<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 September 30, 1999

                                       OR

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

               For the transition period from _________ to _______

                         Commission File Number 0-22871

                                  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)

             8 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 12,589,247 shares of the Company's Common Stock, par value $0.01,
outstanding on November 11, 1999.

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


<PAGE>


                          OMTOOL, LTD. AND SUBSIDIARIES

                                    FORM 10-Q
                    For the Quarter Ended September 30, 1999
                                    CONTENTS

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

           Item 1.  Consolidated Financial Statements

                     Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and
                        December 31, 1998                                                                       3
                     Consolidated Statements of Income for the three months and nine months ended
                        September 30, 1999 and 1998 (Unaudited)                                                 4
                     Consolidated Statements of Cash Flows for the nine months ended September
                        30, 1999 and 1998 (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                                 21

           PART II: OTHER INFORMATION

           Item 1.  Legal Proceedings                                                                          21

           Item 6.  Exhibits and Reports on Form 8-K                                                           21

           Signatures                                                                                          22
</TABLE>


                                       2

<PAGE>


                          OMTOOL, LTD. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,      DECEMBER 31,
                                                                           1999               1998
                                                                       ------------       ------------
                                                                       (Unaudited)
<S>                                                                    <C>                <C>
ASSETS
Current assets:
   Cash and cash equivalents                                           $    936,037       $  2,706,038
   Short-term investments                                                17,954,891         18,039,250
   Accounts receivable, less reserves of $1,855,100 in 1999 and
     $1,345,000 in 1998, respectively                                     4,077,922          6,209,390
   Prepaid expenses and other current assets                              2,208,577          1,912,404
   Income tax receivable                                                  1,175,254                 --
   Deferred tax asset                                                       697,000            697,000
                                                                       ------------       ------------
         Total current assets                                            27,049,681         29,564,082

Property and equipment, net                                               1,789,121          1,770,800

Other assets, net                                                         4,725,066          5,068,029
                                                                       ------------       ------------

         Total assets                                                  $ 33,563,868       $ 36,402,911
                                                                       ============       ============
LIABILITIES AND STOCKHOLDERS' EQUITY
   Current liabilities:
   Current portion of long-term debt                                   $     27,981       $     14,047
   Accounts payable                                                       1,780,741          1,328,442
   Accrued liabilities                                                    1,509,776          1,667,964
   Deferred revenue                                                       3,127,884          2,943,848
                                                                       ------------       ------------
         Total current liabilities                                        6,446,382          5,954,301
                                                                       ------------       ------------

Deferred tax liability                                                      388,515            644,406

Long-term liabilities                                                            --             38,935
                                                                       ------------       ------------
Contingencies (Note 6)

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 in 1999 and 1998                                            130,093            130,093
   Additional paid-in capital                                            32,222,116         33,353,598
   Accumulated deficit                                                   (4,410,711)        (1,750,596)
   Treasury stock (422,625 and 660,780 shares at cost in 1999 and
     1998, respectively)                                                 (1,209,418)        (1,961,126)
   Cumulative translation adjustment                                         (3,109)            (6,700)
                                                                       ------------       ------------
         Total stockholders' equity                                      26,728,971         29,765,269
                                                                       ------------       ------------

         Total liabilities and stockholders' equity                    $ 33,563,868       $ 36,402,911
                                                                       ============       ============

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

</TABLE>

                                       3
<PAGE>


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


<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED                     NINE MONTHS ENDED
                                                                     SEPTEMBER 30,                         SEPTEMBER 30,
                                                           -------------------------------       -------------------------------
                                                               1999               1998               1999               1998
                                                           ------------       ------------       ------------       ------------
<S>                                                        <C>                <C>                <C>                <C>
Revenues:
   Software license                                        $  3,161,934       $  4,520,557       $  9,981,976       $ 13,827,191
   Hardware                                                   1,908,585          1,353,683          5,490,226          4,848,559
   Service and other                                          1,932,197          1,508,025          5,548,267          4,393,664
                                                           ------------       ------------       ------------       ------------
         Total revenues                                       7,002,716          7,382,265         21,020,469         23,069,414
                                                           ------------       ------------       ------------       ------------
Cost of revenues:
   Software license                                             282,913            295,757            768,257          1,061,334
   Hardware                                                   1,307,608            900,991          3,424,135          2,902,368
   Service and other                                            930,808            681,626          2,709,043          2,176,032
                                                           ------------       ------------       ------------       ------------
         Total cost of revenues                               2,521,329          1,878,374          6,901,435          6,139,734
                                                           ------------       ------------       ------------       ------------
         Gross profit                                         4,481,387          5,503,891         14,119,034         16,929,680
                                                           ------------       ------------       ------------       ------------
Operating expenses:
   Sales and marketing                                        2,979,598          3,236,673          9,036,510          9,132,870
   Research and development                                   1,221,503          1,312,919          3,809,840          3,828,998
   General and administrative                                 1,345,567          1,171,584          4,121,872          3,563,467
   Restructuring costs                                               --                 --          1,128,000                 --
                                                           ------------       ------------       ------------       ------------
         Total operating expenses                             5,546,668          5,721,176         18,096,222         16,525,335
                                                           ------------       ------------       ------------       ------------
         Income (loss) from operations                       (1,065,281)          (217,285)        (3,977,188)           404,345
Interest income, net                                            173,825            224,551            509,522            595,439
                                                           ------------       ------------       ------------       ------------
         Income (loss) before provision (benefit) for
         income taxes                                          (891,456)             7,266         (3,467,666)           999,784
Provision (benefit) for income taxes                           (206,634)             1,964           (807,551)           270,144
                                                           ------------       ------------       ------------       ------------
         Net income (loss)                                 $   (684,822)      $      5,302       $ (2,660,115)      $    729,640
                                                           ============       ============       ============       ============
Net income (loss) per share
                                                                                                 ------------       ------------
         Basic                                             $      (0.05)      $       0.00       $      (0.21)      $       0.06
                                                           ============       ============       ============       ============
         Diluted                                           $      (0.05)      $       0.00       $      (0.21)      $       0.05
                                                           ============       ============       ============       ============
Weighted average number of common shares outstanding
         Basic                                               12,619,399         12,913,786         12,603,780         12,749,814
                                                           ============       ============       ============       ============
         Diluted                                             12,619,399         13,479,347         12,603,780         13,543,443
                                                           ============       ============       ============       ============
</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>
                                                                                        NINE MONTHS ENDED
                                                                                           SEPTEMBER 30,
                                                                                 -------------------------------
                                                                                     1999               1998
                                                                                 ------------       ------------
<S>                                                                              <C>                <C>
Cash Flows from Operating Activities:
   Net income (loss)                                                             $ (2,660,115)      $    729,640
   Adjustments to reconcile net income (loss) to net cash provided by (used
   in) operating activities-
     Depreciation and amortization                                                  1,654,224          1,941,557
     Deferred income taxes                                                           (255,891)          (167,380)
     Restructuring costs                                                               78,600                 --
     Changes in assets and liabilities-
       Accounts receivable                                                          2,121,622         (1,053,857)
       Prepaid expenses and other current assets                                     (297,670)          (150,423)
       Income tax receivable                                                       (1,171,316)                --
       Accounts payable                                                               454,679            735,121
       Accrued liabilities                                                           (144,333)          (331,711)
       Income taxes payable                                                                --           (687,905)
       Deferred revenue                                                               200,188            556,303
       Long-term liabilities                                                          (38,420)           (98,554)
                                                                                 ------------       ------------
              Net cash provided (used in) by operating activities                     (58,432)         1,472,791
                                                                                 ------------       ------------
Cash Flows from Investing Activities:
   Purchases of property and equipment                                               (761,797)        (1,181,245)
   Purchases of short-term investments                                            (32,076,319)       (28,347,368)
   Proceeds from sale of short-term investments                                    32,157,162         30,160,000
   Increase in other assets                                                          (633,069)        (1,361,231)
                                                                                 ------------       ------------
              Net cash used in investing activities                                (1,314,023)          (729,844)
                                                                                 ------------       ------------
Cash Flows from Financing Activities:
   Purchases of treasury stock                                                       (521,425)                --
   Net repayments on line of credit                                                        --           (244,563)
   Net repayments on long-term debt                                                   (13,983)            14,373
   Exercise of stock options                                                          141,651            219,191
                                                                                 ------------       ------------
              Net cash used in financing activities                                  (393,757)           (10,999)
                                                                                 ------------       ------------
Foreign exchange effect on cash                                                        (3,789)             1,050
                                                                                 ------------       ------------
Net increase (decrease) in cash and cash equivalents                               (1,770,001)           732,998

Cash and cash equivalents, beginning of period                                      2,706,038          2,353,680
                                                                                 ------------       ------------
Cash and cash equivalents, end of period                                         $    936,037       $  3,086,678
                                                                                 ============       ============
Supplemental Disclosure of Cash Flow Information:
   Cash paid during the year for-
     Interest                                                                    $        285       $      3,216
                                                                                 ============       ============
     Income taxes                                                                $    332,775       $  1,078,772
                                                                                 ============       ============
</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, 1998
included in the Company's Form 10-K filed March 31, 1999. 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 and nine month periods ended September 30, 1999
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 September 30, 1999 and December 31, 1998, the Company had
$17,954,891 and $18,039,250, 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 September 30, 1999 and
December 31, 1998.

      (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.


                                       6
<PAGE>


     (D)  NET INCOME (LOSS) PER COMMON SHARE

      The Company reports earnings per share in accordance with SFAS No. 128.
Diluted weighted average shares outstanding for 1999 exclude the potential
common shares from stock options because to include them would have been
antidilutive for the periods presented. 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. A reconciliation of
basic and diluted common shares outstanding is as follows:

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED                NINE MONTHS ENDED
                                                                SEPTEMBER 30,                    SEPTEMBER 30,
                                                          --------------------------      --------------------------
                                                             1999            1998            1999            1998
                                                          ----------      ----------      ----------      ----------
<S>                                                       <C>             <C>             <C>             <C>
Weighted average number of common shares outstanding      12,619,399      12,913,786      12,603,780      12,749,814
Potential common shares pursuant to stock options                 --         565,561              --         793,629
                                                          ----------      ----------      ----------      ----------
Diluted weighted average shares                           12,619,399      13,479,347      12,603,780      13,543,443
                                                          ==========      ==========      ==========      ==========
</TABLE>


      The calculation above excludes the potential common shares related to
1,477,625 outstanding stock options which have an anti-dilutive effect for the
three months and nine months ended September 30, 1999 and 762,550 and 620,000
outstanding stock options which have an anti-dilutive effect for the three
months and nine months ended September 30, 1998, respectively.

(3)      COMPREHENSIVE INCOME (LOSS)

      The Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
effective January 1, 1998. SFAS 130 establishes standards for reporting and
display of comprehensive income (loss) and its components in financial
statements. The components of the Company's comprehensive income (loss) are as
follows:

<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED                NINE MONTHS ENDED
                                                                         SEPTEMBER 30,                     SEPTEMBER 30,
                                                               -----------------------------      -----------------------------
                                                                   1999             1998             1999              1998
                                                               -----------       -----------      -----------       -----------
<S>                                                            <C>               <C>              <C>               <C>
Net income (loss)                                              $  (684,822)      $     5,302      $(2,660,115)      $   729,640
Foreign currency translation adjustments, net of taxes              34,117               779            2,204             4,042
                                                               -----------       -----------      -----------       -----------
Comprehensive income (loss)                                    $  (650,705)      $     6,081      $(2,657,911)      $   733,682
                                                               ===========       ===========      ===========       ===========
</TABLE>


(4)      SEGMENT AND GEOGRAPHIC INFORMATION

      The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, as of December 31, 1998. SFAS No. 131
establishes standards for reporting information regarding operating segments in
annual financial statements and requires selected information for those segments
to be presented in interim financial reports issued to stockholders. SFAS No.
131 also establishes standards for related disclosures about products and
services and geographic areas. Operating segments are identified as components
of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance. The Company's chief decision-maker, as defined under SFAS No. 131,
is the Chief Executive Officer. 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.


                                       7
<PAGE>


      Total revenues from international sources were approximately $1.7 million
and $1.3 million for the three months ended September 30, 1999 and 1998,
respectively, and $4.6 million and $4.2 million for the nine months ended
September 30, 1999 and 1998, 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                NINE MONTHS ENDED
                                     SEPTEMBER 30,                     SEPTEMBER 30,
                             ----------------------------      ----------------------------
Total revenues (1)              1999             1998              1999            1998
                             -----------      -----------      -----------      -----------
<S>                          <C>              <C>              <C>              <C>
North America                $ 5,280,157      $ 6,130,525      $16,434,491      $18,865,151
Europe                         1,451,593        1,108,915        3,949,201        3,906,777
Other Foreign Countries          270,966          142,825          636,777          297,486
                             -----------      -----------      -----------      -----------
                             $ 7,002,716      $ 7,382,265      $21,020,469      $23,069,414
                             ===========      ===========      ===========      ===========

<CAPTION>
                                                               SEPTEMBER 30,    DECEMBER 31,
Long-lived assets (2)                                              1999           1998
                                                                ----------      ----------
North America                                                   $3,320,401      $2,673,211
Europe                                                           3,193,786       4,165,618
                                                                ----------      ----------
                                                                $6,514,187      $6,838,829
                                                                ==========      ==========
</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.

(5)      RESTRUCTURING COSTS

      In the first quarter of 1999, the Company announced a restructuring of
certain of its operations, and recorded a non-recurring pretax charge of
$1,128,000 in accordance with Emerging Issues Task Force ("EITF") 94-3,
LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS
TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING). The
non-recurring charge includes severance-related costs associated with a
workforce reduction, primarily in the Company's European and Florida operations,
of approximately nine persons in sales, twelve persons in general and
administrative and three persons in research and development. The balance of
this charge includes a write-down of assets associated with the closure of the
Company's Florida facility.

      The components of the restructuring at September 30, 1999 are as follows:

<TABLE>
<S>                                                    <C>
Employee severance, benefits and related costs         $  939,000
Write-off and write-down of assets to be disposed          78,600
Lease termination and relocation costs                     60,400
Other                                                      50,000
                                                       ----------
                                                       $1,128,000
                                                       ==========
</TABLE>

      The total cash impact of the restructuring is $1,049,400. As of September
30, 1999, the Company had paid out the entire $1,049,400, and does not have any
remaining liability.

(6)      CONTINGENCIES

      On October 5, 1999 the Company and certain of its directors and officers
were named as defendants in a purported securities class action complaint filed
in the United States District Court for the District of New Hampshire. The
complaint is allegedly brought on behalf of purchasers of the Company's stock
during the period from August 8, 1997 to October 6, 1998, and alleges, among
other things, that the Company's initial public offering prospectus and
registration statement contained misstatements. The Company believes that the
allegations contained in the complaint are without merit and intends to defend
vigorously against the claims. The lawsuit, however, is in its earliest stages,
and there can be no assurances that this litigation will ultimately be resolved
on terms that are favorable to the Company.


                                       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 March 31, 1999.

OVERVIEW

     Omtool designs, develops, markets and supports open, client/server
software, delivering solutions that automate and integrate communication
throughout the enterprise. The Company was incorporated in March 1991 and
shipped its initial facsimile software products in 1991. Omtool's IP Fax Server,
IP Fax Satellite, Fax Sr. Enterprise, Fax Sr. Express, LegalFax and FAX/400
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 majority of the Company's revenues are derived from licensing the
rights to use its Fax Sr. software product directly to end users and indirectly
through resellers.

     The Company has historically derived the majority of its total revenues
from sales within North America. Sales outside of North America represented
approximately 22% and 18% of the Company's total revenues in the nine months
ended September 30, 1999 and 1998, respectively.

     Historically, the Company has marketed and sold its products through its
direct telesales force and continues to do so. However, the Company is in the
process of transitioning from a direct telesales force to a channel force.
Additionally, the Company continues to recruit VARs, system integrators,
resellers and distributors to expand its indirect distribution channel. Sales
through the Company's indirect distribution channels were 26% and 24% of the
Company's total revenues in the nine months ended September 30, 1999 and 1998,
respectively.

     Due, in part, to longer customer purchasing cycles and a decline in demand
for the Company's legacy software products, such as the AS/400 products acquired
from CMA Ettworth, Ltd., in the fourth quarter of 1997 the Company has
experienced declining software license revenue from the fourth quarter of 1998
through the second quarter of 1999. Software license revenue remained consistent
from the second quarter of 1999 to the third quarter of 1999. The Company is
expecting the demand for the AS/400 product to decrease steadily and will limit
future expenditures on marketing and selling that particular product line.
Additional contributors to the decline of software license revenue include a
softness in demand for enterprise fax solutions, sales delays associated with
transitioning the Company's sales structure from a direct model to a channel
model, and cautious purchasing behavior of large corporations due to the
uncertainty of the Year 2000 date change and its effect on computer systems and
software. The Company's software license revenue for the first three quarters of
1999 has declined when compared to the software license revenue for the first
three quarters of 1998. The Company has also experienced losses from operations
in each of the first three quarters of 1999.

     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.


                                       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       Nine months ended
                                            September 30,           September 30,
                                          -----------------       -----------------
                                           1999        1998        1999       1998
                                          -----       -----       -----       -----
<S>                                       <C>         <C>         <C>         <C>
Revenues:
   Software license                        45.1 %      61.2 %      47.5 %      60.0 %
   Hardware                                27.3        18.4        26.1        21.0
   Service and other                       27.6        20.4        26.4        19.0
                                          -----       -----       -----       -----
      Total revenues                      100.0       100.0       100.0       100.0
                                          -----       -----       -----       -----
Cost of revenues:
   Software license                         4.0         4.0         3.7         4.6
   Hardware                                18.7        12.2        16.3        12.6
   Service and other                       13.3         9.2        12.8         9.4
                                          -----       -----       -----       -----
      Total cost of revenues               36.0        25.4        32.8        26.6
                                          -----       -----       -----       -----
Gross profit                               64.0        74.6        67.2        73.4
                                          -----       -----       -----       -----
Operating expenses:
   Sales and marketing                     42.6        43.8        43.0        39.5
   Research and development                17.4        17.8        18.1        16.6
   General and administrative              19.2        15.9        19.6        15.5
   Restructuring costs                       --          --         5.4          --
                                          -----       -----       -----       -----
      Total operating expenses             79.2        77.5        86.1        71.6
                                          -----       -----       -----       -----
Income (loss) from operations             (15.2)       (2.9)      (18.9)        1.8
Interest income, net                        2.5         3.1         2.5         2.6
                                          -----       -----       -----       -----
Income (loss) before provision
   (benefit) for income taxes             (12.7)        0.2       (16.4)        4.4
Provision (benefit) for income taxes       (3.0)        0.0        (3.8)        1.2
                                          -----       -----       -----       -----
Net income (loss)                          (9.7) %      0.2 %     (12.6) %      3.2 %
                                          =====       =====       =====       =====

Gross profit:

   Software license                        91.1 %      93.5 %      92.3 %      92.3 %
   Hardware                                31.5        33.4        37.6        40.1
   Service and other                       51.8        54.8        51.2        50.5
</TABLE>

THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

REVENUES

     TOTAL REVENUES. The Company's revenues are currently derived from fees from
licensing of the Company's software products and from related sales of hardware
and services. The Company's total revenues were $7.0 million and $7.4 million
for the three months ended September 30, 1999 and 1998, respectively,
representing a decrease of 5%.


                                       10
<PAGE>



     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 $3.2 million for the three months ended September 30, 1999 and
$4.5 million for the three months ended September 30, 1998, representing a
decrease of 30%. Software license revenues accounted for 45% and 61% of total
revenues for each respective period. The decline in software license revenue can
be attributed to a number of factors which include softness in demand for
enterprise fax solutions along with longer customer purchasing cycles typical of
Fortune 500 customers. The Company believes this is a result of customers'
preoccupation with other technology priorities and delayed implementation of
large-scale projects, such as enterprise wide e-mail and server replacement, due
to the uncertainty of the Year 2000 date change and its effect on customers'
existing computer systems and software. Additionally, the decline in software
license revenue can be attributed to a decrease in AS/400 license revenues due
to a decline in market demand for these legacy products and sales delays
associated with transitioning the Company's structure from a direct model to
channel model. The decrease in software license revenue as a percentage of total
revenues is primarily attributable to a decrease in demand for new software
licenses coupled with the increase in hardware revenue and the increase in
service and other revenue.

     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 $1.9 million for the
three months ended September 30, 1999 and $1.3 million for the three months
ended September 30, 1998, representing an increase of 41%. Hardware revenues
accounted for 27% and 18% of total revenues for each respective period. The
increase in both hardware revenues and hardware revenues as a percentage of
total revenue was due to the increase of hardware unit sales accompanying the
Company's products and a shift in sales mix to higher priced third-party
hardware products sold by the Company. Additionally, the Company did not have
any large corporate deals in the third quarter of 1999. These deals typically
include a significantly higher percentage of software revenue than hardware
revenue.

     SERVICE AND OTHER. Service and other revenues are primarily comprised of
fees from maintenance contracts. Service and other revenues were $1.9 million
for the three months ended September 30, 1999 and $1.5 million for the three
months ended September 30, 1998, representing an increase of 28%. Service and
other revenues accounted for 28% and 20% of total revenues for each respective
period. 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 $283,000 and $296,000
for the three months ended September 30, 1999 and 1998, respectively,
representing 9% and 6% of software license revenues for each respective period.
The decrease in dollar amount was primarily due to the lower volume of products
shipped during the three months ended September 30, 1999 compared to the same
period in 1998. The decrease in the software license gross margin percentages
from 94% for the three months ended September 30, 1998 to 91% for the three
months ended September 30, 1999 is primarily due to increased costs of
manufacturing and packaging the 3.1 version of the Company's Fax Sr. NT product
which was released early in the third quarter.

     HARDWARE. Cost of hardware revenues consists primarily of the costs of
third-party hardware products. Cost of hardware revenues was $1.3 million and
$901,000 for the three months ended September 30, 1999 and 1998, respectively,
representing 68% and 67% of hardware revenues for each respective period. The
increase in dollar amount for the cost of hardware revenues for the three months
ended September 30, 1999 was due primarily to increased unit costs of the
particular hardware products accompanying licenses of Fax Sr.


                                       11
<PAGE>



     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
$931,000 and $682,000 for the three months ended September 30, 1999 and 1998,
respectively, representing 48% of service and other revenues versus 45% for the
same quarter last year. 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 52% from 55% for the three month
periods ended September 30, 1999 and 1998, respectively, due to added
infrastructure to support the larger installed 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 direct mailings, public relations, trade
shows, seminars, and related communication costs. Sales and marketing expenses
were $3.0 million and $3.2 million for the three months ended September 30, 1999
and 1998, respectively, or 43% and 44% of total revenues for each respective
period. The decrease in sales and marketing expense as a percent of total
revenue was primarily due to a decrease in commissions paid due to lower sales
levels. This reduction was partially offset by an increase in marketing expenses
due to activities to support the release of its Internet Protocol (IP) Fax
products in the third quarter of 1999. The Company expects that sales and
marketing expenses will remain relatively consistent with the current sales and
marketing expenses in absolute terms.

     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 $1.2 million and $1.3 million for the three months ended September
30, 1999 and 1998, respectively, or 17% and 18% of total revenues for each
respective period. The Company expects that research and development expenses
will remain relatively consistent with current research and development expenses
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 $1.3
million and $1.2 million for the three months ended September 30, 1999 and 1998,
respectively, or 19% and 16% of total revenues for each respective period. The
increase in dollar amount was primarily attributable to the Company's added
infrastructure. The Company expects that general and administrative expenses
will remain relatively consistent with current general and administrative
expenses 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 $174,000 in the three months ended September 30, 1999
compared to $225,000 earned in the comparable period last year. The net decrease
is due to a decrease in short-term investments.

     PROVISION FOR INCOME TAXES. The Company's benefit for income taxes was
approximately $207,000 for the three months ended September 30, 1999 and
represents the Company's anticipated income tax benefit related to its net
operating losses. The provision for income taxes was approximately $2,000 for
the three months ended September 30, 1998 and was 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.


                                       12

<PAGE>



NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

REVENUES

     TOTAL REVENUES. The Company's total revenues were $21.0 million and $23.1
million for the nine months ended September 30, 1999 and 1998, respectively,
representing a decrease of 9%.

     SOFTWARE LICENSE. Software license revenues were $10.0 million for the nine
months ended September 30, 1999 and $13.8 million for the nine months ended
September 30, 1998, representing a decrease of 28%. Software license revenues
accounted for 48% and 60% of total revenues for each respective period. The
decline in software license revenue can be attributed to a number of factors
which include softness in demand for enterprise fax solutions along with longer
customer purchasing cycles typical of Fortune 500 customers. The Company
believes this is a result of customers' preoccupation with other technology
priorities and delayed implementation of large-scale projects, such as
enterprise wide e-mail and server replacement due to the uncertainty of the Year
2000 date change and its effect on customers' existing computer systems and
software. Additionally, the decline in software license revenue can be
attributed to a decrease in AS/400 license revenues due to a decline in market
demand for these legacy products and sales delays associated with transitioning
the Company's structure from a direct to channel model. The decrease in software
license revenue as a percentage of total revenues is primarily attributable to a
decrease in demand for new software licenses coupled with the increase in
hardware revenue and service and other revenue.

     HARDWARE. Hardware revenues were $5.5 million for the nine months ended
September 30, 1999 and $4.8 million for the nine months ended September 30,
1998, representing an increase of 13%. Hardware revenues accounted for 26% and
21% of total revenues for each respective period. The increase in hardware
revenues was due to the increase of hardware unit sales accompanying the
Company's products and a shift in sales mix to higher priced third-party
hardware products sold by the Company. Additionally, the Company did not have
any large corporate deals in the third quarter of 1999. These deals typically
include a significantly higher percentage of software revenue than hardware
revenue.

     SERVICE AND OTHER. Service and other revenues were $5.5 million for the
nine months ended September 30, 1999 and $4.4 million for the nine months ended
September 30, 1998, representing an increase of 26%. Service and other revenues
accounted for 26% and 19% of total revenues for each respective period. 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 was $768,000 and $1.1
million for the nine months ended September 30, 1999 and 1998, respectively,
representing 8% of software license revenues for each period. The decrease in
dollar amount was primarily due to the lower volume of products shipped during
the nine months ended September 30, 1999 compared to the same period in 1998.

     HARDWARE. Cost of hardware revenues was $3.4 million and $2.9 million for
the nine months ended September 30, 1999 and 1998, respectively, representing
62% and 60% of hardware revenues for each respective period. The increase in
dollar amount for the cost of hardware revenues for the nine months ended
September 30, 1999 was due primarily to increased unit cost of the particular
hardware products accompanying licenses of Fax Sr. The gross margin percentage
for hardware sales was 38% for the nine months ended September 30, 1999 compared
to 40% in the same period in 1998 due to the increase in hardware unit cost.

     SERVICE AND OTHER. Cost of service and other revenue was $2.7 million and
$2.2 million for the nine months ended September 30, 1999 and 1998,
respectively, representing 49% of service and other revenues for the each
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.


                                       13
<PAGE>





OPERATING EXPENSES

     SALES AND MARKETING. Sales and marketing expenses were $9.0 million and
$9.1 million for the nine months ended September 30, 1999 and 1998,
respectively, or 43% and 40% of total revenues for each respective period. The
increase in sales and marketing expense as a percent of total revenue was
primarily due to the Company's expansion of its marketing activities associated
with the release of its IP Fax products in the third quarter of 1999. The
Company expects that sales and marketing expenses will remain relatively
consistent with the current sales and marketing expenses in absolute terms.

     RESEARCH AND DEVELOPMENT. Research and development expenses were $3.8
million for each of the nine months ended September 30, 1999 and 1998, or 18%
and 17% of total revenues for each respective period. The Company expects that
research and development expenses will remain relatively consistent with current
research and development expenses in absolute terms.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses were $4.1
million and $3.6 million for the nine months ended September 30, 1999 and 1998,
respectively, or 20% and 16% of total revenues for each respective period. The
increase in dollar amount was primarily attributable to the Company's added
infrastructure and fees associated with hiring new management team members
throughout the Company. The Company expects that general and administrative
expenses will remain relatively consistent with current general and
administrative expenses in absolute terms.

      RESTRUCTURING COSTS. In the first quarter of 1999, the Company announced a
restructuring of certain of its operations, and recorded a non-recurring pretax
charge of $1,128,000 in accordance with Emerging Issues Task Force ("EITF")
94-3, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER
COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING).
The non-recurring charge includes severance-related costs associated with a
workforce reduction, primarily in the Company's European and Florida operations,
of approximately nine persons in sales, twelve persons in general and
administrative and three persons in research and development. The balance of
this charge includes a write-down of assets associated with the closure of the
Company's Florida facility.

      The components of the restructuring at September 30, 1999 are as follows:

<TABLE>
<S>                                                    <C>
Employee severance, benefits and related costs         $  939,000
Write-off and write-down of assets to be disposed          78,600
Lease termination and relocation costs                     60,400
Other                                                      50,000
                                                       ----------
                                                       $1,128,000
                                                       ==========
</TABLE>

      The total cash impact of the restructuring is $1,049,400. As of September
30, 1999, the Company had paid out the entire $1,049,400, and does not have any
remaining liability.

     INTEREST INCOME, NET. Interest income, net represented income of $510,000
in the nine months ended September 30, 1999 compared to $595,000 earned in the
comparable period last year. The net decrease is due to a decrease in short-term
investments.

     PROVISION FOR INCOME TAXES. The Company's benefit for income taxes was
approximately $808,000 for the nine months ended September 30, 1999 and
represents the Company's anticipated income tax benefit related to its net
operating losses. The provision for income taxes was approximately $270,000 for
the nine months ended September 30, 1998 and was 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.


                                       14
<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

     The Company has financed its operations primarily through cash flows from
operations, the private sales of preferred stock, and the Company's initial
public offering of Common Stock completed in August 1997. At September 30, 1999,
the Company had cash and cash equivalents of $936,000, short-term investments of
$18.0 million, and working capital of $20.6 million.

     The Company's operating activities used cash of $58,000 and provided cash
of $1.5 million in the nine months ended September 30, 1999 and 1998,
respectively. Net cash used during the nine months ended September 30, 1999
consisted primarily of a net loss from operations, an increase in income tax
receivable and a decrease in prepaid expenses and other current assets offset by
depreciation and amortization, a decrease in accounts receivable and an increase
in both accounts payable and deferred revenue. Net cash provided during the nine
months ended September 30, 1998 consisted primarily of net income, depreciation
and amortization, and increases in accounts payable and deferred revenue offset
by an increase in accounts receivable and decreases in both the income taxes
payable and accrued liabilities accounts.

     Investing activities used cash of $1.3 million and $730,000 during the nine
months ended September 30, 1999 and 1998, respectively. During each of the nine
months ended September 30, 1999 and 1998, the principal uses were purchases of
short-term investments, purchases of property and equipment and an increase in
other assets, offset by the proceeds from the sale of short-term investments.

     Financing activities used cash of $394,000 for the nine months ended
September 30, 1999 due primarily to the purchases of treasury stock offset by
net proceeds from the issuance of common stock for stock option exercises.
Financing activities used cash of $11,000 for the nine months ended September
30, 1998 due primarily to the payment of the line of credit offset by the
proceeds from the issuance of common stock for stock option exercises.

     As of September 30, 1999, 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.

DISCUSSION OF ACQUIRED TECHNOLOGIES

     CMA-Ettworth (now known as "Omtool Europe") was acquired in the quarter
ended December 31, 1997. The Company acquired in-process research and
development related to a strategic fax gateway solution called IMPS (Integrated
Message Processing Server), which was to provide integrated fax, voice, e-mail,
Internet connectivity and EDI on a single platform product application. Omtool
Europe is located in Kingston-upon-Thames, just outside of London, England, and
had one branch office in Paris, France and one wholly owned subsidiary in
Melbourne, Florida, both of which are in the process of being closed.

     At the time of the acquisition, Omtool Europe's in-process research and
development value was comprised of several ongoing projects which included (1)
development of a Windows NT 4.0-based server; (2) development of a 32-bit
Windows 95 client; (3) development of an email-to-fax capability; (4)
development of workload balancing functions; (5) development of least-cost
routing systems using a corporate WAN or the Internet; and (6) development of
in-bound fax routing techniques. These projects had not yet reached
technological feasibility at the time of the acquisition.


                                       15
<PAGE>



     Development of the acquired in-process technology into commercially viable
products and services required efforts principally related to the completion of
all planning, designing, coding, prototyping, scalability verification, and
testing activities necessary to establish that the proposed technologies would
meet their design specifications, including functional, technical, and economic
performance requirements. The Company has successfully developed certain
acquired in-process research and development and is currently benefiting from
the technology through sales of the enhanced Omtool Fax Sr. applications.

     Omtool's acquisition of Omtool Europe was structured as a purchase of the
assets and the business of Omtool Europe. Subsequent to the acquisition, it was
appropriate to immediately expense the purchased in-process technology that had
not yet reached technological feasibility without any alternative use. The value
was determined by estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the resulting net cash
flows from such projects, and discounting the net cash flows back to their
present value. The discount rate included a factor that took into account the
uncertainty surrounding the successful development of the purchased in-process
technology.

     The acquired in-process research and development was valued at $3.1 million
based on an analysis of forecasted income. The developmental projects at the
time of the acquisition were not technologically feasible and had no alternative
future use. This conclusion was attributable to the fact that Omtool Europe had
not completed a working model that had been tested and proven to work at
performance levels which were expected to be commercially viable, and that the
technologies constituting the projects had no alternative use other than as an
enterprise fax software application. The value is attributable solely to the
development efforts completed as of the acquisition date.

     The valuation included, but was not limited to, an analysis of (1) the
market for Omtool Europe products; (2) the completion costs for the projects;
(3) the expected cash flows attributable to the in-process research and
development projects; and (4) the risks associated with achieving such cash
flows. The assumptions underlying the cash flow projections were derived from
investment banking reports, independent analyst reports, Omtool and Omtool
Europe company records, and discussions with the management of both companies.
Primary assumptions such as revenue growth and profitability were compared to
indications of similar companies as well as to indications from industry analyst
reports, to determine the extent to which these assumptions were supportable.
The Company did not assume in its model any material change in its profit
margins as a result of the acquisition and did not assume any material increases
in selling, general and administrative expenses as a result of the acquisition.
The Company did not anticipate any expense reductions or other synergies as a
result of the acquisition. The basis of the acquisition was an attempt to
enhance the Company's competitive position by offering a broader product line,
including support for AS/400 systems and the implementation of advanced
technologies such as least-cost routing, load balancing, in-bound fax routing
and fax-to-email connectivity.

     In the analysis, revenues attributable to the Omtool Europe in-process
technologies were estimated to total approximately $70 million over five years
assuming the successful completion and market acceptance of the new Omtool
Europe technology in conjunction with Omtool products, in particular the Fax Sr.
product line. Revenues were expected to peak in 2001 and then decline as other
new products and technologies are expected to enter into the market. The Company
does not break down revenues attributable specifically to Omtool Europe-derived
products; since products are offered both as a suite and as individual
applications, Omtool license fees are not necessarily application-specific.
During the first three quarters of 1999, the Company believes that the revenues
attributable to the Omtool Europe in-process technologies were significantly
below its original estimates for the period due to decreasing market demand for
these products.

     Because the Company does not account for expenses by product, it is not
possible to determine the actual expenses associated with the technology
acquired from Omtool Europe. The Company currently believes that expenses
associated with completing the purchased in-process research and development and
integrating the technology with the Company's existing products are
approximately consistent with the Company's estimates used in the analysis and
that completion dates for the Omtool Europe development projects discussed above
concur with projections used at the time of the acquisition. Research and
development spending with respect to these offerings is expected to continue at
a rate that is consistent with the Company's overall research and development
spending. The Company does not believe that the acquisition resulted in any
material changes in its profit margins or in selling, general and administrative
expenses. The Company does not believe that it achieved any material expense
reductions or synergies as a result of the acquisition.


                                       16
<PAGE>

     The rates utilized to discount the net cash flows to their present value
were consistent with the nature of the forecast and the risks associated with
the projected growth, profitability and developmental projects. A discount rate
of 24% was deemed appropriate for the business enterprise and for the in-process
research and development. These discount rates were consistent with Omtool
Europe's stage of development; the uncertainties in the economic estimates
described above; the inherent uncertainty at the time of the acquisition
surrounding the successful development of the purchased in-process technology;
the useful life of such technology; the profitability levels of such technology;
and the inherent uncertainties of the technological advances that were
indeterminable at the time of the acquisition.

     The forecast used in valuing the in-process research and development were
based upon assumptions the Company believed to be reasonable but which were
inherently uncertain and unpredictable. For these reasons, actual results may
vary from projected results. The Company continues to develop all of its
products with the acquired technologies. During the first quarter of 1999, as
part of an announced restructuring, the Company made plans to move its research
and development for these products from the United Kingdom to its headquarters
in Salem, New Hampshire.

YEAR 2000 READINESS DISCLOSURE STATEMENT

     Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, computer systems and /or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance.

     The Company is close to finalizing the Year 2000 readiness of the software
products sold by the Company ("Products") which include completing assessments
of the current versions of its most significant Products. The Company believes
these Products are generally Year 2000 compliant. Even so, the assessment of
whether a complete system or device in which a Product is embedded will operate
correctly for an end-user depends in large part on the Year 2000 compliance of
the system's other components, most of which are supplied by parties other than
the Company. The cost to evaluate the Company's Year 2000 compliance has not
been material to date and the Company does not expect future expenditures to be
material. To the extent that the Company's Products are sold through system
integrators or other third parties, there can be no assurance that the users of
the Company's Products will not experience Year 2000 problems as a result of the
integration of the Company's software with noncompliant Year 2000 products of
such third party suppliers. In addition, in certain circumstances, the Company
has warranted that the use or occurrence of dates on or after January 1, 2000
will not adversely affect the performance of the Company's Products with respect
to four digit date dependent data or the ability to create, store, process and
output information related to such data. If any of the Company's licensees
experience Year 2000 problems, such licensees could assert claims for damages
against the Company.

     The Company has certain key relationships with suppliers of third-party
hardware products sold to the Company's customers in conjunction with the
licensing of the Company's software. If these suppliers fail to adequately
address the Year 2000 issue for the hardware products they provide to the
Company, and as a result, any of the Company's hardware customers experience
Year 2000 problems such customers could discontinue use of the Company's
Products resulting in a material adverse impact on the Company's operations and
financial results. The Company is still addressing the effect the Year 2000
issue will have on its suppliers and at this time, cannot determine the impact
it will have.

     The Year 2000 issue also affects the Company's internal systems, including
information technology (IT) systems, such as management information systems and
financial accounting packages, and non-IT systems, such as building security,
voice mail and other systems. Omtool has assessed the readiness of its systems
for handling the Year 2000. Management currently believes that all material
internal systems are Year 2000 compliant and the cost to address any unknown
issues will not be material.


                                       17
<PAGE>



     To date, the Company has not identified a complete and separate budget for
investigating and remedying additional issues related to Year 2000 compliance,
whether involving the Company's own software products or the software of systems
used in its internal operations. Additionally, the Company has currently not
developed a formal contingency plan related to Year 2000. There can be no
assurance that the Company's resources spent on the investigating and remedying
Year 2000 compliance issues will not have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
customer purchasing patterns may be affected by Year 2000 issues as customers
delay purchases in anticipation of the future release of Year 2000 compliant
products or releases, and as customers expend significant resources to upgrade
their current software systems and applications for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software products
such as those offered by the Company.

CERTAIN FACTORS AFFECTING 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; anticipated trends in
the Company's business; ongoing commercialization of in-process research and
development acquired from CMA; Year 2000 readiness; 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, 1998 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 the past, there can be no assurances that
the Company can resume past growth rates and 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 and third quarters of 1998
and from the fourth quarter of 1998 to the first three quarters of 1999. The
Company also had losses from operations in the fourth quarter of 1997 and the
first three quarters of 1999. There can be no assurance that the Company will
increase its level of revenues or restore profitability 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 its historical revenues primarily 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
is devoting a significant portion of its near-term product development efforts
on Internet related functionality. The Company's future financial performance
will depend in large part on the successful development, introduction and
customer acceptance of these products and of new and enhanced versions of Fax
Sr. NT. Further, financial performance will also depend on increasing revenue
from large corporate accounts and the Company's ability to maintain and develop
relationships with network software integration partners. There can be no
assurance that the Company will continue to be successful in developing or
marketing new products, Fax Sr. NT or any new or enhanced versions of Fax Sr.
NT. In addition, there can be no 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, or that such systems will not obviate the need for
the Company's products.


                                       18
<PAGE>



     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 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 AS/400 products and services,
sales delays associated with transitioning the Company's sales structure from a
direct to a channel model, softness in the demand for enterprise fax solutions,
as well as longer purchasing cycles of Fortune 500 customers as contributing to
a decline in software license and total revenues from the first three quarters
of 1998 as compared to the first three quarters of 1999. 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.

     The Company's international operations are subject to several risks
including, but not limited to, fluctuations in the value of foreign currencies,
changes to import and export duties or regulations and greater difficulty in
collecting accounts receivable. While to date these factors have not had a
material impact on the Company's results, there can be no assurance that there
will not be such an impact in the future.

     Like all providers of computer software and companies who rely on
information technology systems, the Company continues to face the risks
associated with the Year 2000 issue. See "Year 2000 Readiness Disclosure
Statement" in Management's Discussion and Analysis.


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<PAGE>



     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; the Company's dependence on third-party licensed technology;
and the Company's dependence on key personnel.



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<PAGE>



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

         As of September 30, 1999, 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 three and nine month periods
ended September 30, 1999. Currently the Company does not engage in foreign
currency hedging activities.

PART II    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

         On October 5, 1999 the Company and certain of its directors and
officers were named as defendants in a purported securities class action
complaint filed in the United States District Court for the District of New
Hampshire. The complaint is allegedly brought on behalf of purchasers of the
Company's stock during the period from August 8, 1997 to October 6, 1998, and
alleges, among other things, that the Company's initial public offering
prospectus and registration statement contained misstatements. The Company
believes that the allegations contained in the complaint are without merit and
intends to defend vigorously against the claims. The lawsuit, however, is in its
earliest stages, and there can be no assurances that this litigation will
ultimately be resolved on terms that are favorable to the Company.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

   (a)    Exhibits

          Number          Exhibit Description
          ------          -------------------
          27.1            Financial Data Schedule

   (b)    Reports on Form 8-K

          None



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<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.


November 12, 1999               By: /s/ Darioush Mardan
                                    --------------------------------
                                     Darioush Mardan
                                     Chief Financial Officer, Secretary and
                                     Treasurer




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