) Foreign Currency Translation

      The Company translates the financial statements of its foreign 
subsidiaries in accordance with SFAS No. 52, Foreign Currency Translation. 
Accordingly, assets and liabilities are translated at exchange rates in 
effect at the end of the period, and revenues and expenses are translated at 
the average exchange rates during the period. All cumulative translation 
gains or losses from the translation into the Company's reporting currency 
are included as a separate component of stockholders' equity in the 
accompanying consolidated balance sheets.

                                       7
<PAGE>


     (d)  Net Income per Common and Common Equivalent Share

      Effective December 15, 1997, SFAS No. 128, Earnings Per Share, 
established standards for computing and presenting earnings per share and 
applies to entities with publicly held common stock or potential common 
stock. The Company has applied the provisions of SFAS No. 128 retroactively 
to all periods presented. In accordance with SEC Staff Accounting Bulletin 
(SAB) No. 98, the Company has determined that there were no nominal issuances 
of common stock or potential common stock in the period prior to the 
Company's initial public offering. The dilutive effect of potential common 
shares in 1998, consisting of outstanding stock options is determined using 
the treasury stock method, in accordance with SFAS No. 128. The dilutive 
effect of potential common shares in 1997, consisting of outstanding stock 
options and redeemable convertible preferred stock, is determined using the 
treasury stock method and the if-converted method, respectively, in 
accordance with SFAS No. 128. A reconciliation of basic and diluted common 
shares outstanding is as follows:

<TABLE>
<CAPTION>
                                                        Three months ended                 Six months ended
                                                              June 30,                          June 30,
                                                  -------------------------------   -------------------------------
                                                        1998            1997              1998            1997
                                                    -----------      ----------       -----------      ----------
<S>                                                 <C>              <C>              <C>              <C>       
Net income                                          $   162,119      $  431,931       $ 1,045,792      $  703,896
                                                    -----------      ----------       -----------      ----------
Weighted average number of common shares
 outstanding                                         12,750,102       5,376,602        12,667,828       5,372,856
Potential common shares pursuant to stock options       814,155         847,613           907,663         848,389
Potential common shares pursuant to conversion of
 redeemable convertible preferred stock                      --       3,037,232                --       3,037,232
                                                    -----------      ----------       -----------      ----------
Diluted weighted average shares                      13,564,257       9,261,447        13,575,491       9,258,477
                                                    -----------      ----------       -----------      ----------
                                                    -----------      ----------       -----------      ----------
</TABLE>


      The calculation above excludes the potential common shares related to 
557,500 and 531,500 outstanding stock options which have an anti-dilutive 
effect for the three months and six months ended June 30, 1998, respectively.

(3)    Comprehensive Income

      The Company adopted SFAS No. 130, Reporting Comprehensive Income, 
effective January 1, 1998. SFAS 130 establishes standards for reporting and 
display of comprehensive income and its components in financial statements. 
The components of the Company's comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                                 Three months ended                 Six months ended
                                                                      June 30,                          June 30,
                                                          -------------------------------   -------------------------------
                                                                 1998            1997              1998            1997
                                                            ------------     -----------      ------------     -----------
<S>                                                          <C>              <C>              <C>              <C>       
Net income                                                   $   162,119      $  431,931       $ 1,045,792      $  703,896
Foreign currency translation adjustments, net of taxes             4,762              --             3,263              --
                                                             -----------      ----------       -----------      ----------
Comprehensive income                                         $   166,881      $  431,931       $ 1,049,055      $  703,896
                                                             -----------      ----------       -----------      ----------
                                                             -----------      ----------       -----------      ----------
</TABLE>



(4)   Acquisitions

      On February 19, 1998, the Company acquired all of the outstanding 
capital stock of Desktop Paging Software, Inc. ("DPSI") in exchange for 
294,840 shares of Omtool common stock. DPSI develops, markets and supports 
wireless messaging software.

      On February 27, 1998, the Company acquired all of the outstanding 
capital stock of TRS Technologies, Inc. ("TRS") in exchange for 384,430 
shares of Omtool common stock. TRS develops, markets and supports LAN fax and 
cost recovery systems for law firms.

      These transactions were accounted for under the pooling of interests 
method of accounting. None of the periods preceding December 31, 1997 were 
restated, as net assets and liabilities, historic results of operations and 
cumulative stockholders' equity of DPSI and TRS were not deemed to be 
material to the consolidated financial statements of the 

                                       8
<PAGE>


Company. The Company recorded the costs incurred in connection with these 
transactions as "Acquisition Costs" which are included in the accompanying 
consolidated statements of income.

                                       9
<PAGE>


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


     Management's Discussion and Analysis of Financial Condition and Results 
of Operations should be read in conjunction with the accompanying 
consolidated financial statements for the periods specified and the 
associated notes. Further reference should be made to the Company's Annual 
Report on Form 10-K as filed with the Securities Exchange Commission on March 
31, 1998.

Overview

     Omtool designs, develops, markets and supports open, client/server 
facsimile software, delivering solutions which automate and integrate fax 
communication throughout the enterprise. The Company was incorporated in 
March 1991 and shipped its initial facsimile software products in 1991. The 
Company's revenues are primarily derived from licensing the rights to use its 
Fax Sr. NT software product directly to end users and indirectly through 
resellers. The Company also derives revenues from the resale of third-party 
hardware products, principally intelligent fax boards and fax modems, and 
from the delivery of related services, consisting primarily of customer 
support contracts. The Company first achieved profitability for the year 
ended December 31, 1992 and has been profitable, for the last fourteen 
quarters, excluding a one-time charge for purchased, in-process research and 
development in the fourth quarter of 1997.

     The Company has historically derived the majority of its total revenues 
from sales within North America. Sales outside of North America represented 
approximately 11% and 8% of the Company's total revenues in the six months 
ended June 30, 1998 and 1997, respectively.

     The Company sells its products through its direct telesales force and 
also sells its products through value added resellers, systems integrators, 
resellers and distributors to expand its indirect distribution channel. Sales 
through the Company's indirect distribution channels were 27% and 35% of the 
Company's total revenues in the six months ended June 30, 1998 and 1997, 
respectively.

     The Company has expanded its business through three acquisitions. In 
December 1997, the Company acquired CMA Ettworth Limited, based in London, 
England, a provider of fax solutions for the IBM AS/400 market. The 
acquisition was accounted for as a purchase and resulted in a one-time charge 
for purchased, in-process research and development of approximately $6.7 
million in the fourth quarter of 1997. In February 1998, the Company acquired 
Desktop Paging Software, Inc., a New Hampshire based provider of wireless 
messaging software, and TRS Technologies, Inc., a Portland, Oregon based 
provider of LAN fax and cost recovery systems for law firms. These 
acquisitions were accounted for under the pooling of interest method of 
accounting.

                                       10
<PAGE>


Results of Operations

     The following table sets forth certain financial data for the periods
indicated as a percentage of total revenues:

<TABLE>
<CAPTION>
                                             Three months ended     Six months ended
                                                   June 30,           June 30,
                                            --------------------  --------------------
                                                1998      1997      1998      1997
                                                ----      ----      ----      ----
<S>                                            <C>       <C>       <C>       <C>    
Revenues:
   Software license                             58.3 %    64.4 %    59.3 %    66.3 %
   Hardware                                     22.5      22.7      22.3      21.1
   Service and other                            19.2      12.9      18.4      12.6
                                               -----     -----     -----     -----
      Total revenues                           100.0     100.0     100.0     100.0
                                               -----     -----     -----     -----
Cost of revenues:
   Software license                              5.2       2.9       4.9       2.6
   Hardware                                     12.4      15.6      12.8      14.6
   Service and other                             8.8       5.9       9.5       6.1
                                               -----     -----     -----     -----
      Total cost of revenues                    26.4      24.4      27.2      23.3
                                               -----     -----     -----     -----
Gross profit                                    73.6      75.6      72.8      76.7
                                               -----     -----     -----     -----
Operating expenses:
   Sales and marketing                          43.6      35.9      37.6      35.5
   Research and development                     16.9      17.2      16.0      18.8
   General and administrative                   12.0       8.5      11.2       9.4
   Acquisition costs                              --        --       1.2        --
                                               -----     -----     -----     -----
      Total operating expenses                  72.5      61.6      66.0      63.7
                                               -----     -----     -----     -----
Income from operations                           1.1      14.0       6.8      13.0
Interest income, net                             2.4       0.6       2.4        .4
                                               -----     -----     -----     -----
Income before provision for
   income taxes                                  3.5      14.6       9.2      13.4
Provision for income taxes                       1.4       5.2       2.6       4.9
                                               -----     -----     -----     -----
Net income                                       2.1 %     9.4 %     6.6 %     8.5 %
                                               -----     -----     -----     -----
                                               -----     -----     -----     -----

Gross profit:
   Software license                             91.1 %    95.5 %    91.8 %    96.0 %
   Hardware                                     44.5      31.3      42.7      30.9
   Service and other                            54.1      53.6      48.2      52.0
</TABLE>


Three Months Ended June 30, 1998 and 1997

Revenues

     Total Revenues. The Company's revenues are currently derived primarily 
from fees from licensing of the Company's software products and, to a lesser 
extent, from related sales of hardware and services. The Company's total 
revenues were $7.7 million and $4.6 million for the three months ended June 
30, 1998 and 1997, respectively, representing an increase of 68%.

     Software License. The Company's software license revenues are derived 
primarily from the licensing of the Company's Fax Sr. product. Software 
license revenues were $4.5 million for the three months ended June 30, 1998 
and $2.9 million for the three months ended June 30, 1997, or 58% and 64% of 
total revenues for each respective period, representing an increase of 52%. 
The increase in dollar amount was primarily due to increased market 
acceptance of the Company's facsimile software products for various operating 
systems. The decrease in software license revenue as a percentage of total 
revenues is primarily attributable to the increase in service and other 
revenue due to the Company's larger installed customer base as well as the 
conversion of fewer forecasted license orders than anticipated during the 
second quarter of 1998.

                                       11
<PAGE>


     Hardware. Hardware revenues are derived from the resale of third-party 
hardware products sold to the Company's customers in conjunction with the 
licensing of the Company's software. Hardware revenues were $1.7 million for 
the three months ended June 30, 1998 and $1.0 million for the three months 
ended June 30, 1997, or 23% of total revenues for each respective period, 
representing an increase of 66%. The increase in hardware revenues was due 
primarily to the increase of hardware unit sales accompanying the Company's 
products and a change in the sales mix of third-party hardware products from 
less expensive modem products to high-end multi-channel modem boards.

     Service and Other. Service and other revenues are primarily comprised of 
fees from maintenance contracts. Service and other revenues were $1.5 million 
for the three months ended June 30, 1998 and $588,000 for the three months 
ended June 30, 1997, or 19% and 13% of total revenues for each respective 
period, representing an increase of 150%. The increase in dollar amount was 
due primarily to the increase in maintenance revenues as a result of a larger 
installed customer base.

Cost of Revenues

     Software License. Cost of software license revenues consists primarily 
of the costs of sublicensing third-party software products, product media, 
and product duplication. Cost of software license revenues was $398,000 and 
$132,000 for the three months ended June 30, 1998 and 1997, respectively, 
representing 9% and 5% of software license revenues for each respective 
period. The increase in dollar amount was primarily due to the higher volume 
of products shipped during the three months ended June 30, 1998 compared to 
the same period in 1997. Software license gross margin percentages decreased 
to 91% for the three months ended June 30, 1998 from 96% for the same period 
in 1997 due to increased license fees and royalties paid to third-party 
software providers.

     Hardware. Cost of hardware revenues consists primarily of the costs of 
third-party hardware products. Cost of hardware revenues was $956,000 and 
$715,000 for the three months ended June 30, 1998 and 1997, respectively, 
representing 55% and 69% of hardware revenues for each respective period. The 
increase in dollar amount for the cost of hardware revenues for the three 
months ended June 30, 1998 was due primarily to increased unit sales of 
hardware products accompanying licenses of Fax Sr. and a change in the sales 
mix of third-party hardware products from less expensive modem products to 
high-end multi-channel modem boards. The gross margin percentage for hardware 
sales increased to 45% for the three months ended June 30, 1998 from 31% in 
the same period in 1997 due to the change in hardware sales mix and better 
pricing due to volume discounts provided by third-party hardware vendors.

     Service and Other. Cost of service and other revenues consists primarily 
of the costs incurred in providing telephone support as well as other 
miscellaneous customer service-related expenses. Cost of service and other 
revenue was $676,000 and $273,000 for the three months ended June 30, 1998 
and 1997, respectively, representing 46% of service and other revenues for 
each respective period. The increase in dollar amount of cost of service and 
other revenues during the period was due primarily to the hiring of 
incremental personnel to support growth in the customer base. The gross 
margin percentage for service and other revenues remained unchanged at 54% 
for each of the three month periods ended June 30, 1998 and 1997.

Operating Expenses

     Sales and Marketing. Sales and marketing expenses consist primarily of 
employee salaries, benefits, commissions, and associated overhead costs, and 
the cost of marketing programs such as direct mailings, public relations, 
trade shows, seminars, and related communication costs. Sales and marketing 
expenses were $3.3 million and $1.6 million for the three months ended June 
30, 1998 and 1997, respectively, or 44% and 36% of total revenues for each 
respective period. The increase in dollar amount was primarily due to the 
Company's effort to expand its direct telesales force and marketing 
organization, higher sales commissions associated with increased revenues and 
planned increases in marketing program activities. The Company expects sales 
and marketing expenses will continue to increase in absolute terms as the 
Company continues to expand its direct telesales and indirect sales and 
marketing capacities both domestically and internationally.

     Research and Development. Research and development expenses include 
expenses associated with the development of new products, enhancements of 
existing products and quality assurance activities, and consist primarily of 
employee salaries,

                                       12
<PAGE>


benefits, and associated overhead costs as well as consulting expenses and 
the cost of software development tools. Research and development expenses 
were $1.3 million and $790,000 for the three months ended June 30, 1998 and 
1997, respectively, or 17% of total revenues for each respective period. The 
increase in dollar amount was primarily attributable to the employment of 
additional staff to develop and enhance the Company's products and provide 
quality assurance. The Company expects research and development expenses will 
continue to increase in absolute terms.

     General and Administrative. General and administrative expenses consist 
primarily of employee salaries and benefits for administrative, executive and 
financial personnel and associated overhead costs, as well as consulting, 
accounting, and legal expenses. General and administrative expenses were 
$918,000 and $388,000 for the three months ended June 30, 1998 and 1997, 
respectively, or 12% and 9% of total revenues for each respective period. The 
increase in dollar amount was primarily attributable to an increase in 
personnel and the overhead costs allocated to support such personnel as well 
as additional administrative expenses incurred as a result of recent 
acquisitions and operating multiple locations worldwide. General and 
administrative expenses as a percentage of total revenues increased due to 
the addition of personnel required to adequately support the expansion of the 
Company's operations. The Company expects general and administrative expenses 
will continue to increase in absolute terms.

     Interest Income, Net. Interest income, net consists primarily of 
interest earned on cash, cash equivalents, and short-term investments, offset 
by interest expense associated with equipment financing and borrowings. 
Interest income, net represented income of $182,000 in the three months ended 
June 30, 1998, due primarily to interest income earned on excess cash from 
the proceeds of the Company's initial public offering completed in August 
1997.

     Provision for Income Taxes. Provision for income taxes was approximately 
$104,000 and $235,000 for the three months ended June 30, 1998 and 1997, 
respectively, resulting in effective tax rates of approximately 39% and 35% 
in the three months ended June 30, 1998 and 1997, respectively. Income taxes 
in 1998 have been provided at the Company's respective federal and state 
statutory rates, reduced primarily for income tax credits and the tax effect 
of certain tax-exempt interest income.

Six months Ended June 30, 1998 and 1997

Revenues

     Total Revenues. The Company's total revenues were $15.7 million and $8.3 
million for the six months ended June 30, 1998 and 1997, respectively, 
representing an increase of 90%.

     Software License. Software license revenues were $9.3 million for the 
six months ended June 30, 1998 and $5.5 million for the six months ended June 
30, 1997, or 59% and 66% of total revenues for each respective period, 
representing an increase of 70%. The increase in dollar amount was primarily 
due to increased market acceptance of the Company's products for various 
operating systems.

     Hardware. Hardware revenues were $3.5 million for the six months ended 
June 30, 1998 and $1.7 million for the six months ended June 30, 1997, or 22% 
and 21% of total revenues for each respective period, representing an 
increase of 100%. The increase in hardware revenues was due primarily to the 
increase of hardware unit sales accompanying the Company's products and a 
change in the sales mix of third-party hardware products from less expensive 
modem products to high-end multi-channel modem boards.

     Service and Other. Service and other revenues were $2.9 million for the 
six months ended June 30, 1998 and $1.0 million for the six months ended June 
30, 1997, or 18% and 13% of total revenues for each respective period, 
representing an increase of 177%. The increase in dollar amount was due 
primarily to the increase in maintenance revenues as a result of a larger 
installed customer base.

                                       13
<PAGE>


Cost of Revenues

     Software License. Cost of software license revenues was $766,000 and 
$218,000 for the six months ended June 30, 1998 and 1997, respectively, 
representing 8% and 4% of software license revenues for each respective 
period. The increase in dollar amount was primarily due to the higher volume 
of products shipped during the six months ended June 30, 1998 compared to the 
same period in 1997. Software license gross margin percentages decreased to 
92% for the six months ended June 30, 1998 from 96% for the same period in 
1997 due to increased license fees and royalties paid to third-party software 
providers.

     Hardware. Cost of hardware revenues was $2.0 million and $1.2 million 
for the six months ended June 30, 1998 and 1997, respectively, representing 
57% and 69% of hardware revenues for each respective period. The increase in 
dollar amount for the cost of hardware revenues for the six months ended June 
30, 1998 was due primarily to increased unit sales of hardware products 
accompanying licenses of Fax Sr. and a change in the sales mix of third-party 
hardware products from less expensive modem products to high-end 
multi-channel modem boards. The gross margin percentage for hardware sales 
increased to 43% for the six months ended June 30, 1998 from 31% in the same 
period in 1997 due to the change in hardware sales mix and better pricing due 
to volume discounts provided by certain third-party hardware vendors.

     Service and Other. Cost of service and other revenue was $1.5 million 
and $501,000 for the six months ended June 30, 1998 and 1997, respectively, 
representing 52% and 48% of service and other revenues for each respective 
period. The increase in dollar amount of cost of service and other revenues 
during the period was due primarily to the hiring of incremental personnel to 
support growth in the customer base. The gross margin percentage for service 
and other revenues decreased to 48% from 52% for the six months ended June 
30, 1998 and 1997, respectively, due to the Company's investments in its 
infrastructure in anticipation of future expansion of operations.

Operating Expenses

     Sales and Marketing. Sales and marketing expenses were $5.9 million and 
$2.9 million for the six months ended June 30, 1998 and 1997, respectively, 
or 38% and 36% of total revenues for each respective period. The increase in 
dollar amount was primarily due to the Company's effort to expand its direct 
telesales force and marketing organization, higher sales commissions 
associated with increased revenues and increased marketing program 
activities. The Company expects sales and marketing expenses will continue to 
increase in absolute terms.

     Research and Development. Research and development expenses were $2.5 
million and $1.6 million for the six months ended June 30, 1998 and 1997, 
respectively, or 16% and 19% of total revenues for each respective period. 
The increase in dollar amount was primarily attributable to the employment of 
additional staff to develop and enhance the Company's products and provide 
quality assurance. Research and development expenses decreased as a 
percentage of total revenues as the Company continued to realize operating 
leverage from its established infrastructure. The Company expects research 
and development expenses will continue to increase in absolute terms.

     General and Administrative. General and administrative expenses were 
$1.8 million and $778,000 for the six months ended June 30, 1998 and 1997, 
respectively, or 11% and 9% of total revenues for each respective period. The 
increase in dollar amount was primarily attributable to an increase in 
personnel and the overhead costs allocated to support such personnel as well 
as additional administrative expenses incurred as a result of recent 
acquisitions. General and administrative expenses as a percentage of total 
revenues remained relatively consistent. The Company expects general and 
administrative expenses will continue to increase in absolute terms.

     Acquisition Costs. In connection with the acquisition of Desktop Paging 
Software, Inc. and TRS Technologies, Inc., the Company expensed $183,000 of 
accounting, legal, and other associated costs. See Note 4 of Notes to 
Consolidated Financial Statements.

     Interest Income, Net. Interest income, net represented income of 
$371,000 in the six months ended June 30, 1998, due primarily to interest 
income earned on excess cash from the proceeds of the Company's initial 
public offering completed in August 1997.

                                       14
<PAGE>


     Provision for Income Taxes. Provision for income taxes was $402,000 and 
$405,000 for the six months ended June 30, 1998 and 1997, respectively, 
resulting in effective tax rates of approximately 28% and 37% in the six 
months ended June 30, 1998 and 1997, respectively. Income taxes in 1998 have 
been provided at the Company's respective federal and state statutory rates, 
reduced primarily for income tax credits and the tax effect of certain 
tax-exempt interest income. The effective income tax rate in 1998 is lower 
than 1997 due primarily to additional tax-exempt interest earned and the 
change in federal tax laws extending the research and development credit 
through June 30, 1998.

Liquidity and Capital Resources

     The Company has financed its operations primarily through cash flow from 
operations, the private sales of preferred stock, and the Company's initial 
public offering of Common Stock completed in August 1997. At June 30, 1998, 
the Company had cash and cash equivalents of $2.5 million, short-term 
investments of $19.1 million, and working capital of $23.7 million.

     The Company's operating activities provided cash of $569,000 in the six 
months ended June 30, 1998 and used cash of $350,000 in the six months ended 
June 30, 1997. Net cash provided during the six months ended June 30, 1998 
consisted primarily of net income from operations, depreciation and 
amortization, and increases in deferred revenue and accounts payable, offset 
by increased accounts receivable and income taxes payable. Net cash used 
during the six months ended June 30, 1997, consisted primarily of an increase 
in accounts receivable and a decrease in long-term liabilities, offset by net 
income from operations and an increase in accrued liabilities.

     Investing activities used cash of $121,000 and $847,000 during the six 
months ended June 30, 1998 and 1997, respectively. During the six months 
ended June 30, 1998, the principal uses were purchases of short-term 
investments, purchases of property and equipment, and an increase of other 
assets, offset by the proceeds from the sale of short-term investments and 
cash acquired in the connection with the acquisitions of DPSI and TRS. During 
the six months ended June 30, 1997, the principal uses were purchases of 
property and equipment and purchases of short-term investments offset by the 
proceeds from the sale of short-term investments. The Company expects that 
the rate of purchases of property and equipment will increase as the Company 
expands its operations.

     Financing activities used cash of $146,000 for the six months ended 
June 30, 1998 due primarily to the payment of long-term debt. Financing 
activities used cash of $35,000 for the six months ended June 30, 1997.

     As of June 30,1998 the Company did not have any material commitments for
capital expenditures.

     Subject to the factors discussed below, the Company believes that the 
existing cash balances, short-term investments and cash generated from 
operations will be sufficient to finance the Company's operations for the 
next twelve months. Although operating activities may provide cash in certain 
periods, to the extent the Company grows in the future, its operating and 
investing activities may use cash. There can be no assurance that any 
necessary additional financing will be available to the Company on 
commercially reasonable terms, or at all.

                                       15
<PAGE>


Certain Factors That May Affect Future Results

     Information provided by the Company from time to time including 
statements in this Form 10-Q which are not historical facts are so-called 
"forward-looking statements" that involve risks and uncertainties, made 
pursuant to the safe harbor provisions of the Private Securities Litigation 
Reform Act of 1995. In particular, statements contained in Management's 
Discussion and Analysis of Financial Condition and Results of Operations 
which are not historical facts (including, but not limited to, statements 
concerning the plans and objectives of management; increases in sales and 
marketing, research and development and general and administrative expenses; 
developments relating to the Company's product and service offerings, markets 
and acquisitions; anticipated trends in the Company's business; and the 
Company's expected liquidity and capital resources) may constitute 
forward-looking statements. The Company's actual future results may differ 
significantly from those stated in any forward-looking statements. Factors 
that may cause such differences include, but are not limited to, the factors 
discussed below, and the other risks discussed in the Company's Annual Report 
on Form 10-K for the fiscal year ended December 31, 1997 and from time to 
time in the Company's other filings with the Securities and Exchange 
Commission.

     The Company's future results are subject to substantial risks and 
uncertainties. Although the Company has experienced significant percentage 
growth in revenue and net income in recent years, the Company does not 
believe that prior growth rates are sustainable or indicative of future 
operating results. In particular, the Company experienced decreases in both 
total revenues and net income from the first quarter of 1998 to the second 
quarter of 1998. There can be no assurance that the Company will increase its 
level of revenues or remain profitable on a quarterly basis or annual basis. 
In addition, the Company's limited operating history makes the prediction of 
future operating results difficult or impossible. The Company has derived 
substantially all of its historical revenues from licenses of Fax Sr. NT and 
related services and resale of related hardware. Broad market acceptance of 
Fax Sr. NT, and the Windows NT operating system in general, is critical to 
the Company's future success. As a result, any decline in demand for or 
failure to achieve broad market acceptance of Fax Sr. NT as a result of 
competition, technological change or otherwise, would have a material adverse 
effect on the Company's business, financial condition and results of 
operations. The Company's future financial performance will depend in large 
part on the successful development, introduction and customer acceptance of 
new and enhanced versions of Fax Sr. NT. There can be no assurance that the 
Company will continue to be successful in marketing Fax Sr. NT or any new or 
enhanced versions of Fax Sr. NT.

     The enterprise, client/server facsimile solution market is intensely 
competitive and rapidly changing and the Company expects competition to 
continue to increase. Many of the Company's competitors have longer operating 
histories and greater financial, technical, sales, marketing and other 
resources, as well as greater name recognition and market acceptance of their 
products and technologies than the Company. In addition, there are relatively 
low barriers to entry in the markets in which the Company operates, and new 
competition may arise either from expansion by established companies or from 
new emerging companies or from resellers of the Company's products. There can 
be no assurance that current or potential competitors of the Company will not 
develop products comparable or superior in terms of price and performance 
features to those developed by the Company, adapt more quickly than the 
Company to new or emerging technologies and changes in market opportunities 
or customer requirements, establish alliances with industry leaders, or take 
advantage of acquisition opportunities more readily than the Company. 
Increased competition will result in decreased market share, pressure for 
price reductions and related reductions in gross margins, any of which could 
materially adversely affect the Company's ability to achieve its financial 
and business goals.

     The Company's future earnings and stock price may be subject to 
significant volatility, particularly on a quarterly basis. The Company's 
quarterly revenues and results of operations have fluctuated significantly in 
the past and will likely fluctuate significantly in the future. Causes of 
such fluctuations have included and may include, among others, the demand for 
the Company's products and services, the size and timing of orders, the 
number, timing and significance of new product announcements by the Company 
and its competitors, the ability of the Company to develop, introduce, market 
and ship new and enhanced versions of the Company's products on a timely 
basis, the level of product and price competition, changes in operating 
expenses, changes in average selling prices and mix of the Company's 
products, changes in the Company's sales incentive strategy, the mix of 
direct and indirect sales, and general economic factors. The Company's 
products often have a lengthy sales cycle, especially in the case of large 
orders. If one or more large orders fails to close as forecasted by the 
Company in a fiscal quarter, the Company's revenues and operating results for 
such quarter could be materially adversely

                                       16
<PAGE>


affected. Any one or more of these or other factors could have a material 
adverse effect on the Company's business, financial condition and results of 
operations. For example, the Company has identified a decrease in demand for 
the Company's products and services in certain international markets, as well 
as delays in closing certain anticipated customer orders as contributing to a 
decline in software license and total revenues from the first quarter of 1998 
to the second quarter of 1998. In addition, this decline in revenues, when 
coupled with the Company's planned increases in its investment in sales and 
marketing during the second quarter of 1998, resulted in a significant 
reduction in net income for the second quarter of 1998 compared to both the 
corresponding period of 1997 and the preceding period of 1998. Any shortfall 
in revenue or earnings from levels anticipated by securities analysts has had 
and could have an immediate and material adverse effect on the trading price 
of the Company's common stock. The Company typically receives and fulfills a 
majority of its orders within any given quarter, with a substantial portion 
occurring in the last weeks or days of the fiscal quarter. As a result, the 
Company may not learn of revenue shortfalls until late in a fiscal quarter, 
which could result in an even more immediate and adverse effect on the 
trading price of the Company's common stock.

     In addition, the Company identifies the following risk factors which 
could affect the Company's actual results and could cause actual results to 
differ materially from forward-looking statements. The Company's future 
results remain difficult to predict and may be affected by a number of 
factors, including: the Company's dependence on the continued acceptance and 
growth of the Windows NT environment and of the client/server environment; 
the ability of the Company to manage growth; the ability of the Company to 
enhance existing products and introduce new products in a timely manner and 
market acceptance of these products; the expansion of indirect sales channels 
and the potential for channel conflict; risks associated with acquisitions; 
risks associated with international expansion; risks associated with the 
development and maintenance of strategic relationships; the Company's 
dependence on revenues from resale of third-party hardware products; the 
risks associated with new product offerings and the potential for undetected 
errors; the Company's dependence on proprietary technology and the risk of 
third-party claims for infringement of intellectual property rights; and the 
Company's dependence on third-party licensed technology; the Company's 
dependence on key personnel.

Year 2000

     The Year 2000 issue exists because many computer systems and 
applications currently use two-digit date fields to designate a year. As the 
century date change occurs, many date sensitive systems will recognize the 
year 2000 as 1900, or not at all. This inability to recognize or properly 
treat the Year 2000 may cause systems to process critical financial and 
operational information incorrectly. The Company utilizes software and 
related technologies throughout its business that will be affected by the 
date change in the Year 2000. An internal study is currently underway to 
determine the full scope and related costs to insure that the Company's 
systems continue to meet its internal needs and those of its customers. The 
company began incurring expenses in 1997 to resolve this issue. All 
expenditures will be expensed as incurred and they are not expected to have a 
significant impact on the Company's ongoing results of operations.

                                       17
<PAGE>



PART II    OTHER INFORMATION

Item 4.    Submission of Matters to a Vote of Security Holders

     The annual meeting of security-holders of the Company was held on May 
22, 1998. The following nominees were re-elected as Class I directors to 
serve for a three year term or until their successors are elected and 
qualified.

<TABLE>
<CAPTION>
                            Total Votes for       Total Votes Withheld
         Nominee                Nominee                for Nominee
         -------                -------                -----------
<S>                            <C>                        <C>  
Richard D. Cramer              10,770,056                 2,160
Anthony J. Mark                10,770,056                 2,160
</TABLE>

     The term of office for the following directors continued after the 
meeting: Robert L. Voelk (Class III), Martin A. Schultz (Class III), Bruce R. 
Evans (Class II) and William C. Stylinger, III (Class II).

     The election of Arthur Andersen LLP as independent auditors for the 
fiscal year ending December 31, 1998 was ratified, with 10,752,106 shares 
voting in favor, 3,380 shares voting against, and 16,730 abstaining.

Item 5.    Other Information

     The Company's By-Laws establish an advance notice procedure with regard 
to certain matters, including stockholder proposals not included in the 
Company's proxy statement to be brought before an annual meeting of 
stockholders. In general for matters to be addressed at the Company's 1999 
annual meeting of stockholders, notice must be validly given to the Company 
after November 24, 1998 and before December 24, 1998 and must contain 
specified information concerning the matters to be brought before such 
meeting and concerning the stockholder proposing such matters.

     All notices of proposals by stockholders should be sent Certified Mail - 
Return Receipt Requested to the attention of: Darioush Mardan, Secretary, 
Omtool, Ltd., 8 Industrial Way, Salem, New Hampshire 03079.

Item 6.    Exhibits and Reports on Form 8-K

           (a)   Exhibits

<TABLE>
<CAPTION>
                Number         Exhibit Description
                ------         -------------------
<S>             <C>            <C>                    
                27             Financial Data Schedule
</TABLE>

           (b)  Reports on Form 8-K

                None


                                       18
<PAGE>







                                  OMTOOL, LTD.


                                   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.

                            OMTOOL, LTD.


August 13, 1998             By: /s/ Darioush Mardan
                                -------------------
                                Darioush Mardan
                                Chief Financial Officer, Secretary and Treasurer


                                       19