<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 March 31, 2001

                                       OR

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

               For the transition period from _________ to _______

                         Commission File Number 0-22871

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

           DELAWARE                                           02-0447481
(State or Other Jurisdiction of                            (I.R.S. Employer
Incorporation or Organization)                           Identification Number)

      8A INDUSTRIAL WAY, SALEM, NH                                     03079
(Address of Principal Executive Offices)                             (Zip Code)

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

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 12,751,263 shares of the Company's Common Stock, par value $0.01,
outstanding on May 11, 2001.

===============================================================================

<PAGE>

                          OMTOOL, LTD. AND SUBSIDIARIES

                                    FORM 10-Q
                      For the Quarter Ended March 31, 2001
                                    CONTENTS

<TABLE>
<CAPTION>
 ITEM NUMBER                                                                               PAGE
 <S>                                                                                       <C>
 PART I: FINANCIAL INFORMATION

 Item 1.  Consolidated Financial Statements
           Consolidated Balance Sheets as of March 31, 2001 (Unaudited) and December
              31, 2000                                                                       3
           Consolidated Statements of Operations for the three months ended March 31,
              2001 and 2000 (Unaudited)                                                      4
           Consolidated Statements of Cash Flows for the three months ended
               March 31, 2001 and 2000 (Unaudited)                                           5
           Notes to Consolidated Financial Statements                                        6

 Item 2.  Management's Discussion and Analysis of Financial Condition and
          Results of Operations                                                              9

 Item 3.  Quantitative and Qualitative Disclosures About Market Risk                        18

 PART II: OTHER INFORMATION

 Item 6.  Exhibits and Reports on Form 8-K                                                  19

 Signatures                                                                                 20
</TABLE>

                                       2
<PAGE>

                          OMTOOL, LTD. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               MARCH 31,            DECEMBER 31,
                                                                                 2001                   2000
                                                                           ------------------     ------------------
                                                                              (Unaudited)
<S>                                                                          <C>                    <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                 $  17,489,325          $  14,599,350
   Short-term investments                                                                -              3,283,708
   Accounts receivable, less reserves of $800,000 and $980,000 in 2001
     and 2000, respectively                                                      1,333,377              1,563,373
   Prepaid expenses and other current assets                                       486,156                506,187
   Deferred tax asset                                                            1,258,978              1,258,978
                                                                           ---------------        ---------------
         Total current assets                                                   20,567,836             21,211,596

Property and equipment, net                                                      1,112,186              1,236,745

Other assets, net                                                                   13,962                 14,425
                                                                           ---------------        ---------------
         Total assets                                                        $  21,693,984           $ 22,462,766
                                                                           ===============        ===============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                           $    522,118           $    633,413
   Accrued liabilities                                                           3,729,255              3,972,231
   Deferred revenue                                                              3,249,347              2,966,716
                                                                           ---------------        ---------------
         Total current liabilities                                               7,500,720              7,572,360
                                                                           ---------------        ---------------
Contingencies (Note 5)

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--
     13,009,372 shares                                                             130,093                130,093
   Additional paid-in capital                                                   32,051,948             32,074,193
   Accumulated deficit                                                         (17,160,502)           (16,443,798)
   Treasury Stock (258,109 shares and 272,144 shares at cost                      (738,496)              (778,636)
     respectively)
   Cumulative translation adjustment                                               (89,779)               (91,446)
                                                                           ---------------        ---------------
         Total stockholders' equity                                             14,193,264             14,890,406
                                                                           ---------------        ---------------
         Total liabilities and stockholders' equity                          $  21,693,984           $ 22,462,766
                                                                           ===============        ===============
</TABLE>

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

                                       3

<PAGE>

                          OMTOOL, LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                                                          MARCH 31,
                                                              ----------------------------------
                                                                    2001             2000
                                                                    ----             ----
<S>                                                           <C>               <C>
Revenues:
   Software license                                           $     1,340,548   $     1,768,752
   Hardware                                                           835,986           952,611
   Service and other                                                1,737,902         1,806,050
                                                              ---------------   ---------------
         Total revenues                                             3,914,436         4,527,413
                                                              ---------------   ---------------
Cost of revenues:
   Software license                                                   139,292           114,742
   Hardware                                                           555,059           760,376
   Service and other                                                1,158,418         1,100,588
                                                              ---------------   ---------------
         Total cost of revenues                                     1,852,769         1,975,706
                                                              ---------------   ---------------
         Gross profit                                               2,061,667         2,551,707
                                                              ---------------   ---------------
Operating expenses:
   Sales and marketing                                              1,406,853         2,112,206
   Research and development                                           857,440         1,154,408
   General and administrative                                         765,642         1,216,592
                                                              ---------------   ---------------
         Total operating expenses                                   3,029,935         4,483,206
                                                              ---------------   ---------------
         Loss from operations                                        (968,268)       (1,931,499)

Interest income                                                       251,564           246,345
                                                              ---------------   ---------------
         Net loss                                             $      (716,704)  $    (1,685,154)
                                                              ===============   ===============
Net loss per share
         Basic and Diluted                                    $         (0.06)  $         (0.13)
                                                              ===============   ===============
Weighted average number of common shares outstanding
         Basic and Diluted                                         12,750,015        12,635,999
                                                              ===============   ===============
</TABLE>

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

                                       4
<PAGE>

                          OMTOOL, LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                     THREE MONTHS ENDED
                                                                                          MARCH 31,
                                                                                -----------------------------
                                                                                    2001            2000
                                                                                    ----            ----
<S>                                                                               <C>            <C>
Cash Flows from Operating Activities:
   Net loss                                                                       $ (716,704)    $(1,685,154)
   Adjustments to reconcile net loss to net cash used in
   operating activities-
     Depreciation and amortization                                                   176,619         324,487
     Changes in assets and liabilities-
       Accounts receivable                                                           206,252         811,108
       Prepaid expenses and other current assets                                     (29,968)       (112,625)
       Accounts payable                                                             (101,762)        216,180
       Accrued liabilities                                                          (182,598)       (749,727)
       Deferred revenue                                                              305,222        (346,460)
                                                                                ------------   -------------
              Net cash used in operating activities                                 (342,940)     (1,542,191)
                                                                                ------------   -------------
Cash Flows from Investing Activities:
   Purchases of property and equipment                                               (57,038)       (221,225)
   Purchases of short-term investments                                           (27,719,490)    (51,852,626)
   Proceeds from sale of short-term investments                                   31,000,000      52,538,206
   Decrease in other assets                                                              463          72,433
                                                                                ------------   -------------
              Net cash provided by investing activities                            3,223,936         536,788
                                                                                ------------   -------------
Cash Flows from Financing Activities:
   Net proceeds from issuance of common stock                                         17,895         236,914
                                                                                ------------   -------------
Foreign exchange effect on cash                                                       (8,916)        (10,426)
                                                                                ------------   -------------
Net increase (decrease) in cash and cash equivalents                               2,889,975        (778,915)
Cash and cash equivalents, beginning of period                                    14,599,350       1,576,283
                                                                                ------------   -------------
Cash and cash equivalents, end of period                                         $17,489,325   $     797,368
                                                                                ============   =============
</TABLE>

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

                                       5
<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, 2000. 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 three month period ended March 31,
2001 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 December 31, 2000, the Company had $3,283,708 invested in securities
consisting of commercial paper. 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 December 31,
2000.

      (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.

      (d) NET LOSS PER COMMON SHARE

         The Company reports earnings per share in accordance with SFAS No. 128.
Diluted weighted average shares outstanding of 12,750,015 and 12,635,999 for the
three months ended March 31, 2001 and 2000, respectively, exclude the potential
common shares related to 1,989,388 and 2,069,908 outstanding stock options as of
March 31, 2001 and 2000, respectively, because to include them would have been
antidilutive for the period presented.

                                       6
<PAGE>

(3)      COMPREHENSIVE INCOME (LOSS)

      The components of the Company's comprehensive loss are as follows:

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED
                                                 MARCH 31,
                                         --------------------------
                                           2001            2000
                                       ------------    ------------
       <S>                             <C>             <C>
       Net loss                        $   (716,704)   $(1,685,154)
       Foreign currency translation
         adjustments                          1,667         (5,280)
                                       ------------    -----------
       Comprehensive  loss             $   (715,037)   $(1,690,434)
                                       ============    ===========
</TABLE>

(4)      SEGMENT AND GEOGRAPHIC INFORMATION

      To date, the Company has viewed its operations and manages its business as
principally one segment, software sales and associated services. As a result,
the financial information disclosed herein, represents all of the material
financial information related to the Company's principal operating segment in
accordance with SFAS No. 131.

    Total revenues from international sources were approximately $597,000 and
$1.2 million for the three months ended March 31, 2001 and 2000, respectively.
The Company's revenues from international sources were primarily generated from
customers located in Europe. The following table represents amounts relating to
geographic locations:

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED
                                                   MARCH 31,
                                          --------------------------
     Total revenues (1)                      2001           2000
                                          -----------     ----------
     <S>                                   <C>            <C>
     United States                         $ 3,317,357    $ 3,282,871
     United Kingdom                            209,860        666,367
     Other North America                       265,610        212,107
     Other Europe                               59,354        305,458
     Latin America / Pacific Rim                17,024         10,987
     Middle East / Far East                     36,496         41,175
     Australia                                   8,735          8,448
                                           -----------    -----------
                                           $ 3,914,436    $ 4,527,413
                                           ===========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                           MARCH 31,     DECEMBER 31,
     Long-lived assets (2)                   2001           2000
                                           -----------  -------------
     <S>                                   <C>            <C>
     North America                         $ 1,038,090    $ 1,154,219
     Europe                                     88,058         96,951
                                           -----------  -------------
                                           $ 1,126,148     $1,251,170
                                           ===========  =============
</TABLE>

(1) Revenues are attributed to geographic regions based on location of customer.

(2) Long-lived assets include all long-term assets except those specifically
excluded under SFAS No. 131 such as deferred income taxes and financial
instruments.

                                       7
<PAGE>

(5)      LITIGATION

       On October 5, 1999, a purported securities class action complaint was
filed against the Company and certain officers and directors of the Company. As
of March 31, 2001, the Company reached an agreement-in-principle to settle the
lawsuit. The terms of the proposed $6 million settlement include a contribution
by the Company's directors' and officers' liability insurance carriers of $4.3
million, and a contribution by the Company of $1.7 million. The settlement is
subject to negotiation and execution of a definitive settlement agreement, and
final approval by the federal district court in New Hampshire (the "Court").
There can be no assurances, however, that the settlement will be consummated or
approved by the Court. The Company continues to believe that the lawsuit is
without merit, and, in the event the settlement is not consummated or approved,
the Company intends to continue defending the lawsuit vigorously. The Company
accrued for its portion of the settlement as of December 31, 2000.

                                       8
<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 April 2, 2001.

OVERVIEW

         Omtool, Ltd. ("Omtool" or the "Company") designs, develops, markets and
supports open, client/server software solutions that enable secure
business-to-business electronic document exchange. The Company was incorporated
in March 1991 and shipped its initial facsimile software products in 1991.
Omtool's Genidocs product family enables users throughout an enterprise to
deliver confidential and secure e-mail over the Internet. Omtool's Fax Sr.,
LegalFax and Genifax product families provide users with an extensive, flexible
feature set for transmitting and receiving faxes, and improve an organization's
management of its fax communications process by providing a suite of utility and
control functions. A significant portion of the Company's revenues is derived
from licensing the rights to use its Fax Sr. software product directly to
end-users and indirectly through resellers.

         Revenues from software licenses are recognized upon shipment of the
software if there are no significant post-delivery obligations and collection of
the resulting receivable is deemed probable. Payments received in advance for
services or products are initially recorded as deferred revenue. The Company
reserves for potential product returns and allowances at the time of shipment.
Historically, the Company has adequately reserved for such potential returns and
allowances.

         The Company has historically derived substantially all of its total
revenues from sales within North America. Sales outside of North America
(primarily in Europe) represented approximately 8% and 23% of the Company's
total revenues for the three months ended March 31, 2001 and 2000, respectively.

         The Company's United Kingdom subsidiary transacts business primarily in
its local currency. The Company manages its foreign exchange exposure by
monitoring its net monetary position using natural hedges of its assets and
liabilities denominated in local currencies. There can be no assurance that this
policy will eliminate all currency exposure. Foreign currency exposure has not
been material to the Company's financial position or results of operations to
date. If the Company's business denominated in foreign currencies increases, the
Company may be required to use derivatives to hedge foreign currency exposure.

         Historically, the Company has marketed and sold its products
principally through its direct telesales force. However, the Company continues
to actively recruit VARs, systems integrators, resellers and distributors to
expand its indirect distribution channel. The Company intends to pursue sales
opportunities via its solution/reseller channel as well as focusing sales
efforts on specific market segments in order to facilitate product acceptance.
Sales through the Company's indirect distribution channels represent
approximately 43% and 61% of the Company's total revenues for the three months
ended March 31, 2001 and 2000, respectively.

                                       9
<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
                                                March 31,
                                        ---------------------------
                                          2001          2000
                                          ----          ----
<S>                                        <C>          <C>
Revenues:
   Software license                           34.2%        39.1%
   Hardware                                   21.4         21.0
   Service and other                          44.4         39.9
                                            ------       ------
      Total revenues                         100.0        100.0
                                            ------       ------
Cost of revenues:
   Software license                            3.6          2.5
   Hardware                                   14.2         16.8
   Service and other                          29.6         24.3
                                            ------       ------
      Total cost of revenues                  47.4         43.6
                                            ------       ------
Gross profit                                  52.6         56.4
                                            ------       ------
Operating expenses:
   Sales and marketing                        35.9         46.6
   Research and development                   21.9         25.5
   General and administrative                 19.6         26.9
                                            ------       ------
      Total operating expenses                77.4         99.0
                                            ------       ------
Loss from operations                         (24.8)       (42.6)
Interest income                                6.4          5.4
                                            ------       ------
Net loss                                     (18.4)%      (37.2)%
                                            ======       ======
Gross profit:
   Software license                           89.6%        93.5%
   Hardware                                   33.6         20.2
   Service and other                          33.3         39.1
</TABLE>

THREE MONTHS ENDED MARCH 31, 2001 AND 2000

REVENUES

TOTAL REVENUES. The Company's revenues are currently derived from licensing fees
of the Company's software products and from related sales of hardware and
services. The Company's total revenues were $3.9 million and $4.5 million for
the three months ended March 31, 2001 and 2000, respectively, representing a
decrease of 14%.

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 $1.3 million for the three months ended March 31, 2001 and $1.8 million for
the three months ended March 31, 2000, representing a decrease of 24%. Software
license revenues accounted for 34% and 39% of total revenues for each respective
period. The decline in software license revenue can be attributed to a softness
in demand for enterprise fax solutions along with longer customer purchasing
cycles typical of Fortune 500 customers. The decrease in software license
revenue as a percentage of total revenues is primarily attributable to the
decrease in software revenues. The Company did not recognize a significant
amount of revenue from its Genidocs or Genifax products.

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 $836,000 for the three months
ended

                                       10
<PAGE>

March 31, 2001 and $953,000 for the three months ended March 31, 2000,
representing a decrease of 12%. Hardware revenues accounted for 21% of total
revenues for each respective period. The decrease in hardware revenues was due
primarily to the decrease in the number of software sales made in the first
quarter of 2001 resulting in a decrease in accompanying hardware sales.

SERVICE AND OTHER. Service and other revenues are primarily comprised of fees
from maintenance contracts. Service and other revenues were $1.7 million for the
three months ended March 31, 2001 and $1.8 million for the three months ended
March 31, 2000, representing a decrease of 4%. Service and other revenues
accounted for 44% and 40% of total revenues for each respective period. The
decrease in service and other revenues is due to the decrease in software
license revenues and the resulting decrease in new service revenues that
generally accompany new software license sales. This decrease is offset by an
increase in support renewals from the Company's growing installed customer base.
This results in an increase in support renewals as a percent of total revenues.

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 $139,000 and $115,000 for the
three months ended March 31, 2001 and 2000, respectively, representing 10% and
6% of software license revenues for each respective period. Software license
gross margin percentages decreased to 90% for the three months ended March 31,
2001 from 94% for the three months ended March 31, 2000. The decrease in gross
margin is due to increased product duplication costs.

HARDWARE. Cost of hardware revenues consists primarily of the costs of
third-party hardware products. Cost of hardware revenues was $555,000 and
$760,000 for the three months ended March 31, 2001 and 2000, respectively,
representing 66% and 80% of hardware revenues for each respective period. The
decrease in dollar amount for the cost of hardware revenues was due primarily to
the decrease of hardware unit sales accompanying the Company's products and a
decrease in hardware sales. The gross margin percentage for hardware sales
increased to 34% for the three months ended March 31, 2001 from 20% in the same
period in 2000. The gross margin increase is due mainly to the write-off of
obsolete third-party hardware that occurred in 2000 but not in 2001.

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 revenues was $1.2
million and $1.1 million for the three months ended March 31, 2001 and 2000,
respectively, representing 67% and 61% of service and other revenues for each
respective period. The gross margin percentage for service and other revenues
decreased to 33% for the three months ended March 31, 2001, compared to 39% in
the same period in 2000. The decrease in gross margin and the increase in the
dollar amount of cost of service and other revenues was due primarily to the
hiring of incremental personnel to support growth in the customer base.

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 advertisements, direct mailings, public relations,
trade shows, seminars, and related communication costs. Sales and marketing
expenses were $1.4 million and $2.1 million for the three months ended March 31,
2001 and 2000, respectively, or 36% and 47% of total revenues for each
respective period. The decrease in dollar amount and as a percent of total
revenues was due to a decrease in commissions paid as a result of lower sales
levels as well as fewer marketing expenditures in 2001. The Company expects
sales and marketing expenses are likely to increase in absolute terms due to new
product introductions.

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, benefits, and associated overhead costs as well as consulting expenses
and the cost of software development tools. Research and development expenses
were $857,000 for the three months ended March 31, 2001 and $1.2 million for the
three months ended March 31, 2000, representing 22% and 26% of total revenues
for each respective period. The decrease in the expense and in the expense as a
percent of revenue was due to a fewer number of employees in the research and
development department.

                                       11
<PAGE>

The Company expects research and development expenses will increase in both
absolute terms and as a percentage or revenues with the enhancement of the new
electronic document exchange products and as other new products are developed.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of employee salaries and benefits for administrative, executive and
finance personnel and associated overhead costs, as well as consulting,
accounting and legal expenses. General and administrative expenses were $766,000
and $1.2 million for the three months ended March 31, 2001 and 2000,
respectively, or 20% and 27% of total revenues for each respective period. The
decrease in dollar amount and as a percent of total revenues is due to the fewer
numbers of executive level personnel and the overhead costs associated with
supporting such personnel. The Company expects general and administrative
expenses are likely to remain consistent in absolute terms.

INTEREST INCOME. Interest income consists principally of interest income earned
on excess cash. Interest income was $252,000 for the three months ended March
31, 2001 and $246,000 for the three months ended March 31, 2000, due primarily
to interest income earned on excess cash. The moderate increase is due to
changes in principal balances and interest rates.

LIQUIDITY AND CAPITAL RESOURCES

         Since 1996, 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
March 31, 2001, the Company had cash and cash equivalents of $17.5 million and
working capital of $13.0 million.

         The Company's operating activities used cash of $343,000 and $1.5
million for the three months ended March 31, 2001 and 2000, respectively. Net
cash used during the three months ended March 31, 2001 consisted primarily of a
net loss from operations and decreases in accounts payable and accrued
liabilities offset by a decrease to accounts receivable and an increase in
deferred revenue. Net cash provided during the three months ended March 31, 2000
resulted from a net loss from operations and decreases in accrued liabilities
and deferred revenue offset by depreciation and amortization and a decrease in
accounts receivable.

         Investing activities provided cash of $3.2 million and $537,000 during
the three months ended March 31, 2001 and 2000, respectively. During the three
months ended March 31, 2001 and 2000, the principal uses were purchases of
short-term investments and purchases of property and equipment, offset by
proceeds from the sale of short-term investments.

         Financing activities provided cash of $18,000 and $237,000 for the
three months ended March 31, 2001 and 2000, respectively, due primarily to the
net proceeds from the issuance of common stock.

         At March 31, 2001, 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.

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

         The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The discussion
highlights some of the risks which may affect future operating 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; expectations for sales and marketing, research and
development and general and administrative expenses; developments relating to
the Company's product and service offerings, markets and acquisitions;

                                       12
<PAGE>

anticipated trends in the Company's business; and the Company's expected
liquidity and capital resources) may constitute forward-looking statements.
These forward-looking statements are neither promises nor guarantees, but are
subject to risk and uncertainties that could cause actual results to differ
materially from the expectations set forth in the forward-looking statements.
Factors that may cause such differences include, but are not limited to, the
factors discussed below, and the other risks discussed from time to time in the
Company's other filings with the Securities and Exchange Commission.

PRODUCT CONCENTRATION. To date, much of the Company's revenues have been
attributable to licenses of the Company's facsimile based enterprise solutions
and related products and services. The Company expects such products and related
services to continue to account for much of the Company's future revenues.
However, recently the amount of revenues attributable to the licenses of such
products has declined and there can be no assurances that such decline will not
continue. Furthermore, in March 2000, the Company changed its strategic focus to
the development of secure business-to-business electronic document exchange
solutions. The Company introduced its secure business-to-business electronic
document exchange products, Genidocs and Genifax, to the market in the fourth
quarter of 2000. To date, the Company has not recognized a significant amount of
revenues from its Genidocs and Genifax products. The Company expects that
Genidocs may account for an increasing portion of future revenues. However,
there can be no assurances that Genidocs will be financially successful or
result in any significant revenues. Factors adversely affecting the pricing
of or demand for such products, such as competition or technological change,
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's prospects must be
considered in light of the risks and difficulties frequently encountered by
companies dependent upon operating revenues from a new product line in an
emerging and rapidly evolving market.

NEW PRODUCTS AND TECHNOLOGICAL CHANGE. The markets for the Company's products
are relatively new and are characterized by rapid technological change, evolving
industry standards, changes in end-user requirements and frequent new product
introductions and enhancements. The Company's future success will depend upon
its ability to enhance its current products and to develop and introduce new
products that keep pace with technological developments and respond to evolving
end-user requirements. There can be no assurance that the Company will be
successful in developing and marketing new products or product enhancements on a
timely basis, or that new products or product enhancements developed by the
Company, such as Genidocs and Genifax, will achieve market acceptance. The
introduction of products embodying new technologies and the emergence of new
industry standards could render the Company's existing products obsolete and
unmarketable. From time to time, the Company and its competitors may announce
new products, capabilities or technologies that have the potential to replace or
shorten the life cycle of the Company's existing product offerings. There can be
no assurance that announcements of new product offerings by the Company or its
competitors will not cause customers to defer or forego the licensing of the
Company's existing or planned products and have a material adverse effect on the
Company's business, financial condition and results of operations.

THE MARKET RISKS FOR SECURE BUSINESS-TO-BUSINESS ELECTRONIC DOCUMENT EXCHANGE
SOLUTIONS. The market for Genidocs, the Company's secure business-to-business
electronic document exchange solution is new and evolving rapidly. The Company's
success will depend upon the adoption and use by current and potential customers
of secure business-to-business electronic document exchange solutions. The
Company's success will also depend upon acceptance of its technology as the
standard for providing these solutions. The adoption and use of the Company's
secure business-to-business electronic document exchange solution will involve
changes in the manner in which businesses have traditionally exchanged
information. The Company's ability to influence usage of its secure
business-to-business electronic document exchange solution by customers is
limited. The Company intends to spend considerable resources educating potential
customers about the value of secure business-to-business electronic document
exchange solutions. It is difficult to assess, or to predict with any assurance,
the present and future size of the potential market for the Company's secure
business-to-business electronic document exchange solution, or its growth rate,
if any. Moreover, the Company cannot predict whether the Company's secure
business-to-business electronic document exchange solution will achieve any
market acceptance. Any future products or future product enhancements that are
not favorably received by customers may not be profitable and, furthermore,
could damage the Company's reputation or brand name.

DEPENDENCE ON FAX SR. NT AND THE WINDOWS NT ENVIRONMENT. The Company currently
derives a substantial portion of its revenues from licenses of Fax Sr. NT and
related services and resale of related hardware. Continued market acceptance of
Fax Sr. NT is critical to the Company's future success. As a result, any decline
in demand for or failure to maintain 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 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. In addition, there can be
no

                                       13
<PAGE>

assurance that the Windows NT operating system will not be replaced by a new or
enhanced operating system. There can be no assurance that the Company will be
successful in developing products for new or enhanced operating systems such as
Windows 2000, or that such systems will not obviate the need for the Company's
products. If any new or enhanced operating system gains widespread use and the
Company fails to develop and provide its products for this operating system on a
timely basis, the Company's business, financial condition and results of
operations would be materially adversely affected.

DEPENDENCE ON CLIENT/SERVER ENVIRONMENT. The Company's enterprise, client/server
facsimile software products are intended to help organizations efficiently
manage their facsimile communications, utilizing a client/server computing
environment. The client/server market is relatively new and there can be no
assurance that organizations will move away from the use of stand-alone fax
machines or continue to adopt client/server environments, or that customers of
the Company that have begun the migration to a client/server environment will
broadly implement this model of computing. The Company's future financial
performance will depend in large part on continued growth in the market for
client/server applications, which in turn will depend in part on the growth in
the number of organizations implementing client/server computing environments.
There can be no assurance that these markets will continue to grow or that the
Company will be able to respond effectively to the evolving requirements of
these markets. If the market for client/server application products and services
does not grow in the future, or grows more slowly than the Company anticipates,
or if the Company fails to respond effectively to evolving requirements of this
market, the Company's business, financial condition and results of operations
would be materially adversely affected.

FUTURE OPERATING RESULTS UNCERTAIN. The Company was incorporated in March
1991 and shipped its initial facsimile software products in 1991. The Company
does not believe that prior growth rates are sustainable or indicative of
future operating results. In the years ended December 31, 1999 and 2000 and
the quarter ended March 31, 2001, the Company had operating loses and
decreasing revenues. There can be no assurance that the Company will be able
to increase its level of revenues or return to profitability in the future,
as the Company's limited operating history makes the prediction of future
operating results difficult or impossible. Increases in operating expenses,
primarily sales and marketing, are expected to continue and, together with
pricing pressures, may result in a decrease in operating income and operating
margin percentage. The Company's ability to improve its operating results
will depend upon, among other things, its ability to increase sales of the
Company's secure business-to-business electronic document exchange solutions
and client/server facsimile solutions to new customers as well as increased
product penetration into existing customers. As the Company commenced its
strategic expansion into secure business-to-business electronic document
exchange solutions market in the fourth quarter of 2000, the Company has
limited financial and operating data and a limited operating history relevant
to these solutions. Accordingly, it is difficult to evaluate the prospects
for the level of acceptance of the Company's secure business-to-business
electronic document exchange solutions. In addition, the Company's future
operating results are subject to the risk that a definitive class action
shareholder settlement agreement may not be executed, or, if executed, may
not be approved by the federal district court in New Hampshire, and, in the
event of continued litigation, the possibility of outcomes adverse to the
Company. Future operating results will depend on many other factors,
including, without limitation, the degree and rate of growth of the markets
in which the Company competes, the level of acceptance of the Windows NT and
Windows 2000 operating systems, the level of product and price competition,
the ability of the Company to establish strategic relationships and develop
and market new and enhanced products and to control costs, the ability of the
Company to expand its direct telesales force and indirect distribution
channels both domestically and internationally, and the ability of the
Company to attract and retain key personnel. As a result, it is possible that
in the future the Company's operating results will be below the expectations
of public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected.

INTENSE COMPETITION. The secure business-to-business electronic document
exchange solution and enterprise, client/server facsimile solution markets are
intensely competitive and rapidly changing and the Company expects competition
to continue to increase. The Company believes its ability to compete
successfully depends upon a number of factors both within and beyond its
control, including product performance, reliability and features; product
adoption; ease of use; product scaleability; quality of support services;
price/performance; timeliness of enhancements and new product releases by the
Company and its competitors; the emergence of new computer-based facsimile and
secure business-to-business electronic document exchange solutions and
standards; name recognition; the establishment of strategic alliances with
industry leaders; and industry and general economic trends.

         The Company may not be able to compete successfully against current and
future competitors in the secure business-to-business electronic document
exchange solutions market, and the competitive pressures the Company faces could
harm its business

                                       14
<PAGE>

and prospects. The Company intends to provide an alternative to traditional mail
and courier document delivery services, such as those offered, among others, by
Federal Express, UPS or the U.S. Postal Service. The Company's solution is also
an alternative to general purpose e-mail applications and services. In the area
of secure online document exchange, the Company's competition comes from secure
online document exchange services providers. Some of these providers have
products that are intended to compete with the Company's products. Examples of
these companies include Pitney Bowes, Sigaba, Tumbleweed, UPS, the U.S. Postal
Service and Zixit. In addition, many companies with which the Company does not
presently compete may become competitors in the future. This could occur either
through the expansion of the Company's products or through other companies'
product development in the area of secure online communication. These companies
could include Documentum, Hummingbird and iManage. Additionally, companies such
as JetForm, PureEdge and Silanis may develop and deliver competitive digital
signature products in the future.

         The Company competes directly with a large number of vendors of
facsimile products, including providers of facsimile software products for
client/server networks such as RightFAX (a subsidiary of Applied Voice
Technology), Fenestrae, TopCall International and Biscom. The Company also
competes with vendors offering a range of alternative facsimile solutions
including outsourcing network facsimile solutions, such as Mail.com; operating
systems containing facsimile and document transmission features; low-end fax
modem products; desktop fax software; single-platform facsimile software
products; and customized proprietary software solutions. In addition, providers
of operating systems or business software applications may bundle competitive
facsimile solutions as part of their broader product offerings.

         Many of the Company's competitors and potential 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 intends
to operate, 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. In
addition, no assurance can be given that the Company will not be required to
make substantial additional investments in connection with its research,
development, engineering, marketing, sales and customer service efforts in order
to meet any competitive threat, or that such required investments will not have
a material adverse effect on operating margins. Increased competition will
result in reduction in 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. There can be no
assurance that in the future the Company will be able to successfully compete
against current and future competitors.

RISKS ASSOCIATED WITH ACQUISITIONS. The Company may augment its internal growth
with acquisitions of businesses, products and technologies that could complement
or expand the Company's business. Certain of these businesses may be marginally
profitable or unprofitable. In order to achieve anticipated benefits from these
acquisitions, the Company must successfully integrate the acquired businesses
with its existing operations, and no assurance can be given that the Company
will be successful in this regard. The Company has limited experience in
integrating acquired companies into its operations, in expanding the scope of
operations of required businesses, in managing geographically dispersed
operations, and in operating internationally. In the past the Company has
incurred one-time costs and expenses in connection with acquisitions and it is
likely that similar one-time costs and expenses may be incurred in connection
with future acquisitions. In addition, attractive acquisitions are difficult to
identify and complete for a number of reasons, including competition among
prospective buyers and the possible need to obtain regulatory approval. There
can be no assurance that the Company will be able to complete future
acquisitions. In order to finance such acquisitions, it may be necessary for the
Company to raise additional funds either through public or private financings,
including bank borrowings. Any financing, if available at all, may be on terms
which are not favorable to the Company. The Company may also issue shares of its
common stock to acquire such businesses, which may result in dilution to the
Company's existing stockholders.

FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS; SEASONALITY. 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 current and planned 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

                                       15
<PAGE>

products, changes in the Company's sales incentive strategy, the mix of direct
and indirect sales, and general economic factors. In addition, the sale of the
Company's products often involves delays because customers have tended to
implement the products on a large scale and customers also must establish
certain minimum hardware capabilities. The Company's products therefore often
have a lengthy sales cycle while the customer evaluates and receives approvals
for the purchase of the Company's products. During such sales cycles, the
Company may expend substantial funds and management effort yet receive no
revenues. It may be difficult to accurately predict the sales cycle of any large
order. If one or more large orders fails to close as forecasted in a fiscal
quarter, the Company's revenues and operating results for such quarter could be
materially adversely 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. The potential occurrence of any one or more of these
factors makes the prediction of revenues and results of operations on a
quarterly basis difficult and performance forecasts derived from such
predictions unreliable.

         The Company's business has experienced and is expected to continue to
experience seasonality. The Company has historically had and expects to continue
to have weaker sales in the months of July and August which may have an adverse
affect on third quarter sales. The Company believes that these fluctuations are
caused primarily by customer budgeting and purchasing patterns.

         In general, revenues are difficult to forecast because the market for
secure business-to-business electronic document exchange and enterprise,
client/server facsimile solutions software is evolving rapidly and the Company's
sales cycle, from the customer's initial evaluation through purchase of licenses
and the related support services, varies substantially from customer to
customer. License fee revenues in any quarter depend on orders received and
shipped in that quarter with an increasing percentage of orders in any quarter
being received in the last weeks of the quarter. License fee revenues from
quarter to quarter are difficult to forecast, as no significant order backlog
exists at the end of any quarter because the Company's products typically are
shipped upon receipt of customers' orders.

         A substantial portion of the Company's operating expense is related to
personnel, facilities, equipment and marketing programs. The level of spending
for such expense cannot be adjusted quickly and is therefore fixed in the short
term. The Company's expense levels for personnel, facilities, equipment and
marketing programs are based, in significant part, on the Company's expectations
of future revenues on a quarterly basis. If actual revenue levels on a quarterly
basis are below management's expectations, results of operations are likely to
be adversely affected by a similar amount because a relatively small amount of
the Company's expense varies with its revenue in the short term.

         Due to all of the foregoing factors, it is likely that in some future
periods the Company's results of operations will be below the expectations of
securities analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected.

ABILITY TO MANAGE GROWTH. The Company has expanded its operations and
anticipates that expansion will be required in order to address potential market
opportunities. The Company anticipates that it will continue to increase the
size of its sales and marketing and research and development as necessary. There
can be no assurance that such expansion will be successfully completed or that
it will generate sufficient revenues to cover the Company's expenses. The
Company will need to continue to attract and retain highly qualified technical,
sales and managerial personnel. There can be no assurance that the Company will
be able to retain or continue to hire such personnel in the future. The
inability of the Company to effectively expand operations and manage growth, if
any, could have a material adverse effect on the Company's business, financial
condition and results of operations.

EXPANSION OF INDIRECT CHANNELS; POTENTIAL FOR CHANNEL CONFLICT. The Company
markets its products and services directly through telesales and indirectly
through marketing channels such as value-added resellers ("VARs"), systems
integrators and distributors. Although the Company has historically focused its
efforts on marketing through its telesales force, the Company is increasing
resources dedicated to developing and expanding indirect marketing channels.
There can be no assurance that the Company will be able to attract and retain a
sufficient number of qualified VARs, systems integrators and distributors to
market successfully the Company's products. In addition, there can be no
assurance that the Company's resellers will not develop, acquire or market
computer-based facsimile products competitive with the Company's products. The
failure to retain its VARs, systems integrators and distributors could have a
material adverse effect on the Company's business, financial condition and
results of operations.

         The distributor agreements generally provide that either party may
terminate the agreement without cause upon 30 days written notice to the other
party. The Company also resells its products on a purchase order basis through
other VARs, systems

                                       16
<PAGE>

integrators and distributors. Such relationships may be terminated by either
party, at any time, and therefore, there can be no assurance that any VAR,
systems integrator or distributor will continue to represent the Company's
products. The inability to retain certain VARs, systems integrators or
distributors, or the development or marketing by VARs, systems integrators or
distributors of competitive offerings, could have a material adverse effect on
the Company's business, financial condition and results of operations.

         Selling through indirect channels may limit the Company's contacts with
its customers. As a result, the Company's ability to accurately forecast sales,
evaluate customer satisfaction and recognize emerging customer requirements may
be hindered. The Company's strategy of marketing its products directly to
end-users and indirectly through VARs, systems integrators and distributors may
result in distribution channel conflicts. The Company's direct sales efforts may
compete with those of its indirect channels and, to the extent different
resellers target the same customers, resellers may also come into conflict with
each other. As the Company strives to expand its indirect distribution channels,
there can be no assurance that emerging channel conflicts will not materially
adversely affect its relationships with existing VARs, systems integrators or
distributors or adversely affect its ability to attract new VARs, systems
integrators and distributors.

RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION. A key element of the Company's
strategy is to continue to increase its international sales. The Company expects
to face competition from secure business-to-business electronic document
exchange solutions and local facsimile product providers in their native
countries. To successfully expand international sales, the Company will need to
recruit and retain additional international resellers and distributors. There
can be no assurance that the Company will be able to maintain or increase
international sales of its products or that the Company's international
distribution channels will be able to adequately market, service and support the
Company's products. International operations generally are subject to certain
risks, including dependence on independent resellers, fluctuations in foreign
currency exchange rates, compliance with foreign regulatory and market
requirements, variability of foreign economic conditions and changing
restrictions imposed by United States export laws. Additional risks inherent in
the Company's international business activities generally include unexpected
changes in regulatory requirements, tariffs and other trade barriers, costs of
localizing products for foreign countries, lack of acceptance of localized
products in foreign countries, longer accounts receivable payment cycles,
difficulties in managing international operations, difficulties in enforcing
intellectual property rights and the burdens of complying with a wide variety of
foreign laws. The Company has a sales office outside of the United States. Such
operations are subject to certain additional risks, including difficulties in
staffing and managing such operations and potentially adverse tax consequences
including restrictions on the repatriation of earnings. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international sales and, consequently, the Company's business,
financial condition and results of operations. To date, a majority of the
Company's sales have been made in United States dollars and the Company has not
engaged in any hedging transactions through the purchase of derivative
securities or otherwise.

DEPENDENCE ON KEY PERSONNEL. The Company's future performance depends, in
significant part, upon the continued service of its key technical, sales and
senior management personnel, none of whom is bound by an employment agreement or
by a noncompetition agreement. The loss of the services of one or more of the
Company's executive officers or other key employees could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's future success also depends on its continuing ability
to attract and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, and the Company has
experienced difficulty in recruiting qualified technical personnel. There can be
no assurance that the Company will be able to retain or continue to hire key
technical, sales and managerial personnel in the future.

                                       17
<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS, AND DERIVATIVE
COMMODITY INSTRUMENTS

         As of March 31, 2001, the Company did not participate in any derivative
financial instruments or other financial and commodity instruments for which
fair value disclosure would be required under SFAS No. 107. All of the Company's
investments consist of money market funds and municipal bonds that are carried
on the Company's books at amortized cost, which approximates fair market value.
Accordingly, the Company has no quantitative information concerning the market
risk of participating in such investments.

PRIMARY MARKET RISK EXPOSURES

         The Company's primary market risk exposures are in the areas of
interest rate risk and foreign currency exchange rate risk. The Company's
investment portfolio of cash equivalent and short-term investments is subject to
interest rate fluctuations, but the Company believes this risk is immaterial due
to the short-term nature of these investments. The Company's exposure to
currency exchange rate fluctuations has been and is expected to continue to be
modest due to the fact that the operations of its United Kingdom subsidiary are
almost exclusively conducted in its local currency. The United Kingdom
subsidiary operating results are translated into U.S. dollars and consolidated
for reporting purposes. The impact of currency exchange rate movements on
intercompany transactions was immaterial for the quarter ended March 31, 2001.
Currently the Company does not engage in foreign currency hedging activities.

                                       18
<PAGE>

PART II                             OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

                None

(b)      Reports on Form 8-K

                None

                                       19
<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.

May 14, 2001               By: /s/ Kira A. Nelson
                               --------------------------------------------
                               Kira A. Nelson
                               Chief Financial Officer, Secretary and Treasurer


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