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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _______
Commission File Number 0-22871
OMTOOL, LTD.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 02-0447481
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
8 INDUSTRIAL WAY, SALEM, NH 03079
(Address of Principal Executive Offices) (Zip Code)
(603) 898-8900
(Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
There were 12,715,781 shares of the Company's Common Stock, par value $0.01,
outstanding on May 10, 2000.
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<PAGE>
OMTOOL, LTD. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 2000
CONTENTS
ITEM NUMBER PAGE
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
2
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OMTOOL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------------ ----------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 797,368 $ 1,576,283
Short-term investments 16,897,017 17,587,195
Accounts receivable, less reserves of $1,394,000 in 2000 and
$2,090,000 in 1999, respectively 2,222,380 3,049,161
Prepaid expenses and other current assets 1,634,119 1,523,279
Deferred tax asset 1,258,978 1,258,978
------------- -------------
Total current assets 22,809,862 24,994,896
Property and equipment, net 1,556,128 1,630,125
Other assets 743,375 848,178
------------- -------------
Total assets $ 25,109,365 $ 27,473,199
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,266,305 $ 1,055,197
Accrued liabilities 2,561,455 3,329,576
Deferred revenue 2,550,248 2,903,549
------------- -------------
Total current liabilities 6,378,008 7,288,322
------------- -------------
Contingencies (Note 6)
Stockholders' equity:
Preferred Stock, $.01 par value--
Authorized-- 2,000,000; issued and outstanding-- none - -
Common Stock, $.01 par value--
Authorized-- 35,000,000; issued--
13,009,372 130,093 130,093
Additional paid-in capital 32,095,588 32,215,321
Accumulated deficit (12,597,164) (10,912,010)
Treasury stock (295,466 shares and 419,970 shares at cost (845,351) (1,201,998)
respectively)
Cumulative translation adjustment (51,809) (46,529)
------------- -------------
Total stockholders' equity 18,731,357 20,184,877
------------- -------------
Total liabilities and stockholders' equity $ 25,109,365 $ 27,473,199
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
3
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OMTOOL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
2000 1999
---- ----
Revenues:
<S> <C> <C>
Software license $ 1,768,752 $ 3,690,837
Hardware 952,611 1,877,819
Service and other 1,806,050 1,844,332
--------------- ---------------
Total revenues 4,527,413 7,412,988
--------------- ---------------
Cost of revenues:
Software license 114,742 239,701
Hardware 760,376 978,716
Service and other 1,100,588 850,432
--------------- ---------------
Total cost of revenues 1,975,706 2,068,849
--------------- ---------------
Gross profit 2,551,707 5,344,139
--------------- ---------------
Operating expenses:
Sales and marketing 2,112,206 2,733,402
Research and development 1,154,408 1,233,252
General and administrative 1,216,592 1,131,479
Restructuring costs - 1,128,000
--------------- ---------------
Total operating expenses 4,483,206 6,226,133
--------------- ---------------
Loss from operations (1,931,499) (881,994)
Interest income 246,345 156,887
Interest expense - (257)
--------------- ---------------
Loss before provision for income taxes (1,685,154) (725,364)
Provision for income taxes - 45,665
--------------- ---------------
Net loss $ (1,685,154) $ (771,029)
================ ================
Net loss per share
Basic $ (0.13) $ (0.06)
=============== ===============
Diluted $ (0.13) $ (0.06)
=============== ===============
Weighted average number of common shares outstanding
Basic 12,635,999 12,480,326
=============== ===============
Diluted 12,635,999 12,480,326
=============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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OMTOOL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
2000 1999
---- ----
Cash Flows from Operating Activities:
<S> <C> <C>
Net loss $ (1,685,154) $ (771,029)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities-
Depreciation and amortization 324,487 511,423
Deferred income taxes - (178,058)
Restructuring costs - 885,000
Changes in assets and liabilities-
Accounts receivable 811,108 (540,696)
Prepaid expenses and other current assets (112,625) (214,753)
Accounts payable 216,180 (215,310)
Accrued liabilities (749,727) 383,734
Deferred revenue (346,460) 655,344
------------- ------------
Net cash provided by (used in) operating activities (1,542,191) 515,655
------------- ------------
Cash Flows from Investing Activities:
Purchases of property and equipment (221,225) (138,780)
Purchases of short-term investments (51,852,626) (24,447,693)
Proceeds from sale of short-term investments 52,538,206 24,546,897
Decrease in other assets 72,433 188,099
------------ ------------
Net cash provided by investing activities 536,788 148,523
------------ ------------
Cash Flows from Financing Activities:
Net proceeds from issuance of common stock 236,914 74,590
Net repayments on long-term debt - (8,829)
------------ ------------
Net cash provided by financing activities 236,914 65,761
------------ ------------
Foreign exchange effect on cash (10,426) (36,915)
------------- ------------
Net increase (decrease) in cash and cash equivalents (778,915) 693,024
Cash and cash equivalents, beginning of period 1,576,283 2,706,038
------------ ------------
Cash and cash equivalents, end of period $ 797,368 $ 3,399,062
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for-
Income taxes $ - $ 30,260
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
OMTOOL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by Omtool, Ltd. (the "Company" or "Omtool") pursuant to the rules and
regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 1999. The
accompanying consolidated financial statements reflect all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of results for the interim periods
presented. The results of operations for the three month period ended March 31,
2000 are not necessarily indicative of the results to be expected for the full
fiscal year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. Cash
equivalents consist primarily of investments in money market funds. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
ACCOUNTING FOR INVESTMENTS IN CERTAIN DEBT AND EQUITY SECURITIES, the Company's
cash equivalents are classified as held-to-maturity securities.
(B) SHORT-TERM INVESTMENTS
As of March 31, 2000 and December 31, 1999, the Company had $16,897,017
and $17,587,195 respectively, invested in securities consisting of commercial
paper as of March 31, 2000 and municipal bonds as of December 31, 1999. In
accordance with SFAS No. 115, the Company has classified its short-term
investments as available-for-sale. These securities have been recorded at cost,
which approximates market value at March 31, 2000 and December 31, 1999.
(C) FOREIGN CURRENCY TRANSLATION
The Company translates the financial statements of its foreign
subsidiaries in accordance with SFAS No. 52, FOREIGN CURRENCY TRANSLATION.
Accordingly, assets and liabilities are translated at exchange rates in effect
at the end of the period, and revenues and expenses are translated at the
average exchange rates during the period. All cumulative translation gains or
losses from the translation into the Company's reporting currency are included
as a separate component of stockholders' equity in the accompanying consolidated
balance sheets.
(D) NET LOSS PER COMMON SHARE
The Company reports earnings per share in accordance with SFAS No. 128. Diluted
weighted average shares outstanding of 12,635,999 and 12,480,326 for the three
months ended March 31, 2000 and 1999, respectively, exclude the potential common
shares related to 2,069,908 and 1,200,485 outstanding stock options as of March
31, 2000 and 1999, respectively, because to include them would have been
antidilutive for the period presented.
6
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(3) COMPREHENSIVE INCOME (LOSS)
The Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
effective January 1, 1998. SFAS 130 establishes standards for reporting and
display of comprehensive income (loss) and its components in financial
statements. The components of the Company's comprehensive loss are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
------------ -----------
<S> <C> <C>
Net loss $(1,685,154) $ (771,029)
Foreign currency translation adjustments, net of taxes (3,241) (23,252)
------------ -----------
Comprehensive loss $(1,688,395) $ (794,281)
============ ===========
</TABLE>
(4) SEGMENT AND GEOGRAPHIC INFORMATION
The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, in the fiscal year ended December 31, 1998.
SFAS No. 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. The Company's chief decision-maker, as defined
under SFAS No. 131, is the Chief Executive Officer. To date, the Company has
viewed its operations and manages its business as principally one segment,
software sales and associated services. As a result, the financial information
disclosed herein, represents all of the material financial information related
to the Company's principal operating segment.
Total revenues from international sources were approximately $1.2 million
and $1.9 million for the three months ended March 31, 2000 and 1999,
respectively. The Company's revenues from international sources were primarily
generated from customers located in Europe. The following table represents
amounts relating to geographic locations:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
Total revenues (1) 2000 1999
------------- -------------
<S> <C> <C>
United States $ 3,282,871 $ 5,543,490
United Kingdom 666,367 954,924
Other North America 212,107 394,114
Other Europe 305,458 397,095
Latin America / Pacific Rim 10,987 39,933
Middle East / Far East 41,175 75,746
Australia 8,448 7,686
----------- ------------
$ 4,527,413 $ 7,412,988
=========== ============
March 31, December 31,
Long-lived assets (2) 2000 1999
----------- ------------
North America $ 2,102,142 $ 2,239,778
Europe 197,361 238,525
----------- ------------
$ 2,299,503 $ 2,478,303
=========== ============
</TABLE>
7
<PAGE>
(1) Revenues are attributed to geographic regions based on location of
customer.
(2) Long-lived assets include all long-term assets except those specifically
excluded under SFAS No. 131 such as deferred income taxes and financial
instruments.
(5) RESTRUCTURING COSTS
A rollforward of the restructuring reserve is as follows:
<TABLE>
<S> <C>
Balance, December 31, 1999....................... $ 783,735
=========
Severance and other payments Q1 2000............. (548,148)
---------
Balance, March 31, 2000.......................... $ 235,587
=========
</TABLE>
The balance of the restructuring reserve is expected to be paid by
December 31, 2000.
(6) LITIGATION
On October 5, 1999, the Company and certain of its directors and officers were
named as defendants in a purported securities class action complaint filed in
the United States District Court for the District of New Hampshire. The
complaint is allegedly brought on behalf of purchasers of the Company's stock
during the period from August 8, 1997 to October 6, 1998, and alleges, among
other things, that the Company's initial public offering prospectus and
registration statement contained misstatements. The Company believes that the
allegations contained in the complaint are without merit and intends to defend
vigorously against the claims. The lawsuit, however, is in its earliest stages,
and there can be no assurances that this litigation will ultimately be resolved
on terms that are favorable to the Company.
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying consolidated
financial statements for the periods specified and the associated notes. Further
reference should be made to the Company's Annual Report on Form 10-K as filed
with the Securities Exchange Commission on March 30, 2000.
OVERVIEW
Omtool, Ltd. ("Omtool" or the "Company") designs, develops, markets and
supports open, client/server software solutions that integrate communication
throughout the enterprise. The Company was incorporated in March 1991 and
shipped its initial facsimile software products in 1991. Omtool's Fax Sr. and
LegalFax product families provide users with an extensive, flexible feature set
for transmitting and receiving faxes, and improve an organization's management
of its fax communications process by providing a suite of utility and control
functions. A majority of the Company's revenues are derived from licensing the
rights to use its Fax Sr. software product directly to end-users and indirectly
through resellers.
Revenues from software licenses are recognized upon shipment of the
software if there are no significant post-delivery obligations and collection of
the resulting receivable is deemed probable. Payments received in advance for
services or products are initially recorded as deferred revenue. The Company
reserves for potential product returns and allowances at the time of shipment.
Historically, the Company has adequately reserved for such potential returns and
allowances.
The Company has historically derived substantially all of its total
revenues from sales within North America. Sales outside of North America
(primarily in Europe) represented approximately 23% and 20% of the Company's
total revenues for the three months ended March 31, 2000 and 1999, respectively.
The Company's United Kingdom subsidiary transacts business primarily in
its local currency. The Company manages its foreign exchange exposure by
monitoring its net monetary position using natural hedges of its assets and
liabilities denominated in local currencies. There can be no assurance that this
policy will eliminate all currency exposure. Foreign currency exposure has not
been material to the Company's financial position or results of operations to
date. If the Company's business denominated in foreign currencies increases, the
Company may be required to use derivatives to hedge foreign currency exposure.
Historically, the Company has marketed and sold its products
principally through its direct telesales force. However, the Company continues
to actively recruit VARs, systems integrators, resellers and distributors to
expand its indirect distribution channel. Sales through the Company's indirect
distribution channels represent approximately 61% and 20% of the Company's total
revenues for the three months ended March 31, 2000 and 1999, respectively.
As of March 31, 2000, the Company discontinued the sale and support of
U-Page, Fax Sr. Express, Fax Sr. Sun Solaris, Fax Sr. VMS and Fax Sr. Unix
products.
On January 4, 2000, the Company sold to International Presence PLC
certain business assets consisting of intellectual property, goodwill, customer
lists, customer contracts, equipment and other assets related to the Company's
software products and third party hardware products for facsimilie and other
communication applications for the IBM AS/400 product line which were acquired
in the Company's acquisition of CMA Ettworth.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated as a percentage of total revenues:
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
2000 1999
---- ----
Revenues:
<S> <C> <C>
Software license 39.1% 49.8%
Hardware 21.0 25.3
Service and other 39.9 24.9
------ ------
Total revenues 100.0 100.0
------ ------
Cost of revenues:
Software license 2.5 3.2
Hardware 16.8 13.2
Service and other 24.3 11.5
------- ------
Total cost of revenues 43.6 27.9
------- ------
Gross profit 56.4 72.1
------- ------
Operating expenses:
Sales and marketing 46.6 36.9
Research and development 25.5 16.6
General and administrative 26.9 15.3
Restructuring costs - 15.2
------ ------
Total operating expenses 99.0 84.0
------ ------
Loss from operations (42.6) (11.9)
Interest income, net 5.4 2.1
------- ------
Loss before provision for
Income taxes (37.2) (9.8)
Provision for income taxes - 0.6
------- ------
Net loss (37.2)% (10.4)%
======= ======
Gross profit:
Software license 93.5% 93.5%
Hardware 20.2 47.9
Service and other 39.1 53.9
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES
TOTAL REVENUES. The Company's revenues are currently derived primarily from
licensing fees of the Company's software products and, to a lesser extent, from
related sales of hardware and services. The Company's total revenues were $4.5
million and $7.4 million for the three months ended March 31, 2000 and 1999,
respectively, representing a decrease of 39%.
SOFTWARE LICENSE. The Company's software license revenues are derived primarily
from the licensing of the Company's Fax Sr. product. Software license revenues
were $1.8 million for the three months ended March 31, 2000 and $3.7 million for
the three months ended March 31, 1999, representing a decrease of 52%. Software
license revenues accounted for 39% and 50% of total revenues for each respective
period. The decline in software license revenue can be attributed to a number of
factors which include softness in demand for enterprise fax solutions, the
elimination of several of the Fax Sr. product lines, including AS/400, Sun
Solaris, VMS and Unix, along with longer customer purchasing cycles typical of
Fortune 500 customers. Additionally, the decline in software license revenue can
be attributed to sales delays associated with
10
<PAGE>
transitioning the Company's sales structure from a direct model to channel
model. The decrease in software license revenue as a percentage of total
revenues is primarily attributable to the decrease in software revenues.
HARDWARE. Hardware revenues are derived from the resale of third-party hardware
products sold to the Company's customers in conjunction with the licensing of
the Company's software. Hardware revenues were $953,000 for the three months
ended March 31, 2000 and $1.9 million for the three months ended March 31, 1999,
representing a decrease of 49%. Hardware revenues accounted for 21% and 25% of
total revenues for each respective period. The decrease in hardware revenues was
due primarily to the decrease in the number of software sales made in the first
quarter of 2000 that act as a basis for selling the hardware. The decrease in
hardware revenue as a percent of total revenue is due to a decrease in the
number of hardware unit sales accompanying the Company's products.
SERVICE AND OTHER. Service and other revenues are primarily comprised of fees
from maintenance contracts. Service and other revenues were $1.8 million for the
three months ended March 31, 2000 and 1999, respectively. Service and other
revenues accounted for 40% and 25% of total revenues for each respective period.
The consistency in dollar amount is due primarily to a leveling off of the
Company's installed base. The increase in service and other revenues as a
percent of total revenues is due to the decrease in software and hardware
revenues for the three months ended March 31, 2000.
COST OF REVENUES
SOFTWARE LICENSE. Cost of software license revenues consists primarily of the
costs of sublicensing third-party software products, product media, and product
duplication. Cost of software license revenues was $115,000 and $240,000 for the
three months ended March 31, 2000 and 1999, respectively, representing 6% of
software license revenues for each respective period. The decrease in dollar
amount was primarily due to the lower volume of products shipped during the
three months ended March 31, 2000 compared to the same period in 1999. Software
license gross margin percentages remained consistent at 94% for each of the
three months ended March 31, 2000 and 1999.
HARDWARE. Cost of hardware revenues consists primarily of the costs of
third-party hardware products. Cost of hardware revenues was $760,000 and
$979,000 for the three months ended March 31, 2000 and 1999, respectively,
representing 80% and 52% of hardware revenues for each respective period. The
decrease in dollar amount for the cost of hardware revenues was due primarily to
the decrease of hardware unit sales accompanying the Company's products and a
decrease in hardware sales. The gross margin percentage for hardware sales
decreased to 20% for the three months ended March 31,2000 from 48% in the same
period in 1999. The gross margin decrease is due mainly to the write-off of
obsolete third-party hardware.
SERVICE AND OTHER. Cost of service and other revenues consists primarily of the
costs incurred in providing telephone support as well as other miscellaneous
customer service-related expenses. Cost of service and other revenues was $1.1
million and $850,000 for the three months ended March 31, 2000 and 1999,
respectively, representing 61% and 46% of service and other revenues for each
respective period. The gross margin percentage for service and other revenues
decreased to 39% for the three months ended March 31, 2000, compared to 54% in
the same period in 1999. The increase in gross margin and dollar amount of cost
of service and other revenues during the period was due primarily to the hiring
of incremental personnel.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses consist primarily of employee
salaries, benefits, commissions, and associated overhead costs, and the cost of
marketing programs such as direct mailings, public relations, trade shows,
seminars, and related communication costs. Sales and marketing expenses were
$2.1 million and $2.7 million for the three months ended March 31, 2000 and
1999, respectively, or 47% and 37% of total revenues for each respective period.
The decrease in dollar amount was due to a decrease in spending associated with
marketing programs and fewer number of heads in the sales and marketing
departments due to company restructurings. The increase in sales and marketing
expenses as a percentage of total revenues was primarily due to decreased
revenue. The Company expects that sales and marketing expenses will remain
relatively consistent with the current sales and marketing expenses in absolute
terms.
RESEARCH AND DEVELOPMENT. Research and development expenses include expenses
associated with the development of new products, enhancements of existing
products and quality assurance activities, and consist primarily of employee
salaries,
11
<PAGE>
benefits, and associated overhead costs as well as consulting expenses
and the cost of software development tools. Research and development expenses
were $1.2 million for each of the three months ended March 31, 2000 and 1999,
representing 26% and 17% of total revenues for each respective period. The
increase in the expense as a percent of revenue is due to decreased revenue. The
Company expects research and development expenses will increase as new products
are developed.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of employee salaries and benefits for administrative, executive and
finance personnel and associated overhead costs, as well as consulting,
accounting and legal expenses. General and administrative expenses were $1.2
million and $1.1 million for the three months ended March 31, 2000 and 1999,
respectively, or 27% and 15% of total revenues for each respective period. The
increase in dollar amount and as a percentage of revenues was primarily
attributable to an increase in executive level personnel and the overhead costs
allocated to support such personnel. The Company expects general and
administrative expenses are likely to continue to increase in absolute terms.
RESTRUCTURING COSTS AND ASSET WRITE-OFF In the first quarter of 1999, the
Company announced a restructuring of certain of its operations, and recorded a
non-recurring pretax charge of $1,128,000 in accordance with Emerging Issues
Task Force ("EITF") 94-3, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION
BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED
IN A RESTRUCTURING). The non-recurring charge includes severance-related costs
associated with a workforce reduction, primarily in the Company's European and
Florida operations, of approximately nine persons in sales, twelve persons in
general and administrative and three persons in research and development. The
balance of this charge includes a write-down of assets associated with the
closure of the company's Florida facility.
INTEREST INCOME, NET. Interest income, net consists principally of interest
earned on cash, cash equivalents, and short-term investments. Interest income,
net represented income of $246,000 for the three months ended March 31, 2000 and
$157,000 for the three months ended March 31, 1999, due primarily to interest
income earned on excess cash. The increase is due to the fact that the Company
changed its investment strategy from low interest tax free municipal bonds which
comprised the portfolio at December 31, 1999 to higher interest commercial paper
which comprised the portfolio at March 31, 2000.
PROVISION FOR INCOME TAXES. The Company recorded a net loss in the first
quarter of 2000 and did not record a benefit from income taxes as realizability
of net operating loss carryforwards is uncertain. The provision (benefit) for
income taxes was $46,000 for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since 1996, the Company has financed its operations primarily through
cash flow from operations, the private sales of preferred stock and the
Company's initial public offering of Common Stock completed in August 1997. At
March 31, 2000, the Company had cash and cash equivalents of $797,000,
short-term investments of $16.9 million and working capital of $16.4 million.
The Company's operating activities used cash of $1,542,000 and provided
cash of $516,000 for the three months ended March 31, 2000 and 1999,
respectively. Net cash used during the three months ended March 31, 2000
consisted primarily of a net loss from operations, a decrease in accrued
liabilities and deferred offset by depreciation and amortization and a decrease
in accounts receivable. Net cash provided during the three months ended March
31, 1999 resulted from a net loss from operations and an increase in accounts
receivable offset by depreciation and amortization, restructuring costs, and an
increase in deferred revenue.
Investing activities provided cash of $537,000 and $149,000 during the
three months ended March 31, 2000 and 1999, respectively. During the three
months ended March 31, 2000 and 1999, the principal uses were purchases of
short-term investments and purchases of property and equipment, offset by
proceeds from the sale of short-term investments and a decrease in other assets.
Financing activities provided cash of $237,000 and $66,000 during the
three months ended March 31, 2000 and 1999, respectively, due primarily to net
proceeds from the issuance of common stock.
12
<PAGE>
At March 31, 2000, the Company did not have any material commitments
for capital expenditures.
Subject to the factors discussed below, the Company believes that the
existing cash balances, short-term investments and cash generated from
operations will be sufficient to finance the Company's operations for the next
twelve months. Although operating activities may provide cash in certain
periods, to the extent the Company grows in the future, its operating and
investing activities may use cash. There can be no assurance that any necessary
additional financing will be available to the Company on commercially reasonable
terms, or at all.
YEAR 2000 IMPACT
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish twenty-first
century dates from twentieth century dates. As a result, computer systems and
/or software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. The Company has not experienced any problems with its
computer systems relating to distinguishing twenty-first century dates from
twentieth century dates, which generally are referred to as year 2000 problems.
The Company is also not aware of any material year 2000 problems with its
clients or vendors. Accordingly, the Company does not anticipate incurring
material expenses or experiencing any material operational disruptions as a
result of any year 2000 problems.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The discussion
highlights some of the risks which may affect future operating results.
PRODUCT CONCENTRATION. To date, substantially all of the Company's revenues
have been attributable to sales of licenses of the Company's facsimile based
enterprise solutions and related products and services. The Company expects such
products and related services to continue to account for a substantial majority
of the Company's future revenues. In March 2000, the Company changed its
strategic focus to the development of secure business-to-business electronic
document exchange solutions. To date, the Company has not introduced any secure
business-to-business electronic document exchange products to the market. The
Company expects that its planned secure business-to-business electronic document
exchange solutions will account for an increasing portion of future revenues.
However, there can be no assurances that the Company will be able to implement
the secure business-to-business electronic document exchange solutions, or if
implemented, such solutions will be financially successful or result in any
revenues. As a result, factors adversely affecting the pricing of or demand for
such products, such as competition or technological change, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's prospects must be considered in light of
the risks and difficulties frequently encountered by companies dependent upon
operating revenues from a new product line in an emerging and rapidly evolving
market.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE. The markets for the Company's products
and planned products are relatively new and are characterized by rapid
technological change, evolving industry standards, changes in end-user
requirements and frequent new product introductions and enhancements. The
Company's future success will depend upon its ability to enhance its current
products and to develop and introduce new products that keep pace with
technological developments and respond to evolving end-user requirements. There
can be no assurance that the Company will be successful in developing and
marketing new products or product enhancements on a timely basis, or that new
products or product enhancements developed by the Company will achieve market
acceptance. The introduction of products embodying new technologies and the
emergence of new industry standards could render the Company's existing products
and products currently under development obsolete and unmarketable. From time to
time, the Company and its competitors may announce new products, capabilities or
technologies that have the potential to replace or shorten the life cycle of the
Company's existing product offerings. There can be no assurance that
announcements of currently planned or other new product offerings by the Company
or its competitors will not cause customers to defer or forego the licensing of
the Company's existing or planned products and have a material adverse effect on
the Company's business, financial condition and results of operations.
13
<PAGE>
DEPENDENCE ON FAX SR. NT AND THE WINDOWS NT ENVIRONMENT. The Company currently
derives a substantial portion of its revenues from licenses of Fax Sr. NT and
related services and resale of related hardware. Continued market acceptance of
Fax Sr. NT is critical to the Company's future success. As a result, any decline
in demand for or failure to maintain broad market acceptance of Fax Sr. NT as a
result of competition, technological change or otherwise, would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's future financial performance will depend in large part
on customer acceptance of new and enhanced versions of Fax Sr. NT. There can be
no assurance that the Company will continue to be successful in marketing Fax
Sr. NT or any new or enhanced versions of Fax Sr. NT. In addition, there can be
no assurance that the Windows NT operating system will not be replaced by a new
or enhanced operating system. There can be no assurance that the Company will be
successful in developing products for new or enhanced operating systems such as
Windows 2000, or that such systems will not obviate the need for the Company's
products. If any new or enhanced operating system gains widespread use and the
Company fails to develop and provide its products for this operating system on a
timely basis, the Company's business, financial condition and results of
operations would be materially adversely affected.
DEPENDENCE ON CLIENT/SERVER ENVIRONMENT. The Company's enterprise,
client/server facsimile software products are intended to help organizations
efficiently manage their facsimile communications, utilizing a client/server
computing environment. The client/server market is relatively new and there can
be no assurance that organizations will move away from the use of stand-alone
fax machines or continue to adopt client/server environments, or that customers
of the Company that have begun the migration to a client/server environment will
broadly implement this model of computing. The Company's future financial
performance will depend in large part on continued growth in the market for
client/server applications, which in turn will depend in part on the growth in
the number of organizations implementing client/server computing environments.
There can be no assurance that these markets will continue to grow or that the
Company will be able to respond effectively to the evolving requirements of
these markets. If the market for client/server application products and services
does not grow in the future, or grows more slowly than the Company anticipates,
or if the Company fails to respond effectively to evolving requirements of this
market, the Company's business, financial condition and results of operations
would be materially adversely affected.
THE MARKET RISKS FOR SECURE BUSINESS-TO-BUSINESS ELECTRONIC DOCUMENT EXCHANGE
SOLUTIONS. The market for the Company's secure business-to-business electronic
document exchange solutions are new and evolving rapidly. The Company's success
will depend upon the adoption and use by current and potential customers of
secure business-to-business electronic document exchange solutions. The
Company's success will also depend upon acceptance of its technology as the
standard for providing these solutions. The adoption and use of the Company's
secure business-to-business electronic document exchange solutions will involve
changes in the manner in which businesses have traditionally exchanged
information. The Company's ability to influence usage of its secure
business-to-business electronic document exchange solutions by customers is
limited. The Company intends to spend considerable resources educating potential
customers about the value of secure business-to-business electronic document
exchange solutions. It is difficult to assess, or to predict with any assurance,
the present and future size of the potential market for the Company's secure
business-to-business electronic document exchange solutions, or its growth rate,
if any. Moreover, the Company cannot predict whether the Company's secure
business-to-business electronic document exchange solutions will achieve any
market acceptance. Any future products or future product enhancements that are
not favorably received by customers may not be profitable and, furthermore,
could damage the Company's reputation or brand name.
INTENSE COMPETITION. The enterprise, client/server facsimile solution and
secure business-to-business electronic document exchange solutions markets are
intensely competitive and rapidly changing and the Company expects competition
to continue to increase. The Company believes its ability to compete
successfully depends upon a number of factors both within and beyond its
control, including product performance, reliability and features, including
Internet related capabilities; product adoption; ease of use; product
scaleability; quality of support services; price/performance; timeliness of
enhancements and new product releases by the Company and its competitors; the
emergence of new computer-based facsimile and secure business-to-business
electronic document exchange solutions and standards; name recognition; the
establishment of strategic alliances with industry leaders; and industry and
general economic trends.
The Company competes directly with a large number of vendors of
facsimile products, including providers of facsimile software products for
client/server networks such as RightFAX Inc. (a subsidiary of Applied Voice
Technology, Inc.), Fenestrae BV, Optus Software Inc., TopCall International and
Biscom, Inc. The Company also competes
14
<PAGE>
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 addition,
providers of operating systems or business software applications may bundle
competitive facsimile solutions as part of their broader product offerings.
The Company may not be able to compete successfully against current and
future competitors in the secure business-to-business electronic document
exchange solutions market, and the competitive pressures the Company faces could
harm its business and prospects. The Company intends to provide an alternative
to traditional mail and courier document delivery services, such as those
offered by Federal Express Corporation, United Parcel Service or the U.S. Postal
Service. The Company's solution is also an alternative to general purpose e-mail
applications and services. In the more narrow area of secure online document
exchange, the Company's competition comes from secure online document exchange
services providers. Some of these providers have products that are intended to
compete with the Company's products. Examples of these companies include
Differential, e-Parcel, NetDox, PostX and Tumbleweed. In addition, many
companies with which the Company does not presently compete may become
competitors in the future. This could occur either through the expansion of the
Company's products or through other companies' product development in the area
of secure online communication. These companies could include Critical Path,
Documentum, Hummingbird, International Business Machines/Lotus Development,
Microsoft and Verisign.
Many of the Company's competitors and potential competitiors have
longer operating histories and greater financial, technical, sales, marketing
and other resources, as well as greater name recognition and market acceptance
of their products and technologies than the Company. In addition, there are
relatively low barriers to entry in the markets in which the Company operates
and intends to operate, and new competition may arise either from expansion by
established companies or from new emerging companies or from resellers of the
Company's products. There can be no assurance that current or potential
competitors of the Company will not develop products comparable or superior in
terms of price and performance features to those developed by the Company, adapt
more quickly than the Company to new or emerging technologies and changes in
market opportunities or customer requirements, establish alliances with industry
leaders, or take advantage of acquisition opportunities more readily than the
Company. In addition, no assurance can be given that the Company will not be
required to make substantial additional investments in connection with its
research, development, engineering, marketing, sales and customer service
efforts in order to meet any competitive threat, or that such required
investments will not have a material adverse effect on operating margins.
Increased competition will result in reduction in market share, pressure for
price reductions and related reductions in gross margins, any of which could
materially adversely affect the Company's ability to achieve its financial and
business goals. There can be no assurance that in the future the Company will be
able to successfully compete against current and future competitors.
RISKS ASSOCIATED WITH ACQUISITIONS. The Company may augment its internal growth
with acquisitions of businesses, products and technologies that could complement
or expand the Company's business. Certain of these businesses may be marginally
profitable or unprofitable. In order to achieve anticipated benefits from these
acquisitions, the Company must successfully integrate the acquired businesses
with its existing operations, and no assurance can be given that the Company
will be successful in this regard. The Company has limited experience in
intergrating acquired companies into its operations, in expanding the scope of
operations of required businesses, in managing geographically dispersed
operations, and in operating internationally. In the past the Company has
incurred one-time costs and expenses in connection with acquisitions and it is
likely that similar one-time costs and expenses may be incurred in connection
with future acquisitions. In addition, attractive acquisitions are difficult to
identify and complete for a number of reasons, including competition among
prospective buyers and the possible need to obtain regulatory approval. There
can be no assurance that the Company will be able to complete future
acquisitions. In order to finance such acquisitions, it may be necessary for the
Company to raise additional funds either through public or private financings,
including bank borrowings. Any financing, if available at all, may be on terms
which are not favorable to the Company. The Company may also issue shares of its
Common stock to acquire such businesses, which may result in dilution to the
Company's existing stockholders.
LIMITED OPERATING HISTORY. The Company was incorporated in March 1991 and
shipped its initial facsimile software products in 1991. The Company has
significantly increased its operating expenses in recent periods as it has
continued to expand its organization to support sales growth and product
development. Although the Company has experienced growth during the past, the
Company does not believe that prior growth rates are sustainable or indicative
of future operating results. There can
15
<PAGE>
be no assurance that the Company will be able to increase its level of revenues
or maintain profitability in the future. Increases in operating expenses,
primarily research and development spending, are expected to continue and,
together with pricing pressures, may result in a decrease in operating income
and operating margin percentage. The Company's limited operating history makes
the prediction of future operating results difficult or impossible. Future
operating results will depend on many factors, including, without limitation,
the degree and rate of growth of the markets in which the Company competes and
the accompanying demand for the Company's products, the level of acceptance of
the Windows NT and Windows 2000 operating systems, the level of acceptance for
secure business-to-business electronic document exchange solutions, the level of
product and price competition, the ability of the Company to establish strategic
relationships and develop and market new and enhanced products and to control
costs, the ability of the Company to expand its direct telesales force and
indirect distribution channels both domestically and internationally, and the
ability of the Company to attract and retain key personnel.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS; SEASONALITY. The Company's
quarterly revenues and results of operations have fluctuated significantly in
the past and will likely fluctuate significantly in the future. Causes of such
fluctuations have included and may include, among others, the demand for the
Company's products and services, the size and timing of orders, the number,
timing and significance of new product announcements by the Company and its
competitors, the ability of the Company to develop, introduce, market and ship
new and enhanced versions of the Company's current and planned products on a
timely basis, the level of product and price competition, changes in operating
expenses, changes in average selling prices and mix of the Company's products,
changes in the Company's sales incentive strategy, the mix of direct and
indirect sales, and general economic factors. In addition, the sale of the
Company's products often involves delays because customers have tended to
implement the products on a large scale and customers also must establish
certain minimum hardware capabilities. The Company's products therefore often
have a lengthy sales cycle while the customer evaluates and receives approvals
for the purchase of the Company's products. During such sales cycles, the
Company may expend substantial funds and management effort yet receive no
revenues. It may be difficult to accurately predict the sales cycle of any large
order. If one or more large orders fails to close as forecasted in a fiscal
quarter, the Company's revenues and operating results for such quarter could be
materially adversely affected. Any one or more of these or other factors could
have a material adverse effect on the Company's business, financial condition
and results of operations. The potential occurrence of any one or more of these
factors makes the prediction of revenues and results of operations on a
quarterly basis difficult and performance forecasts derived from such
predictions unreliable.
The Company's business has experienced and is expected to continue to
experience seasonality. The Company has historically had and expects to continue
to have weaker sales in the months of July and August which may have an adverse
affect on third quarter sales. The Company believes that these fluctuations are
caused primarily by customer budgeting and purchasing patterns.
In general, revenues are difficult to forecast because the market for
enterprise, client/server facsimile and secure business-to-business electronic
document exchange solutions software has developed and is evolving rapidly and
the Company's sales cycle, from the customer's initial evaluation through
purchase of licenses and the related support services, varies substantially from
customer to customer. License fee revenues in any quarter depend on orders
received and shipped in that quarter with an increasing percentage of orders in
any quarter being received in the last weeks of the quarter. License fee
revenues from quarter to quarter are difficult to forecast, as no significant
order backlog exists at the end of any quarter because the Company's products
typically are shipped upon receipt of customers' orders.
A substantial portion of the Company's operating expense is related to
personnel, facilities, equipment and marketing programs. The level of spending
for such expense cannot be adjusted quickly and is therefore fixed in the short
term. The Company's expense levels for personnel, facilities, equipment and
marketing programs are based, in significant part, on the Company's expectations
of future revenues on a quarterly basis. If actual revenue levels on a quarterly
basis are below management's expectations, results of operations are likely to
be adversely affected by a similar amount because a relatively small amount of
the Company's expense varies with its revenue in the short term.
Due to all of the foregoing factors, it is likely that in some future
periods the Company's results of operations will be below the expectations of
securities analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected.
16
<PAGE>
ABILITY TO MANAGE GROWTH. The Company has rapidly and significantly expanded
its operations and anticipates that significant expansion will continue to be
required in order to address potential market opportunities. The Company
anticipates that it will continue to significantly increase the size of its
sales and marketing, research and development, customer support and
administrative operations. There can be no assurance that such expansion will be
successfully completed or that it will generate sufficient revenues to cover the
Company's expenses. The Company will need to continue to attract and retain
highly qualified technical, sales and managerial personnel. There can be no
assurance that the Company will be able to retain or continue to hire such
personnel in the future. The inability of the Company to effectively expand
operations and manage growth, if any, could have a material adverse effect on
the Company's business, financial condition and results of operations.
EXPANSION OF INDIRECT CHANNELS; POTENTIAL FOR CHANNEL CONFLICT. The Company
markets its products and services directly through telesales and indirectly
through marketing channels such as value-added resellers ("VARs"), systems
integrators and distributors. Although the Company has historically focused its
efforts on marketing through its telesales force, the Company is increasing
resources dedicated to developing and expanding indirect marketing channels.
There can be no assurance that the Company will be able to attract and retain a
sufficient number of qualified VARs, systems integrators and distributors to
market successfully the Company's products. In addition, there can be no
assurance that the Company's resellers will not develop, acquire or market
computer-based facsimile products competitive with the Company's products. The
failure to retain its VARs, systems integrators and distributors could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The distributor agreements generally provide that either party may
terminate the agreement without cause upon 30 days written notice to the other
party. The Company also resells its products on a purchase order basis through
other VARs, systems integrators and distributors. Such relationships may be
terminated by either party, at any time, and therefore, there can be no
assurance that any VAR, systems integrator or distributor will continue to
represent the Company's products. The inability to retain certain VARs, systems
integrators or distributors, or the development or marketing by VARs, systems
integrators or distributors of competitive offerings, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Selling through indirect channels may limit the Company's contacts with
its customers. As a result, the Company's ability to accurately forecast sales,
evaluate customer satisfaction and recognize emerging customer requirements may
be hindered. The Company's strategy of marketing its products directly to
end-users and indirectly through VARs, systems integrators and distributors may
result in distribution channel conflicts. The Company's direct sales efforts may
compete with those of its indirect channels and, to the extent different
resellers target the same customers, resellers may also come into conflict with
each other. As the Company strives to expand its indirect distribution channels,
there can be no assurance that emerging channel conflicts will not materially
adversely affect its relationships with existing VARs, systems integrators or
distributors or adversely affect its ability to attract new VARs, systems
integrators and distributors.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION. A key element of the Company's
strategy is to continue to increase its international sales. The Company expects
to face competition from local facsimile product and secure business-to-business
electronic document exchange solutions providers in their native countries. To
successfully expand international sales, the Company will need to recruit and
retain additional international resellers and distributors. There can be no
assurance that the Company will be able to maintain or increase international
sales of its products or that the Company's international distribution channels
will be able to adequately market, service and support the Company's products.
International operations generally are subject to certain risks, including
dependence on independent resellers, fluctuations in foreign currency exchange
rates, compliance with foreign regulatory and market requirements, variability
of foreign economic conditions and changing restrictions imposed by United
States export laws. Additional risks inherent in the Company's international
business activities generally include unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs of localizing products for
foreign countries, lack of acceptance of localized products in foreign
countries, longer accounts receivable payment cycles, difficulties in managing
international operations, difficulties in enforcing intellectual property rights
and the burdens of complying with a wide variety of foreign laws. With the
acquisition of CMA Ettworth, based in London, England, in December 1997, the
Company obtained its first sales offices outside of the United States. Such
operations are subject to certain additional risks, including difficulties in
staffing and managing such operations and potentially adverse tax consequences
including restrictions on the repatriation of earnings. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international sales and, consequently, the Company's business,
financial
17
<PAGE>
condition and results of operations. To date, a majority of the Company's sales
have been made in United States dollars and the Company has not engaged in any
hedging transactions through the purchase of derivative securities or otherwise.
DEPENDENCE ON KEY PERSONNEL. The Company's future performance depends, in
significant part, upon the continued service of its key technical, sales and
senior management personnel, none of whom is bound by an employment agreement
and only certain of whom are bound by noncompetition agreements. The loss of the
services of one or more of the Company's executive officers or other key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's future success also
depends on its continuing ability to attract and retain highly qualified
technical, sales and managerial personnel. Competition for such personnel is
intense, and the Company has experienced difficulty in recruiting qualified
technical personnel. There can be no assurance that the Company will be able to
retain or continue to hire key technical, sales and managerial personnel in the
future.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS, AND DERIVATIVE
COMMODITY INSTRUMENTS
As of March 31, 2000, the Company did not participate in any derivative
financial instruments or other financial and commodity instruments for which
fair value disclosure would be required under SFAS No. 107. All of the Company's
investments consist of money market funds and municipal bonds that are carried
on the Company's books at amortized cost, which approximates fair market value.
Accordingly, the Company has no quantitative information concerning the market
risk of participating in such investments.
PRIMARY MARKET RISK EXPOSURES
The Company's primary market risk exposures are in the areas of
interest rate risk and foreign currency exchange rate risk. The Company's
investment portfolio of cash equivalent and short-term investments is subject to
interest rate fluctuations, but the Company believes this risk is immaterial due
to the short-term nature of these investments. The Company's exposure to
currency exchange rate fluctuations has been and is expected to continue to be
modest due to the fact that the operations of its United Kingdom subsidiary are
almost exclusively conducted in its local currency. The United Kingdom
subsidiary operating results are translated into U.S. dollars and consolidated
for reporting purposes. The impact of currency exchange rate movements on
intercompany transactions was immaterial for the quarter ended March 31, 2000.
Currently the Company does not engage in foreign currency hedging activities.
19
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Exhibit Description
----- -------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated January 4, 2000, was filed on
January 17, 2000 reporting, pursuant to Item 2, the Company's disposition
of certain business assets relating to the Company's software products and
third party hardware products for facsimile and other communications
applications for the IBM AS/400 product line. Unaudited pro-forma
consolidated financial information was filed as part of the Form 8-K.
20
<PAGE>
OMTOOL, LTD.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMTOOL, LTD.
May 11, 2000 By: /S/ KIRA A. NELSON
-------------------------------------
Kira A. Nelson
Chief Financial Officer, Secretary and
Treasurer
<TABLE> <S> <C>
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THIS 10Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
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<RECEIVABLES> 3,616 8,413
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