<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 September 30, 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 November
2, 2001 was 31,746,067.


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

<PAGE>

                                 CAPTARIS, INC.

                                    FORM 10-Q
                    For the Quarter Ended September 30, 2001

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                              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 .............................................     11

            Item 3. Quantitative and Qualitative Disclosures about Market Risk ............     21

PART II.    Other Information

            Item 1. Legal Proceedings .....................................................     22


            Item 6. Exhibits and Reports on Form 8-K. .....................................     23

Signatures ................................................................................     24
</TABLE>


                                       2

<PAGE>

                          Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

                                 CAPTARIS, INC.

                           CONSOLIDATED BALANCE SHEETS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       September 30,  December 31,
                                                                            2001          2000
                                                                       -------------  ------------
                                     ASSETS                                   (in thousands)
<S>                                                                       <C>           <C>
Current assets:
     Cash and cash equivalents                                            $ 11,516      $ 36,744
     Short-term investments                                                 62,491        51,679
     Accounts receivable, net                                               14,787        16,010
     Inventories                                                             5,802         6,249
     Deferred and prepaid income taxes                                       6,802         3,007
     Prepaid expenses and other                                              1,646         1,871
                                                                          --------      --------
                         Total current assets                              103,044       115,560

Equipment and leasehold improvements, net                                    7,760         6,220
Goodwill, intangibles and other, net                                        19,944         5,256
Deferred income taxes                                                        3,208         3,208
                                                                          --------      --------

                                                                          $133,956      $130,244
                                                                          ========      ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                     $  4,525      $  4,914
     Accrued compensation and benefits                                       6,365         3,584
     Other accrued liabilities                                               9,627         8,745
     Current portion of note payable                                           513             -
                                                                          --------      --------
                         Total current liabilities                          21,030        17,243
                                                                          --------      --------

 Note payable, net of current portion                                          882             -
                                                                          --------      --------
                         Total liabilities                                  21,912        17,243
                                                                          --------      --------

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; 31,746,067 and 30,666,319 shares
      outstanding, respectively, and additional paid-in capital             64,865        56,493
     Retained earnings                                                      47,179        56,508
                                                                          --------      --------
                         Total shareholders' equity                        112,044       113,001
                                                                          --------      --------

                                                                          $133,956      $130,244
                                                                          ========      ========
</TABLE>



          See accompanying notes to consolidated financial statements.


                                      3

<PAGE>

                                 CAPTARIS, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                         Quarter ended         Nine months ended
                                                         September  30,          September 30,
                                                      --------------------   --------------------
                                                        2001        2000       2001        2000
                                                      --------    --------   --------    --------
                                                         (in thousands, except per share data)
<S>                                                   <C>         <C>        <C>         <C>
Net sales                                             $ 23,737    $ 25,412   $ 67,714    $ 75,527
Cost of sales                                            9,174       8,228     25,549      25,368
                                                      --------    --------   --------    --------
        Gross profit                                    14,563      17,184     42,165      50,159

Operating expenses:
     Research and development                            3,408       2,541     10,911       7,498
     Sales, general and administrative                  14,774      12,066     44,959      34,617
     Non-recurring charges                                   -           -      2,942           -
                                                      --------    --------   --------    --------
        Total operating expenses                        18,182      14,607     58,812      42,115
                                                      --------    --------   --------    --------
Operating (loss) income                                 (3,619)      2,577    (16,647)      8,044
Other income, net                                          771         951      2,586       4,436
                                                      --------    --------   --------    --------
(Loss) Income before income taxes                       (2,848)      3,528    (14,061)     12,480
Income tax (benefit) provision                            (854)      1,235     (4,779)      4,423
                                                      --------    --------   --------    --------
Net (loss) income                                     $ (1,994)   $  2,293   $ (9,282)   $  8,057
                                                      ========    ========   ========    ========

Basic net (loss) income per common share              $  (0.06)   $   0.07   $  (0.29)   $   0.26

Weighted average common shares outstanding              32,075      30,666     32,137      30,976

Diluted net (loss) income per common share            $  (0.06)   $   0.07   $  (0.29)   $   0.25


Weighted average common and common equivalent
shares outstanding                                      32,075      31,119     32,137      32,260
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>

                                 CAPTARIS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                 Nine months ended
                                                                                   September 30,
                                                                               --------------------
                                                                                 2001        2000
                                                                               --------    --------
                                                                                  (in thousands)
<S>                                                                            <C>         <C>
Cash flows from operating activities:
     Net (loss) income                                                         $ (9,282)   $  8,057
Adjustments to reconcile net income to net cash provided by operating
         activities:
     Depreciation and amortization                                                5,531       3,797
     Deferred and prepaid income taxes                                           (3,795)       (375)
     Gain on sale of marketable securities                                            -      (1,784)
     Purchased in-process research and development, expensed                      1,900
     Stock option income tax benefit                                                  -       5,211
     Changes in current assets and liabilities, net of amounts
     acquired
         Accounts receivable                                                      1,420       5,254
         Inventories                                                                458        (323)
         Prepaid expenses and other assets                                          325         166
         Accounts payable                                                          (955)     (1,068)
         Accrued compensation and benefits                                        2,781        (737)
         Other accrued liabilities                                                  544         858
         Federal income taxes payable                                                 -      (1,484)
                                                                               --------    --------
              Net cash (used) provided by operating activities                   (1,079)     17,572
                                                                               --------    --------

Cash flows from investing activities:
     Purchase of equipment and leasehold improvements                            (3,389)     (1,941)
     Purchase of short-term investments, net                                    (10,812)     (2,008)
     Proceeds from sale of marketable securities                                      -       2,101
     Cash paid in acquisition, net                                               (8,800)          -
     Current portion of long term debt                                               44           -
     Purchase of intangibles and other long-term assets                             (27)       (843)
                                                                               --------    --------
               Net cash used by investing activities                            (22,984)     (2,691)
                                                                               --------    --------

Cash flows from financing activities:
     Repurchase of common stock                                                  (1,170)    (10,265)
     Proceeds from exercise of stock options                                          5       5,368
                                                                               --------    --------
               Net cash used by financing activities                             (1,165)     (4,897)
                                                                               --------    --------
Net (decrease) increase in cash and cash equivalents                            (25,228)      9,984
Cash and cash equivalents at beginning of period                                 36,744      23,923
                                                                               --------    --------
Cash and cash equivalents at end of period                                     $ 11,516    $ 33,907
                                                                               ========    ========

Supplementary disclosures of cash flows:

     Income taxes (refunded) paid                                              $ (1,138)   $    367

Supplementary disclosures of noncash portion of acquisitions:

     Stock issued in Infinite acquisition                                      $  9,538           -
</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 September 30, 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,
inclusive of the potential earnout described below. 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:

                                                                  (in thousands)

        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
                                                                   ===========

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>
<CAPTION>
                                                                    Software       E-document      Reconciling        Total
                                                                    --------       ----------      -----------        -----
                                                                    Products        Services          Amounts
                                                                    --------        --------          -------
                                                                                       (in thousands)
  <S>                                                             <C>              <C>             <C>              <C>
  Quarter ended September 30, 2001
  Net Sales .................................................     $   18,148       $  5,589          $      -       $  23,737
  Operating Income (loss) ...................................            (27)           263             (3,855)        (3,619)

  Quarter ended September 30, 2000
  Net Sales .................................................     $   19,674       $  5,738          $       -      $  25,412
  Operating Income ..........................................          3,400            960             (1,783)         2,577

  Nine months ended September 30, 2001
  Net Sales .................................................     $   50,600       $  17,114         $       -      $  67,714
  Operating Income (loss) ...................................         (1,909)          1,042           (15,780)       (16,647)

  Nine months ended September 30, 2000
  Net Sales .................................................     $   55,732       $  19,795         $       -      $  75,527
  Operating Income ..........................................          8,731           4,149            (4,836)         8,044
</TABLE>

The Company's sales by country were as follows:

<TABLE>
<CAPTION>
                                                                                Quarter ended             Nine months ended
                                                                                -------------             -----------------
                                                                                 September 30,              September 30,
                                                                                 -------------              -------------
                                                                               2001         2000           2001        2000
                                                                               ----         ----           ----        ----
                                                                                             (in thousands)
  <S>                                                                       <C>          <C>            <C>          <C>
  United States .........................................................   $ 19,291     $ 20,618       $ 53,854     $ 61,302
  Canada ................................................................        542          783          1,975        2,289
  United Kingdom ........................................................      1,452        1,637          4,206        4,588
  Other .................................................................      2,452        2,374          7,679        7,348
                                                                            --------     --------       --------     --------
                                                                            $ 23,737     $ 25,412       $ 67,714     $ 75,527
                                                                            ========     ========       ========     ========
</TABLE>

                                       7

<PAGE>

                                 CAPTARIS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

4.       Earnings Per Share

<TABLE>
<CAPTION>
                                                                           Quarter ended September 30,
                                                          ---------------------------------------------------------
                                                                       2001                          2000
                                                          --------------------------     --------------------------
                                                                      (in thousands, except per share data)
                                                          ---------------------------------------------------------
                                                               Basic         Diluted         Basic          Diluted
                                                          -----------    -----------     -----------    -----------
<S>                                                       <C>              <C>              <C>         <C>
Net income                                                   $ (1,994)      $ (1,994)        $ 2,293        $ 2,293
                                                          ===========    ===========     ===========    ===========

Computation of common and common
     Equivalent shares outstanding:
               Common Stock                                    32,075         32,075          30,666         30,666
               Options                                              -              -               -            453
                                                          -----------    -----------     -----------    -----------

Common and common equivalent shares
     Used in computing per share amounts                       32,075         32,075          30,666         31,119
                                                          ===========    ===========     ===========    ===========
Net income per share                                         $  (0.06)      $  (0.06)        $  0.07        $  0.07
                                                          ===========    ===========     ===========    ===========

<CAPTION>
                                                                         Nine months ended September 30,
                                                          ---------------------------------------------------------
                                                                       2001                          2000
                                                          --------------------------     --------------------------
                                                                      (in thousands, except per share data)
                                                          ---------------------------------------------------------
                                                               Basic         Diluted         Basic          Diluted
                                                          -----------    ----            -----------    -----------
<S>                                                       <C>              <C>              <C>             <C>
Net income                                                   $ (9,282)      $ (9,282)        $ 8,057        $ 8,057
                                                          ===========    ===========     ===========    ===========
Computation of common and common
     Equivalent shares outstanding:
               Common Stock                                    32,137         32,137          30,976         30,976
               Options                                              -              -               -          1,284
                                                          -----------    -----------     -----------    -----------

Common and common equivalent shares
     Used in computing per share amounts                       32,137         32,137          30,976         32,260
                                                          ===========    ===========     ===========    ===========
Net income per share                                         $  (0.29)      $  (0.29)        $  0.26        $  0.26
                                                          ===========    ===========     ===========    ===========
</TABLE>


At September 30, 2001, equivalent shares of 42,580 and 1,180,505 were excluded
from the calculation of diluted shares outstanding for the quarter and
nine-month periods, respectively, as they were antidilutive.

                                       8

<PAGE>

                                 CAPTARIS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

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

              Beginning balance at December 31, 2000               $   113,001
                Net loss                                                (9,282)
                Repurchase of common stock                              (1,170)
                Unrealized foreign currency loss                           (48)
                Exercise of stock options                                    5
                Stock issued for Infinite acquisition                    9,538
                                                                   -----------
              Ending balance at September 30, 2001                 $   112,044
                                                                   ===========

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 filed a motion to dismiss the Second
Consolidated Amended Complaint with prejudice. On July 2, 2001 the Court granted
Captaris' motion and ruled in its favor, dismissing all claims against the
plaintiffs with prejudice. The plaintiffs filed a notice of appeal on July 31,
2001. The Company continues to believe that the allegations of the lawsuits are
without merit and intends to continue to vigorously defend the lawsuit.

                                       9

<PAGE>

                                 CAPTARIS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

8.   New Accounting Pronouncements

     In June 2001 the Financial Accounting Standards Board approved Statement of
Financial Accounting Standard No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively
prohibits the pooling of interest method of accounting for business combinations
initiated after June 30, 2001. SFAS No. 142 requires companies to cease
amortizing goodwill that existed at June 30, 2001. The amortization of existing
goodwill will cease on December 31, 2001. Any goodwill resulting from
acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142
also establishes a new method of testing goodwill for impairment on an annual
basis or on an interim basis if an event occurs or circumstances change that
would reduce the fair value of a reporting unit below is carrying value. The
adoption of SFAS No. 142 will result in the Company's discontinuation of
amortization of its goodwill; however, the Company will be required to test its
goodwill for impairment under the new standard beginning in the first quarter of
2002, which could have an adverse effect on the Company's future results of
operations if an impairment occurs. At September 30, 2001, the Company had net
goodwill of approximately $10.8 million and recorded related amortization
expense of $623,000 and $1,869,000 for the quarter and nine-month periods,
respectively. This amortization expense will continue through the end of 2001,
at which point amortization will cease. On January 1, 2002, the Company expects
to have unamortized goodwill of approximately $10.2 million which will be
evaluated in accordance with SFAS No. 142. Management is currently evaluating
what impact the adoption of SFAS 142 will have on the company.

9.   Stock Based Compensation

     During the second quarter of 2001, the Company offered a limited
non-compulsory exchange of employee stock options on a less than one-for-one
basis. The exchange (which closed on July 10, 2001) resulted in the voluntary
cancellation of employee stock options to purchase 3,125,620 shares of our
common stock with varying exercise prices greater than $10.00 per share in
exchange for 1,298,284 employee stock options with an exercise price of $2.11.
The option exchange offer resulted in variable accounting treatment for a total
of 1,951,307 options, representing the 1,298,284 new options granted in the
exchange as well as any stock options granted to participating employees within
the six months before or after the exchange that have an exercise price less
than the tendered stock options to the extent the employee's new grant was for
fewer shares than the shares subject to the tendered options. Variable
accounting will continue until all options subject to variable accounting
treatment are exercised, cancelled or expired. Variable accounting treatment
will result in charges or credits, recorded to "Stock-based compensation",
dependent on unpredictable fluctuations in quoted prices for the Company's
common stock. As of September 30, 2001, stock options to purchase 1,970,194
shares of our common stock were subject to variable accounting treatment. The
closing stock price of the Company's stock at September 30, 2001 did not exceed
the exercise price of $2.11, therefore no charges or credits were recorded as
stock based compensation for the quarter.

                                       10

<PAGE>

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


This discussion and analysis should be read in conjunction with our unaudited
consolidated financial statements and accompanying notes included in this
document and the 2000 audited consolidated financial statements and notes
thereto included in our Annual Report on Form 10-K, which was filed with the
Securities and Exchange Commission on March 29, 2001.

The following discussion of our financial condition and results of operations
contains forward-looking statements that involve risks and uncertainties, such
as statements of our plans, objectives, expectations and intentions. Words such
as "believes," "expects," "anticipates," "intends," "plans" and similar
expressions are intended to identify forward-looking statements. Captaris'
actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the factors described
below and under the caption "Additional Factors that May Affect Our Business,
Future Operating Results and Financial Condition" set forth at the end of this
Item 2. You should not place undue reliance on these forward-looking statements,
which apply only as of the date of this Form 10-Q.

     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 or to be paid under terms of the merger agreement
approximated $24 million.

                                       11

<PAGE>

     On March 15, 2001, the Company announced a new business strategy based on
the Mobile Business Solutions market and subsequently announced the commercial
availability of its initial Mobile Delivery product in April, 2001. In
conjunction with the March 15, 2001 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 first
quarter.

Results of Operations

     Net sales. Net sales decreased 6.6% to $23,737,000 in the quarter ended
September 30, 2001, from $25,412,000 in the comparable 2000 quarter. Software
product sales decreased 7.8% while E-document services decreased 2.6% over the
preceding year. International sales for the quarter decreased 7.3% compared to
the third quarter of 2000, and represented 18.7% of total net sales.

     For the nine months ended September 30, 2001, net sales decreased 10.3% to
$67,714,000 from $75,527,000 in the comparable prior year period. Software
product sales decreased 9.2% while E-document services decreased 13.5% over the
same period in 2000. International sales for the nine-month period ending
September 30, 2001 were $13,860,000, a 2.6% decrease from the same period in the
previous year and represented 20.5% of total net sales. Decreases in net sales
in the products group are believed to be reflective of the continued softness in
the telecommunication equipment marketplace and in information technology
spending in general. Decreases in services net sales over prior year periods are
believed to be the result of continued pricing pressures in the broadcast fax
and email industry. Additionally the service segment was particularly affected
by the events of September 11, 2001.

     Gross profit. Gross profit as a percentage of net sales decreased to 61.4%
in the quarter ended September 30, 2001, as compared to 67.6% in the comparable
prior-year quarter. Gross profit for the nine months ended September 30, 2001
was 62.3% compared to 66.4% in the same period in the previous year. These
percentage decreases for the three and nine months periods were driven by the
effect of fixed cost of sales on lower sales volumes and changes in product mix.

     Research and development. As a percentage of sales, research and
development expenses for the current quarter increased to 14.4% compared with
10.0% of net sales in the comparable prior-year quarter. Research and
development expenses increased to $3,408,000 in the quarter ended September 30,
2001 from $2,541,000 in the comparable prior-year period.

     For the nine months ended September 30, 2001 research and development
expenses were $10,911,000 constituting 16.1% of net sales as compared to
$7,498,000 or 9.9% in the prior year period. This increase for both the quarter
and nine month period 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 $14,774,000 in the quarter ended September 30, 2001 from
$12,066,000 in the comparable prior-year quarter, due primarily to the addition
of the operations of Infinite Technologies, and the corporate re-branding
program begun during the first quarter. Sales, general and administrative costs
for the current quarter represented 62.2% of net sales, an increase from 47.5%
in the comparable prior-year quarter.

     For the nine months ended September 30, 2001, sales, general and
administrative expenses increased to $44,959,000 or 66.4% of net sales compared
to 45.8% or $34,617,000 in the same period in 2000. The Company expects that
such expenditures will continue at approximately these levels as a percentage of
sales as the Company pursues its investment in its mobile business solutions and
the infrastructure necessary to support these efforts.

                                       12

<PAGE>

     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 expensed during the first quarter.

     Operating (loss) income. Operating loss for the quarter ended September 30,
2001 was $3,619,000 compared to operating income of $2,577,000 in the comparable
prior-year quarter.

     Operating loss for the nine months ended September 30, 2001 was $16,647,000
compared to operating income of $8,044,000 during the same period in the
previous year.

     Other income, net. Net other income was $771,000 in the quarter ended
September 30, 2001, as compared to $951,000 in the comparable prior-year
quarter, due to decreasing interest rates on investments.

     Other income was $2,586,000 during the nine-month period ended September
30, 2001 reflecting primarily interest income on investments. In the nine month
period ended September 30, 2000, other income was $4,436,000 and included a
one-time $1,784,000 realized gain on the sale of a marketable security held for
investment.

     Income tax. The effective tax benefit rate for the quarter ended September
30, 2001 was 30.0% compared with an effective tax rate of 35.0% for the prior
year period. The decline in the effective tax benefit rate for the quarter ended
September 30, 2001 is the result of changes in our tax-exempt versus taxable mix
in our investment portfolio and changes in the estimated benefit that we expect
to receive related to foreign sales. Income tax benefit for the quarter ended
September 30, 2001 was $854,000 compared with income tax expense of $1,235,000
in the comparable prior-year quarter.

     For the nine months ended September 30, 2001 the Company recorded an income
tax benefit of $4,779,000 compared to income tax expense of $4,423,000 during
the same period of 2000.

     Net (loss) income. The Company recognized a net loss of $1,994,000 or $0.06
per diluted common share for the quarter ended September 30, 2001, as compared
to net income of $2,293,000 or $0.07 per diluted common share for the comparable
prior-year quarter.

     For the nine-month period ending September 30, 2001, the Company recognized
a net loss of $9,282,000 or $0.29 per diluted common share compared to net
income of $8,057,000 or $0.25 per diluted common share in the comparable
prior-year period.

Liquidity and Capital Resources

     Cash used by operating activities in the nine months ended September 30,
2001 was $1,035,000 due primarily to the loss from operations and the continued
effect of the consolidation of the product groups, offset by improvement in
working capital items. The accounts receivable collection period was
approximately 60 days at September 30, 2001 compared to 50 days in the
comparable prior year period. This increase is believed to be a result of a slow
down in collections subsequent to the events of September 11, 2001 and the
increasing softness in the general economy. Accounts receivable decreased from
$16.0 million at December 31, 2000 to $14.8 million at September 30, 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.

                                       13

<PAGE>

     During the third quarter of 2001, the Company repurchased approximately
359,000 shares of its common stock, utilizing approximately $725,000. 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
2003, and contains certain financial 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.

Stock Based Compensation

     During the second quarter of 2001, the Company offered a limited
non-compulsory exchange of employee stock options on a less than one-for-one
basis. The exchange (which closed on July 10, 2001) resulted in the voluntary
cancellation of employee stock options to purchase 3,125,620 shares of our
common stock with varying exercise prices greater than $10.00 per share in
exchange for 1,298,284 employee stock options with an exercise price of $2.11.
The option exchange offer resulted in variable accounting treatment for a total
of 1,951,307 options, representing the 1,298,284 new options granted in the
exchange as well as any stock options granted to participating employees within
the six months before or after the exchange that have an exercise price less
than the tendered stock options to the extent the employee's new grant was for
fewer shares than the shares subject to the tendered options. Variable
accounting will continue until all options subject to variable accounting
treatment are exercised, cancelled or expired. Variable accounting treatment
will result in charges or credits, recorded to "Stock-based compensation",
dependent on unpredictable fluctuations in quoted prices for the Company's
common stock. As of September 30, 2001, stock options to purchase 1,970,194
shares of our common stock were subject to variable accounting treatment. The
closing stock price of the Company's stock at September 30, 2001 did not exceed
the exercise price of $2.11, therefore no charges or credits were recorded as
stock based compensation for the quarter.

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

You should carefully consider the risks described below, together with all of
the other information included in this quarterly report on Form 10-Q. The risks
and uncertainties described below are not the only ones facing our company. If
any of the following risks actually occurs, our business, financial condition or
operating results could be harmed.

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. On April 2, 2001 we announced initial availability of
our Mobile Delivery product. 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

                                       14

<PAGE>

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;

  .  the effect of variable accounting relating to stock based compensation that
     could result from fluctuations in our stock price;

  .  the effect of the adoption of SFAS #142 regarding the potential impairment
     in value of goodwill and other intangible assets;

  .  pricing pressures; and

  .  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. However, 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. 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. The combination of these factors impairs and delays
our ability to know when revenues and earnings will be higher or lower than
expected.

     Our sales may also vary by season. 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. Other factors that
may contribute to the unpredictability of our operating results include changes
in our mix of products and distribution channels, the announcement or
introduction of new products by us or our competitors, pricing pressures, and
general economic conditions.


                                       15

<PAGE>

     While our revenues may fluctuate from quarter to quarter for the reasons
described above, most of our expenses are relatively fixed in the short term. We
base product development and other operating expenses on our expected revenues.
As a result, any shortfall in revenues relative to our expectations could cause
significant changes in our operating results from quarter to quarter. In
particular, we may be unable to adjust our spending in time to compensate for
any unexpected shortfall in quarterly revenues.

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. This is especially true
in our Mobile Delivery market where the need to create new strategic
relationships will be necessary for our success. 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.

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 other intangible assets.

Technology and customer needs change rapidly in our industry.


                                       16

<PAGE>

     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 Networks, 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 Networks and NEC America, Inc.

     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


                                       17

<PAGE>

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 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.


                                       18

<PAGE>

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.

     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


                                       19

<PAGE>

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.


                                       20

<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 September 30, 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.


                                       21

<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 filed a motion to dismiss the Second
Consolidated Amended Complaint with prejudice. On July 2, 2001 the Court granted
Captaris' motion and ruled in its favor, dismissing all claims against the
plaintiffs with prejudice. The plaintiffs filed a notice of appeal on July 31,
2001. The Company continues to believe that the allegations of the lawsuits are
without merit and intends to continue to vigorously defend the lawsuit.


                                       22


<PAGE>

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 September 30, 2001.


                                       23

<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:  November 13, 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


                                       24