<PAGE>

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

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

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

                                   FORM 10-Q


               Quarterly Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934
                 for the quarterly period ended March 31, 2001


                        Commission File Number 0-25186

                                CAPTARIS, INC.
             ----------------------------------------------------
               (Name of Registrant as Specified in Its Charter)


           Washington                                    91-1190085
    (State of incorporation)                          (I.R.S. Employer
                                                   Identification Number)


                               11410 NE 122nd Way
                              Kirkland, WA  98034
                    (Address of principal executive offices)


       Registrant's telephone number, including area code: (425) 820-6000



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
                                ---       ---



The number of outstanding shares of the Registrant's Common Stock as of May 8,
2001 was 32,367,641.

================================================================================
<PAGE>

                                 CAPTARIS, INC.

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

                               Table of Contents

<TABLE>
                                                                                                 Page
                                                                                                 ----
<S>                                                                                           <C>

PART I.   Financial Information

          Item 1.  Financial Statements (unaudited)..............................................   3

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

          Item 3.  Quantitative and Qualitative Disclosures about Market Risk....................  19

PART II.  Other Information

          Item 1.  Legal Proceedings.............................................................  20

          Item 6.  Exhibits and Reports on Form 8-K..............................................  20

Signatures.......................................................................................  21
</TABLE>

                                       2
<PAGE>

                        Part I.  FINANCIAL INFORMATION


Item 1.  FINANCIAL STATEMENTS


                                 CAPTARIS, INC.

                          CONSOLIDATED BALANCE SHEETS

                                  (Unaudited)


<TABLE>
                                                                           March 31,             December 31,
                                                                             2001                    2000
                                                                       ----------------        ----------------
                                 ASSETS                                              (in thousands)
<S>                                                                    <C>                      <C>
Current assets:
     Cash and cash equivalents                                              $ 23,634                 $ 36,744
     Short-term investments                                                   53,123                   51,679
     Accounts receivable, net                                                 13,259                   16,010
     Inventories                                                               6,291                    6,249
     Deferred and prepaid income taxes                                         5,665                    3,007
     Prepaid expenses and other                                                1,999                    1,871
                                                                       ----------------        ----------------
                         Total current assets                                103,971                  115,560

Equipment and leasehold improvements, net                                      6,903                    6,220
Goodwill, intangibles and other, net                                          22,305                    5,256
Deferred income taxes                                                          3,208                    3,208
                                                                       ----------------        ----------------
                                                                            $136,387                 $130,244
                                                                       ================        ================

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                       $  3,304                 $  4,914
     Accrued compensation and benefits                                         4,238                    3,584
     Other accrued liabilities                                                 9,893                    8,745
     Current portion of note payable                                             469                        -
                                                                       ----------------        ----------------
                         Total current liabilities                            17,904                   17,243
                                                                       ================        ================

Note payable, net of current portion                                             881                        -

Commitments and contingencies


Shareholders' equity:
     Preferred stock, par value $.01 per share, 2,000,000
        authorized; none outstanding                                               -                        -
     Common stock, par value $.01 per share, 120,000,000
        authorized; 32,332,141 and 30,666,319 shares
         outstanding, respectively, and additional
          paid-in capital                                                     66,031                   56,493
     Retained earnings                                                        51,571                   56,508
                                                                       ----------------        ----------------
                         Total shareholders' equity                          117,602                  113,001
                                                                       ----------------        ----------------
                                                                            $136,387                 $130,244
                                                                       ================        ================
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                                 CAPTARIS, INC.

                       CONSOLIDATED STATEMENTS OF INCOME

                                  (Unaudited)


<TABLE>
                                                                                Quarter ended
                                                                                   March 31,
                                                                        --------------------------------
                                                                           2001                  2000
                                                                        -----------          -----------
                                                                     (in thousands, except per share data)
<S>                                                                   <C>                  <C>
Net sales                                                                $ 20,428             $ 24,875
Cost of sales                                                               7,347                8,594
                                                                        -----------          -----------
          Gross profit                                                     13,081               16,281

Operating expenses:
     Research and development                                               3,390                2,463
     Sales, general and administrative                                     15,205               10,827
     Non-recurring charges                                                  2,942                    -
                                                                        -----------          -----------
          Total operating expenses                                         21,537               13,290
                                                                        -----------          -----------
Operating (loss) income                                                    (8,456)               2,991
Other income, net                                                             860                2,558
                                                                        -----------          -----------
(Loss) Income before income taxes                                          (7,596)               5,549
Income tax (benefit) provision                                             (2,659)               1,998
                                                                        -----------          -----------
Net (loss) income                                                        $ (4,937)            $  3,551
                                                                        ===========          ===========

Basic net (loss) income per common share                                 $  (0.15)            $   0.11

Weighted average common shares outstanding                                 32,232               31,255

Diluted net (loss) income per common share                               $  (0.15)            $   0.10

Weighted average common and common equivalent shares
 outstanding                                                               32,232               33,841
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                                 CAPTARIS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (Unaudited)


<TABLE>
                                                                                     Three months ended
                                                                                           March 31,
                                                                           ----------------------------------------
                                                                               2001                        2000
                                                                           ------------                ------------
                                                                                         (in thousands)
<S>                                                                       <C>                       <C>
Cash flows from operating activities:
     Net (loss) income                                                         $ (4,937)                   $  3,551
                                                                           ------------                ------------
Adjustments to reconcile net income to net cash
         provided by operating activities:
     Depreciation and amortization                                                1,963                       1,292
     Deferred and prepaid income taxes                                           (2,659)                     (2,342)
     Gain on sale of marketable securities                                            -                      (1,784)
     Purchased in-process research and development, expensed                      1,900
     Stock option income tax benefit                                                  -                       5,128
     Changes in current assets and liabilities:
         Accounts receivable                                                      2,948                       4,465
         Inventories                                                                (31)                       (292)
         Prepaid expenses and other assets                                          (31)                       (317)
         Accounts payable                                                        (2,178)                     (1,425)
         Accrued compensation and benefits                                          650                       1,577
         Other accrued liabilities                                                  808                      (1,293)
         Federal income taxes payable                                                 -                      (1,324)
                                                                           ------------                ------------
              Net cash (used) provided by operating activities                   (1,567)                      7,236
                                                                           ------------                ------------
Cash flows from investing activities:
     Purchase of equipment and leasehold improvements                            (1,258)                       (610)
     Purchase of short-term investments, net                                     (1,444)                    (10,624)
     Proceeds from sale of marketable securities                                      -                       2,101
     Cash paid in acquisition, net                                               (8,800)
     Purchase of intangibles and other long-term assets                             (41)                          -
                                                                           ------------                ------------
               Net cash used by investing activities                            (11,543)                     (9,133)
                                                                           ------------                ------------

Cash flows from financing activities:
     Proceeds from exercise of stock options                                          -                       3,678
                                                                           ------------                ------------
               Net cash provided by financing activities                              -                       3,678
                                                                           ------------                ------------
Net (decrease) increase in cash and cash equivalents                            (13,110)                      1,781

Cash and cash equivalents at beginning of period                                 36,744                      23,923
                                                                           ------------                ------------
Cash and cash equivalents at end of period                                     $ 23,634                    $ 25,704
                                                                           ============                ============

Supplementary disclosures of cash flows:
     Cash paid for income taxes                                                $      -                    $     31
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                                 CAPTARIS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (Unaudited)



1.   Interim Financial Statements

     The accompanying consolidated financial statements of Captaris, Inc. and
subsidiaries (the Company) are unaudited.  In the opinion of the Company's
management, the financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to state fairly the financial
information set forth therein.  Results of operations for the three-month period
ended March 31, 2001 are not necessarily indicative of future financial results.

     Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this quarterly report on Form 10-Q.
Accordingly, these financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.


2.   Businesses Acquired

     On January 3, 2001 the Company acquired all of the outstanding stock of
Infinite Technologies, a privately held global supplier of wireless applications
and wireless infrastructure solutions for a total consideration of $24,083,000.
At closing, the Company paid approximately $9.1 million in cash and issued
1,631,600 shares of the Company's common stock valued at $8,058,000. The Company
will pay approximately $2,900,000 in a combination of cash and the Company's
common stock under a deferred payment arrangement over the next three years,
which was recorded at the time of closing as a note payable of $1,351,000, net
of imputed interest, and stock to be issued totaling $1,480,000. In addition the
Company will pay up to an additional $3,900,000 in a combination of cash and the
Company's common stock under an earn-out arrangement over the next three years
which will be expensed as compensation by the Company. The Company has accounted
for the business combination as a purchase. In connection with the acquisition,
the Company recorded a one-time charge in the first quarter of 2001 related to
purchased in-process research and development in the amount of $ 1.9 million.
The total consideration of $24,083,000 was allocated as follows:

<TABLE>
                                                                               (in thousands)
<S>                                                                        <C>
      Goodwill                                                                        $ 8,383
      Purchased in-process research & development, expensed                             1,900
      Other intangibles                                                                 9,900
                                                                            --------------------
      Total purchase price                                                             20,183
                                                                            --------------------
      Earn-out                                                                          3,900
                                                                            --------------------
      Total consideration                                                             $24,083
                                                                            ====================
</TABLE>

All goodwill and identified intangibles associated with the acquisition are
being amortized over lives ranging from two to seven years.

                                       6
<PAGE>

                                 CAPTARIS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


3.   Segment Reporting

     The Company has adopted Statement of Accounting Standard No. 131
"Disclosures about Segments of an Enterprise and Related Information"(SFAS No.
131). This standard is based on a management approach, which requires
segmentation based upon the Company's internal organization and disclosure of
revenue and operating income based upon internal accounting methods. The segment
information provided reflects the two distinct business models of the Company's
organizational structure: software products and e-document delivery services.
Interest and other debt expense, provision for income taxes, interest income and
gains and losses on the disposition of marketable securities are centrally
managed at the corporate level and, accordingly, such items are not presented by
segment since they are excluded from the measure of segment profitability
reviewed by the Company's management. Reconciling items include corporate
expense items and non-recurring charges, which are not allocated to operating
segments. The Company's assets are managed on a company-wide basis versus by
segment and accordingly, asset information is not reported.

<TABLE>
                                                      Software          E-document       Reconciling         Total
                                                  -----------------  ----------------  ----------------  -------------
                                                      Products           Services          Amounts
                                                  -----------------  ----------------  ----------------
                                                                             (in thousands)
<S>                                             <C>                <C>               <C>               <C>
Quarter ended March 31, 2001
Net Sales.................................               $14,760             $5,668          $    -         $20,428
Operating Income (loss)...................                (1,604)               481           (7,333)        (8,456)

Quarter ended March 31, 2000
Net Sales.................................               $17,229             $7,646          $    -         $24,875
Operating Income..........................                 2,336              2,010           (1,355)         2,991
</TABLE>



The Company's sales by country were as follows:

<TABLE>
                                                                              Quarter Ended
                                                                           ---------------------
                                                                                 March 31,
                                                                           ---------------------
                                                                             2001          2000
                                                                           -------       -------
                                                                             (in thousands)
<S>                                                                    <C>            <C>
United States..................................................            $15,653       $20,445
Canada.........................................................                699           743
United Kingdom.................................................              1,400         1,363
Other..........................................................              2,676         2,324
                                                                           -------       -------
                                                                           $20,428       $24,875
                                                                           =======       =======
</TABLE>


                                       7
<PAGE>

                                 CAPTARIS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


4.   Earnings Per Share

<TABLE>
                                                                                Quarter ended March 31,
                                                               ------------------------------------------------------------
                                                                        2001                               2000
                                                               ------------------------------------------------------------
                                                                          (in thousands, except per share data)
                                                               ------------------------------------------------------------
                                                                Basic            Diluted           Basic           Diluted
                                                               --------          --------         --------         --------
<S>                                                         <C>                <C>               <C>              <C>
Net income                                                     $(4,937)          $(4,937)          $ 3,551          $ 3,551
                                                               ========          ========         ========         ========
Computation of common and common
     Equivalent shares outstanding:
               Common Stock                                     32,232            32,232            31,255           31,255
               Options                                               -                 -                 -            2,586
                                                               --------          --------         --------         --------
Common and common equivalent shares
     Used in computing per share amounts                        32,232            32,232            31,255           33,841
                                                               ========          ========         ========         ========
Net income per share                                           $ (0.15)          $ (0.15)          $  0.11          $  0.10
                                                               ========          ========         ========         ========
</TABLE>


5.   Non-recurring Charges

     On March 15, 2001, the Company announced the consolidation of its two
primary product groups, Computer Telephony Software Group and Document Exchange
Software Group, resulting in a 14% reduction of its workforce and a one-time
charge of approximately $1 million which consisted of mainly severance and other
employee benefits and consulting services.


6.   Changes in Shareholders' Equity

<TABLE>
<S>                                                                        <C>
Beginning balance at December 31, 2000                                               $113,001
     Net loss                                                                          (4,937)
     Stock issued for Infinite acquisition                                              8,058
     Stock to be issued for Infinite acquisition                                        1,480
                                                                               --------------------
Ending balance at March 31, 2001                                                     $117,602
                                                                               ====================
</TABLE>

                                       8
<PAGE>

                                 CAPTARIS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


7.   Legal Proceedings

     In March 2000 several class-action lawsuits were filed in the United States
District Court for the Western District of Washington alleging that during the
period January 20, 2000 through March 17, 2000, the Company and several officers
and directors made or participated in misrepresentations about the Company's
ability to achieve revenue expectations for the first quarter of 2000. The court
has approved appointment of three plaintiffs to act as Lead Plaintiffs and has
consolidated all lawsuits into a single action. No class has been certified. On
January 25, 2001, the Court granted Captaris' motion to dismiss the consolidated
complaints on the grounds that "none of the four events relied upon by
plaintiffs, whether considered separately or in combination, gives rise to a
strong inference that any of the defendant directors or officers acted with
knowledge or deliberate recklessness." The Court dismissed the claims against
four Captaris officers and directors with prejudice. Based on additional
representations made by plaintiffs' counsel at oral argument, the Court granted
plaintiffs' request that they be allowed to file an amended complaint to attempt
to correct the legal deficiencies the Court identified in the consolidated
complaint as to Captaris and two officers. Plaintiffs filed their Second
Consolidated Amended Complaint on February 25, 2001. Captaris and the two
remaining individual defendants have filed a motion to dismiss the Second
Consolidated Amended Complaint with prejudice. This motion is currently
scheduled to be considered by the Court in May 2001. The Company believes that
the allegations of the lawsuits are without merit and intends to continue to
vigorously defend the lawsuit if the claims are not dismissed.

                                       9
<PAGE>

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


The discussion in this report contains forward-looking statements that involve
risks and uncertainties. Captaris' actual results could differ materially from
those discussed below. Factors that could cause or contribute to such
differences include, but are not limited to, those identified below, and those
discussed in the section titled "Additional Factors that May Affect Our
Business, Future Operating Results and Financial Condition," included elsewhere
in this report. When used in this document, the words "believes," "expects,"
"anticipates," "intends," "plans" and similar expressions are intended to
identify certain of these forward-looking statements. However, these words are
not the exclusive means of identifying such statements. In addition, any
statements that refer to expectations, projections or other characterizations of
future events or circumstances are forward-looking statements.

     The Company is a leading provider of business to business communication
solutions for small, medium and enterprise-sized organizations. The Company
provides flexible, cost-effective products that address the unified messaging,
voice messaging, fax server, production fax and outsourced document delivery
markets, and distributes these products primarily through independent
distributors, value-added resellers and OEM's. The Company's products run on
off-the-shelf hardware, support Windows NT and Windows 2000, and interface with
a wide variety of telephony and computer equipment. The Company also offers
add-on modules and software upgrades that provide increased capacity and
functionality.

     The Company's product lines include both telephony-oriented and computer-
oriented products, and outsourced electronic document (e-document) delivery
services. The Company's telephony-oriented product lines serve the messaging
markets and focus on voice and call processing, unified messaging, and personal
and workgroup call management. The Company's computer-oriented product lines
target the fax server and production fax markets and focus on high-performance
fax processing and unified messaging, as well as Internet, corporate intranet
and phone-based information access. E-document delivery services target the
outsourced mass fax and email markets for time-critical business-to-business
(B2B) communications. These services include high-volume, instantaneous IP fax
and email broadcast and merge offerings, fax reply and fax-on-demand
applications as well as industry-specific services and custom workflow solutions
for unique customer requirements.

     The Company sells its products primarily through an indirect channel of
resellers and distributors, as well as through direct sales, OEM and private
label agreements. The Company's telephony-oriented products include: CallXpress,
and CallXpress Enterprise, a multi-application, high capacity unified messaging
platform and PhoneXpress, a full-featured advanced messaging system for small to
medium-sized enterprises. The Company's data oriented enhanced fax products
include RightFAX and RightFAX Enterprise, the Company's LAN-based fax server
lines for Windows NT / Windows 2000, and the RightFAX Production System, a high-
volume production-oriented server that enables fax and other forms of electronic
transmission for electronic commerce applications. The Company's e-document
delivery services, branded under the name MediaLinq, offer high-volume,
simultaneous delivery of fax and email documents via the web, from desktop
software or a fax machine.

     On January 3, 2001 the Company acquired Infinite Technologies, a privately
held global supplier of wireless applications and wireless infrastructure
solutions. As described in Note 2 to the Consolidated Financial Statements,
total consideration paid under terms of the merger agreement approximated $24
million.

                                       10
<PAGE>

     On March 15, 2001, the Company announced a new business strategy based on
the Mobile Business Solutions market. In conjunction with this announcement the
Company announced the consolidation of its two primary product groups, Computer
Telephony Software Group and Document Exchange Software Group, resulting in a
14% reduction of its workforce and a one-time charge of approximately $1
million. During the transition period following this consolidation, the Company
expects that its net sales will be relatively flat for the remainder of 2001.
Additionally, as this new strategy is implemented, expenditures in the areas of
research and development and sales, general and administrative, are expected to
increase from the amounts expended in the year ended December 31, 2000 and for
the quarter ended March 31, 2001.


Results of Operations

     Net sales.  Net sales decreased 17.9% to $20,428,00 in the quarter ended
March 31, 2001, from $24,875,000 in the comparable 2000 quarter. Software
product sales decreased 14.3% while E-document services decreased 25.9% over the
preceding year. International sales for the quarter increased 7.8% compared to
the first quarter of 2000, and represented 23.4% of total net sales.

     Gross profit.  Gross profit as a percentage of net sales decreased to 64.0%
in the quarter ended March 31, 2001, as compared to 65.5% in the comparable
prior-year quarter, mainly as a result of the low sales volume and the impact of
the non-volume-related fixed costs such as technical support and system
integration operations.

     Research and development.  As a percentage of sales, research and
development expenses for the current quarter increased to 16.6% compared with
9.9% of net sales in the comparable prior-year quarter. Research and development
expenses increased to $3,390,000 in the quarter ended March 31, 2001 from
$2,463,000 in the comparable prior-year period. This increase reflects the
addition of staff from the acquisition of Infinite Technologies and increases
associated with new product development. The Company currently expects to
continue to invest in research and development at greater than historical levels
as it expands its mobile business solutions and other product offerings.

     Sales, general and administrative.  Sales, general and administrative
expenses increased to $15,205,000 in the quarter ended March 31, 2001 from
$10,827,000 in the comparable prior-year quarter, due primarily to the addition
of the operations of Infinite Technologies, an additional provision for doubtful
accounts of $650,000 which management believes is reflective of current economic
conditions, and the corporate re-branding program begun during the quarter.
Sales, general and administrative costs for the current quarter represented
74.4% of net sales, an increase from 43.5% in the comparable prior-year quarter.
The Company currently anticipates such expenditures to increase as the Company
continues to invest in its mobile business solutions and the infrastructure
necessary to support this and other direct selling opportunities.

     Non-recurring charges.  In the first quarter of 2001 non-recurring charges
of $1,042,000 were incurred related primarily to the consolidation of the
operations of the Tucson and Kirkland product groups and consisted of mainly
severance and other employee benefits and consulting services. Additionally,
$1,900,000 of acquired in-process research and development related to the
acquisition of Infinite Technologies was written off during the quarter.

     Operating (loss) income.  Operating loss for the quarter ended March 31,
2001 was $8,456,000 compared to operating income of $2,991,000, or 12.0% of net
sales, in the comparable prior-year quarter.

     Other income, net.  Net other income was $860,000 in the quarter ended
March 31, 2001, as compared to $2,558,000 in the comparable prior-year quarter,
due to a one-time $1,784,000 realized gain on the sale of a marketable security
held for investment and increased interest income on investments during the
first quarter of 2000.

     Income tax.  The effective tax benefit rate for the quarter ended March 31,
2001 was 35.0% compared with an effective tax rate of 36.0% for the prior year
period. Income tax benefit for the

                                       11
<PAGE>

quarter ended March 31, 2001 was $2,659,000 compared with income tax expense of
$1,998,000 in the comparable prior-year quarter.

     Net (loss) income.  The Company recognized a net loss of $4,937,000 or
$0.15 per diluted common share for the quarter ended March 31, 2001, as compared
to net income of $3,551,000 or $0.10 per diluted common share for the comparable
prior-year quarter.


Historical Segment Revenue

Effective with the combination of certain product groups in the quarter ended
March 31, 2001, the Company is providing the following comparative revenue
information by segment:

<TABLE>
                                                       Software         E-document       Total
                                                   ---------------   ----------------   -------------
                                                       Products          Services
                                                   ---------------   ----------------
<S>                                             <C>               <C>               <C>
Net Sales for Quarter ended:
March 31, 1999                                          $ 22,621           $ 6,222      $ 28,843
June 30, 1999                                             24,675             7,189        31,864
September 30, 1999                                        26,137             7,110        33,247
December 31, 1999                                         29,426             6,844        36,270
                                                   --------------------------------------------------
    Total 1999                                          $102,859           $27,365      $130,224

Net Sales for Quarter ended:
March 31, 2000                                          $ 17,229           $ 7,646      $ 24,875
June 30, 2000                                             18,828             6,412        25,240
September 30, 2000                                        19,673             5,738        25,411
December 31, 2000                                         19,859             5,152        25,011
                                                   --------------------------------------------------
    Total 2000                                          $ 75,589           $24,948      $100,537
</TABLE>



Liquidity and Capital Resources

     Cash used by operating activities in the three months ended March 31, 2001
was $1,567,000 due primarily to the loss from operations and the consolidation
of product groups.  The accounts receivable collection period was approximately
58 days at March 31, 2001 compared to 54 days in the comparable prior year
period.  Accounts receivable decreased from $16.0 million at December 31, 2000
to $13.3 million at March 31, 2001.


     As further described in Note 2 of the Consolidated Financial Statements, on
January 3, 2001 the Company acquired Infinite Technologies, a privately held
global supplier of wireless applications and wireless infrastructure solutions.
The Company has accounted for the business combination as a purchase. Under the
terms of the merger agreement, the Company will pay up to an additional $3.9
million in a combination of cash and the Company's common stock under an earn-
out arrangement over the next three years which will be expensed as compensation
by the Company.

     Subsequent to the first quarter of 2001, the Company repurchased
approximately 228,000 shares, utilizing approximately $446,000. The Company may
continue to repurchase shares subject to overall market conditions, its stock
price, and the Company's cash position and requirements going forward.

     The Company maintains a $4.0 million unsecured revolving line of credit,
none of which is outstanding. The Company's line of credit expires in August
2001, and contains certain financial

                                       12
<PAGE>

covenants and restrictions as to various matters. The Company is currently in
compliance with all such covenants and restrictions. Borrowings under the line
of credit bear interest at the bank's prime rate or its interbank offering rate
plus 1.50%, at the Company's option.

     The Company expects that its current cash, cash flow from operations, and
available bank line of credit will provide sufficient working capital for
operations for the foreseeable future.


Additional Factors that May Affect our Business, Future Operating Results and
Financial Condition

The following factors may materially adversely affect our business, financial
condition or results of operations. In that event the trading price of our
shares could decline and you may lose part or all of your investment, therefore,
you should carefully consider the risks described below before making an
investment decision.

Our recently expanded business strategy to focus on the mobile business
solutions market, which is a new and unproven market, may not be successful.

In March 2001, we announced that we are expanding our business strategy to focus
on the mobile business solutions market, which we believe is a higher-growth
opportunity. In order to implement this strategy, we will be required to design,
develop and introduce competitive new wireless products, improve our marketing
of such products and build credibility among customers that we are capable of
delivering advanced mobile business solutions. Implementation of this strategy
will involve substantial increased costs and, as a result, our expenses will
increase disproportionately to revenue in the near term. Moreover,
implementation on this strategy may disrupt our existing operations and distract
management, which could have a material adverse effect on our operating results.

There can be no assurance that we will realize a return on our investment in the
mobile business solutions market. If we are not successful in implementing our
strategy, our revenue could decline. Even if we are successful, our revenue may
still decrease if the market opportunity for mobile wireless solutions does not
develop in the ways we anticipate. This market opportunity is in its early
stages and we can not guarantee that the demand for mobile business solutions
will develop as fast as we anticipate, that new technologies will not cause the
market to evolve in a manner different from what we expect or that we will be
able to obtain a leadership position as this market opportunity develops.

Our operating results fluctuate from quarter to quarter, which could cause our
operating results to fall below expectations of securities analysts and
investors.

We expect our operating results to fluctuate significantly from quarter to
quarter in the future. Because of these fluctuations, our operating results for
a particular quarter may fall below the expectations of securities analysts and
investors. If this occurs, the trading price of our stock may decline. Such
fluctuations could cause period-to-period comparisons to be less than
meaningful. Numerous factors contribute to the unpredictability of our operating
results, including

     .  the timing of customer orders;

     .  changes in our mix of products and distribution channels;

     .  the announcement or introduction of new products by us or our
        competitors;

     .  pricing pressures; and

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<PAGE>

     .  general economic conditions.

Most of our software product revenue comes from current quarter orders and
sales, of which a substantial portion, and sometimes a majority, occurs in the
last month of each quarter. We do not maintain a large backlog of orders, and
most of our distributors maintain little or no inventory. Order fulfillment
cycles are typically short, and often as short as one to two days. Accordingly,
the timing of customer orders can cause significant variations in quarterly
results of operations. Because we sell our products to end-customers through
various third parties such as telephone system manufacturers, value-added
resellers, telephone interconnect dealers, and others, we are unable to project
with certainty the actual orders, sales, and revenues these third parties will
generate in a given quarter. The combination of these factors impairs and delays
our ability to know when revenues and earnings will be higher or lower than
expected. We base product development and other operating expenses on our
expected revenues. Because our expenses are relatively fixed in the short term,
we may be unable to adjust our spending in time to compensate for any unexpected
shortfall in quarterly revenues.

Our operating results may vary by season, which could cause our operating
results to fall below expectations of securities analysts and investors.

Our results of operations may fluctuate as a result of seasonal factors, and
this may cause our operating results to fall below expectations of securities
analysts and investors for a particular quarter. Specifically, due to typical
year-end dealer sales patterns and end-user buying patterns, net sales in our
first quarter, without taking into account the effect of acquisitions, have in
the past declined from the fourth quarter of the previous year.

We rely heavily on telephone system manufacturers, independent equipment dealers
and value-added resellers.

     A substantial majority of our net sales depends on a network of independent
telephone equipment dealers and computer-oriented value-added resellers. There
is intense competition for the attention of these independent dealers and
resellers from our competitors and from providers of other products distributed
through these channels. Many of these dealers and resellers do not have the
financial resources to withstand a downturn in their businesses. We may not be
able to maintain or expand our network of dealers and resellers in the future.
Moreover, our dealers and resellers may not maintain or expand their present
level of efforts to sell our products. If we lose a major dealer or reseller, or
if our dealers and resellers lose interest in selling our products, our
business, results of operations and financial condition may suffer.

Failure to establish and maintain strategic relationships could limit our
ability to increase sales.

Creation and maintenance of strategic relationships is important to our success
because these relationships enable us to market and distribute our products to a
larger customer base than we could otherwise reach through our director
marketing efforts. We currently have strategic relationships with Ericsson, NEC
Corporation, Fujitsu Limited, Lotus Development Corporation, Xerox Corporation
and others. However, we may not be successful in creating new strategic
relationships on acceptable terms, if at all. Moreover, although we view our
strategic relationships as an important factor in the successful
commercialization of our products and services, our current strategic partners
may not view their relationships with us as significant for their own businesses
and any one them could reassess their commitment to us in the future. Further,
our relationships are generally non-exclusive, which means our strategic
partners may develop relationships with some of our competitors. Failure of one
or more of our strategic partners to successfully develop and sustain a market
for our services, or the termination of one or more of our strategic
relationships could adversely affect our ability to increase sales.

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<PAGE>

The integration of recent and any future acquisitions may be difficult and
disruptive.

We frequently evaluate potential acquisitions of products, technologies and
businesses. Since January 1997, we have made five strategic acquisitions
including the January 2001 acquisition of Infinite Technologies. Our recent and
any future acquisitions may direct management's attention away from the day-to-
day operations of our business and may pose numerous other risks. For instance,
we may not be able to successfully integrate any technologies, products,
personnel or operations of companies that we may acquire.

In making acquisitions, we may need to make dilutive issuances of our equity
securities, incur debt, write off purchased, in-process research and development
and amortize expenses related to goodwill and other intangible assets.

Technology and customer needs change rapidly in our industry.

In our industry, technology and customer demands change rapidly, and our
competitors and we frequently introduce new products and features. To succeed,
we must identify, develop and market new products, features and services that
achieve broad market acceptance by satisfying those changing customer needs and
keeping pace with those technological developments. To do this, we must spend
substantial funds on product development. We regularly devote significant
resources to technologies that we anticipate will be widely adopted. In
addition, in the future, we intend to pursue new revenue streams by leveraging
our expertise in voice and data communication to integrate these capabilities in
unified messaging and mobile wireless delivery, among other possible areas. The
market for unified messaging software and mobile wireless delivery is relatively
new and as yet unproven. To be successful, we must, among other things, develop
and market products and services that achieve broad market acceptance. We may
not be able to develop new products or product enhancements on a timely basis.
Even if we do, the market may not accept the new products or product
enhancements that we develop.

Our market is highly competitive.

The computer-telephony market is highly competitive. Moreover, we believe the
competitive pressures we face are likely to intensify, particularly as our
competitors make new offerings based on the Windows operating system. We may not
have the financial resources, marketing, distribution and service capability,
and depth of key personnel or technological knowledge to continue to compete
successfully in each of our markets.

We believe the main competitive factors affecting our business are breadth and
quality of application software, product integration, ability to respond to
technological change, quality of a Company's sales force, price, size of the
installed base, level of customer support and professional services.

In the telephony-oriented market for messaging systems, our principal
competitors are independent suppliers such as Avaya Inc., Mitel Corporation,
Active Voice Inc., Cisco Systems, Inc. and Callware Technologies, Inc.

In addition to independent suppliers of computer-telephony solutions, we also
compete with private branch exchange and key telephone systems manufacturers.
Those manufacturers offer integrated voice messaging systems, unified messaging
systems and automatic call distribution systems of their own design or under
various OEM agreements. Competitors in this category include Lucent
Technologies, Inc., Nortel Networks Corporation, Siemens Business Communication
Systems, Inc., Mitel Corporation and NEC America, Inc.

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<PAGE>

In the market for LAN-based facsimile systems, our principal competitors are
Omtool, Ltd., Optus Software, Inc., Esker, S.A. and Computer Associates
International, Inc. Our fax server products also compete with vendors offering a
range of alternative facsimile solutions, including 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 the market for production facsimile systems,
our principal competitors are Biscom, Inc., Esker, S.A. and Topcall
International AG. In the market for document distribution products, our
principal competitors include the Xpedite division of PTEK Holdings, Inc. and
other telecommunications providers such as Cable & Wireless, Inc. The
competitors of our newly acquired Infinite Technologies include Openwave
Systems, Inc., Aether Systems, Inc. and 724 Solutions, Inc.


Further acceptance of open systems architectures and the development of industry
standards in the call processing market may eliminate some of the technical
barriers to entry, allowing additional competitors to enter the market. Many of
our existing competitors have larger customer and installed bases and
substantially greater technical, financial and marketing resources than we do.
In addition, some of our competitors have a marketing advantage because they can
sell their call processing equipment or facsimile solutions as part of their
broader product offerings. Recently we believe our business has been, and may
continue to be, adversely affected by the introduction of next generation IP PBX
switches as potential customers delay purchasing decisions as they evaluate
these new product offerings. We expect our competitors will continue to offer
improved product technologies and capabilities. The availability of these
products could cause sales of our existing products to decline. For these
reasons, we may be unable to compete successfully against our current and future
competitors.

Our average sales prices have declined for some of our products.

The average sales prices in our basic voice messaging products have declined due
to competitive pressures. In the future, prices may decline in some of our other
product lines. If the average sales prices of our more significant product lines
fall, our overall gross margins will likely fall. To offset and forestall
declining average sales prices, we must continue to develop product enhancements
and new products with advanced features that are likely to generate higher-
margin incremental revenue. If we are unable to do so in a timely manner or if
our products do not achieve significant customer acceptance, our business,
results of operations and financial condition may suffer.  Additionally, we have
experienced, as have others in our broadcast fax and document delivery markets,
pricing pressures for our services.

We may be unable to adequately protect our proprietary rights.

To succeed, we must adequately protect our proprietary technology. We rely on a
combination of patents, copyrights, trademarks and trade secret laws,
nondisclosure and other agreements, and technical measures to protect our
proprietary technology, but those measures may be insufficient. We have one
patent in the area of unified messaging, but our competitors may challenge or
circumvent the claims in that patent. Our current patent, or any future patents,
may never provide us with any competitive advantages. Other measures that we
take to protect our proprietary technology may not prevent or deter
misappropriation of our technology or the development of technologies with
similar characteristics. Moreover, our use of open systems architecture in the
design of our products may make it easier for competitors to misappropriate or
replicate our designs and developments.

Other companies may claim that we infringe their intellectual property or
proprietary rights, which could cause us to incur significant expenses or be
prevented from selling our products.

Our success depends on our ability to operate without infringing the patents and
proprietary rights of third parties. Product development is inherently uncertain
in a rapidly evolving technological

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<PAGE>

environment in which there may be numerous patent applications pending, many of
which are confidential when filed, with regard to similar technologies.
Historically, competitors in the computer-telephony software industry have filed
numerous allegations of patent infringement, resulting in considerable
litigation. We have received claims of patent infringement from several parties
and will probably receive additional claims in the future. While none of those
claims has led to litigation, they may yet result in litigation. Any litigation,
regardless of our success, would probably be costly and require significant time
and attention of our key management and technical personnel. Litigation could
also force us to

     .  stop or delay selling, or using, products that use the challenged
        intellectual property;

     .  pay damages for infringement;

     .  obtain licenses, which may be unavailable on acceptable terms; or

     .  redesign products or services that use the infringing technology.


We face risks from expansion of our international operations.

Our growth depends in part on continued expansion of our international sales.
International sales generated approximately 15%, 18% and 19% of our net sales in
the years ended December 31, 1998, 1999 and 2000, respectively. We have spent
significant management attention and financial resources on our international
operations. A significant portion of our revenues are subject to the risks
associated with international sales, which include

     .  difficulty adapting products to local languages and telephone system
        technology;

     .  inability to respond to changes in regulatory requirements;

     .  inability to meet special standards requirements;

     .  exposure to exchange rate fluctuations;

     .  tariffs and other trade barriers;

     .  difficulties in staffing and managing international operations;

     .  potentially adverse tax consequences; and

     .  uncertainties arising from local business practices and cultural
        considerations.

In addition, the laws of some foreign countries are uncertain or do not protect
intellectual property rights to the same extent as the United States.  Moreover,
we could be sued for patent infringement or other intellectual property
violations in a foreign country where it could be very costly to defend such a
lawsuit.

Currently, substantially all of our international sales are denominated in U.S.
dollars. Increases in the value of the dollar against local currency could cause
our products to become relatively more expensive to customers in a particular
country, leading to reduced sales or profitability in that country. As we
continue to expand our international operations, we expect our non-dollar-
denominated sales and our exposure to gains and losses on international currency
transactions to increase. We do not currently engage in transactions to hedge
against the risk of currency fluctuations, but we may do so in the future.

We may not be able to hire and retain highly skilled employees, which could
affect our ability to compete effectively.

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<PAGE>

To succeed, we must attract and retain key personnel in engineering, research
and development, marketing, sales, finance and administration. In particular, as
we implement our recently announced strategy of focusing on mobile business
solutions, we will need to hire employees with experience developing and
providing wireless products and services. We also depend to a significant degree
on the efforts of our senior management team. If we fail to recruit such
personnel or lose the services of existing key persons in any functional area,
our current operations and new product development efforts could be adversely
affected. Competition for skilled personnel is intense. When our stock price is
lower than our employees' stock option price, it is particularly difficult to
retain skilled personnel. We do not maintain material key person life insurance.

We may experience difficulties in managing our growth.

Growth in our business has placed, and will continue to place, significant
demands on our management and operations. To succeed, our officers and key
employees must manage growth successfully. We must continue to implement and
improve our operational, financial and management information systems. In
addition, we must expand, train and manage our employee base. We may be unable
to timely and successfully accomplish these tasks.

We depend on third parties for certain key components of our products.

We use standard computer hardware for our products. Most of the components we
use are readily available. However, only three domestic suppliers can provide
voice processing circuit boards in the quantities we need. In addition, only two
domestic suppliers can provide our facsimile processing circuit boards in the
quantity we require. Historically, we have relied almost exclusively on Dialogic
Corporation (now a part of Intel Corporation) for our voice cards, and on
Dialogic and Brooktrout, Inc. for our fax cards. We rely on those suppliers
primarily because of volume price discounts and the cost and effort required to
develop software for an alternate voice or fax card. Significant delays,
interruptions or reductions in our supply of voice or fax cards, or unfavorable
changes to price and delivery terms could adversely affect our business.

Our stock price may be highly volatile.

The market price of our common stock has been, and may continue to be, highly
volatile. The future price of the common stock will fluctuate in response to
factors such as

     .  new product announcements or changes in product pricing policies by us
        or our competitors;

     .  quarterly fluctuations in our operating results;

     .  announcements of technical innovations;

     .  announcements relating to strategic relationships or acquisitions;

     .  changes in earnings estimates by securities analysts; and

     .  general conditions in the computer-telephony market.

In addition, the market prices of securities issued by many companies,
particularly in high-technology industries, are volatile for reasons unrelated
to the operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of our common stock.

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<PAGE>

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk related to changes in interest rates
and foreign currency exchange rates, each of which could adversely affect the
value of the Company's investments. The Company does not currently use
derivative financial instruments.

     The Company maintains a short-term investment portfolio consisting of
interest bearing securities with an average maturity of less than one year.
These securities are classified as "available for sale" securities. The interest
bearing securities are subject to interest rate risk and will fall in value if
market interest rates increase. If market interest rates were to increase
immediately and uniformly by 10% from levels at March 31, 2001, the fair value
of the portfolio would decline by an immaterial amount. Because the Company has
the current ability to hold its fixed income investments until maturity, it does
not expect its operating results or cash flows to be affected to any significant
degree by a sudden change in market interest rates on its securities portfolio.

     The Company has assets and liabilities denominated in certain foreign
currencies related to the Company's international sales operations. The Company
has not hedged its translation risk on these currencies as the Company has the
current ability to hold its foreign-currency denominated assets indefinitely and
does not expect that a sudden or significant change in foreign exchange rates
would have a material impact on future net income or cash flows.

                                       19
<PAGE>

                          Part II.  OTHER INFORMATION


Item 1.  Legal Proceedings

     In March 2000 several class-action lawsuits were filed in the United States
District Court for the Western District of Washington alleging that during the
period January 20, 2000 through March 17, 2000, the Company and several officers
and directors made or participated in misrepresentations about the Company's
ability to achieve revenue expectations for the first quarter of 2000. The court
has approved appointment of three plaintiffs to act as Lead Plaintiffs and has
consolidated all lawsuits into a single action. No class has been certified. On
January 25, 2001, the Court granted Captaris' motion to dismiss the consolidated
complaints on the grounds that "none of the four events relied upon by
plaintiffs, whether considered separately or in combination, gives rise to a
strong inference that any of the defendant directors or officers acted with
knowledge or deliberate recklessness." The Court dismissed the claims against
four Captaris officers and directors with prejudice. Based on additional
representations made by plaintiffs' counsel at oral argument, the Court granted
plaintiffs' request that they be allowed to file an amended complaint to attempt
to correct the legal deficiencies the Court identified in the consolidated
complaint as to Captaris and two officers. Plaintiffs filed their Second
Consolidated Amended Complaint on February 25, 2001. Captaris and the two
remaining individual defendants have filed a motion to dismiss the Second
Consolidated Amended Complaint with prejudice. This motion is currently
scheduled to be considered by the Court in May 2001. The Company believes that
the allegations of the lawsuits are without merit and intends to continue to
vigorously defend the lawsuit if the claims are not dismissed.


Item 6.  Exhibits and Reports on Form 8-K

          (a)  Exhibits

               None.

          (b)  Reports on Form 8-K
               The Company did not file any reports on Form 8-K during the
               quarter ended March 31, 2001.

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<PAGE>

                                  SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                       Captaris, Inc.
                                       (Registrant)

Date:  May 14, 2001                    By:  /s/ Jeffrey B. deCillia
                                          -------------------------------------
                                          Jeffrey B. deCillia
                                          Executive Vice President,
                                          Chief Financial Officer

                                          Signing on behalf of registrant and
                                             as principal financial officer

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