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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year ended: December 31, 2003

OR

For the transition period from                                to                               

Commission File Number 0-22871

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

Registrant's telephone number, including area code: (603) 898-8900

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)

        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    ý    No    o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes    o    No    ý

        The aggregate market value of the voting stock held by non-affiliates of the Registrant, as of June 30, 2003 was approximately $3.6 million.

        The number of shares outstanding of the Registrant's common stock as of March 18, 2004 was 1,757,546.

DOCUMENTS INCORPORATED BY REFERENCE

        The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2003. Portions of such proxy statement are incorporated by reference into Part III of this report.

        Except for the historical information contained herein, this Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding, among other items: the Company's growth strategies; anticipated trends in the Company's business; the Company's ability to expand its product and service offerings; and the Company's ability to satisfy working capital requirements. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of a number of factors including, but not limited to, those factors described in "Certain Factors Affecting Future Operating Results."

PART I

Item 1. Business

        Omtool, Ltd. ("Omtool" or the "Company") is a leading provider of electronic document delivery and management software that enables efficient, secure, confirmed and cost-efficient document exchange between businesses. Omtool's products, licensed on a combination server/seat basis or on a server only or seat only basis, provide users with an extensive, flexible feature set that converts, transmits, receives, and automatically archives documents in electronic formats. This enables users to streamline the handling and management of business documents and assists businesses in complying with government regulations such as the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") and the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). The features are also useful to any business that wants to track and archive documents and its transactions as well as secure and protect private information. Included in the Company's products is a suite of utility and control functions that enables the conversion of paper documents to standard electronic formats and integrates with industry recognized document and records management systems. Omtool's products enable the integration of business processes that include the exchange of hard copy and electronic documents such as legal contracts, financial transactions, medical records and purchase order processing. Omtool's products minimize risks by preserving the security of high value documents while facilitating increased productivity, reducing costs and fulfilling emerging business requirements. AccuRoute®, Omtool's document routing and distribution software, integrates with many digital scanning and multifunctional devices to allow paper documents to be digitized, distributed and archived. In addition Omtool's AccRoute software provides capture, distribution and compliance for movement of electronic documents and information. Genifax™, Omtool's enterprise fax software, offers a scalable, server-based feature set and shares a common Windows server-based architecture with the Genidocs product line. Genidocs™, the Company's secure document delivery application, integrates with existing e-mail systems and provides multiple options for content and attachment encryption, authentication, audit trail and delivery confirmation, and digital signatures. Omtool's AccuRoute software further unifies the codes base and architecture of the Genidocs and Genifax product lines, with the routing capabilities of the AccuRoute software to provide a truly unique customer specific product to easily manage documents, both paper and electronic documents with little or no user training required.

        Omtool's software products can be deployed on heterogeneous, multi-platform networks and digital scanning and multifunctional devices and can be integrated with both desktop and enterprise software applications such as e-mail and groupware systems. To address the needs of large enterprises, Omtool's products are modular and scaleable; communication capacity can be implemented and added over time through the addition of system components and connectors as needed to keep pace with demand. Additional Omtool servers can be added to a configuration to provide failover through redundancy, helping to ensure continuous operation. Omtool intends to maintain a leadership position in its traditional market, secure electronic document exchange, while continuing to consolidate functionality of all its products into a single, configurable platform, expand the level of integration with

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complimentary technologies such as document management, records management and extend its document capture capability to include virtually all multifunctional devices and scanners. In doing so, Omtool will be pursuing a leadership position in the broader document delivery/exchange and management market which it believes will grow in response to increasingly regulated communications. Omtool will continue to focus on those vertical markets where regulations and or business practices require confidentiality, timely electronic delivery and archiving of critical documents in electronic and paper format.

        The Company's server products are optimized for the Windows server operating systems, with client applications that run with various versions of Microsoft Windows. In addition, Omtool has integrated its electronic document exchange capabilities with Microsoft Exchange, Lotus Notes, and Novell GroupWise, offering users the ability to initiate, control and monitor electronic document exchange and track transactions from within their existing e-mail client application, thus eliminating the need for and expense of deploying and managing proprietary applications to corporate desktops. In addition, with the development of Omtool's AccuRoute software, similar document exchange capabilities are available for paper documents. In recognition of the prevalence and wide acceptance of Adobe's Portable Document Format ("PDF") as a popular and sometimes regulated exchange format, Omtool has added capabilities to all of its products to convert and send PDF documents. Omtool's products also include the ability to convert and deliver to the user's desktop, as both fax and secure e-mail documents in PDF format. In addition, archive options enable Omtool users to view and archive inbound PDF documents to resident document management systems, fully-profiled (an important issue for users of document managements systems since it is the document profile that enables users to search for and find documents quickly) with essentially single-click simplicity.

        Omtool was incorporated in New Hampshire in March 1991 and was reincorporated in Delaware in January 1996. The Company's principal executive offices are located at 8A Industrial Way, Salem, New Hampshire 03079 and its telephone number is (603) 898-8900. The Company's Internet address is http://www.omtool.com. The Company makes available free of charge through its web site its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after it electronically files such materials with the Securities and Exchange Commission.

Industry Background

        To remain competitive in today's marketplace and to comply with emerging government mandates and regulations, companies must focus on improving and streamlining the exchange and management of documents, both within and beyond their organizations. Growth in electronic communication is being driven by productivity and efficiency demands, the information sharing requirements of dispersed organizations, the emergence of the virtual enterprise incorporating suppliers, customers and other business partners and the general globalization of markets. Enterprises have responded to the need for improved communications through a combination of telephony, fax, e-mail and groupware solutions. Currently fax and e-mail are the electronic messaging standard for the movement of information. The realization of a fully electronic environment continues to fall short of expectations because of the existence and continued reliance on paper as a means of exchange, collaboration and storage.

        While a significant amount of all documents originate in electronic form, often they are faxed after being printed. Paper is still a primary medium for exchange, collaboration and final delivery. The Company, recognizing the prevalence of hardcopy, has through strategic partnerships, product development and enhancements introduced its AccuRoute software—a server-based application that leverages the existing electronic-delivery and management tools embodied in the Genifax and Genidocs product lines, to enable users to deliver, manage and archive hardcopy documents, electronically. These products enable both the efficient, secure and controlled electronic delivery and electronic archival that

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makes hardcopy content available across the enterprise for easy reuse and redistribution. The Company believes that significant opportunities exist in the high volume application market for faxing from data-centric applications, situations where facsimile technology is used in the context of legal requirements and mission critical business processes where fax is the standard for electronic document exchange.

        As business-to-business transactions continue to migrate to the Internet, and issues of privacy, confidentiality, tracking and archiving become the subject of governmental regulation businesses may increasingly seek ways to address these issues through technological solutions that combine a secure Internet-based electronic document exchange that acts as an alternative solution to paper-based document communications with the ability to quickly or automatically archive documents, and to leverage existing hardware and networks to capture convert and manage information that exists solely in paper or hardcopy form. Such solutions must enable businesses to extend and enhance their existing enterprise and web-based technology to provide the reliable and secure exchange, tracking and archiving of all electronic and hardcopy documents required for business-to-business Internet communication and document delivery. In addition, these solutions must be user-friendly and cost-effective to install, manage and use. Omtool believes that existing e-mail systems do not adequately address the issues that are critical to insuring privacy and confidentiality in the electronic exchange of documents and business-to-business communications, such as content encryption, authentication, and notification of delivery, non-repudiation and digital signatures. Document management system vendors tend to approach the issues from the point of view of archiving only, therefore those solutions may not incorporate all of the necessary features or be simple enough to execute to warrant enterprise-wide adoption. Manufacturers scanner and manufacturers of multifunctional devices for the most part have incorporated scan to delivery functionality on a relatively limited basis, leaving important tasks such as document profiling to the user as a "post scan" task, and most do not address the issue of confidential point-to-point document delivery. Omtool has developed a suite of interwoven server and desktop products that provides enhanced, secure enterprise document exchange, incorporating hardcopy seamlessly and providing integrated archiving that combined will enable companies to meet the needs of businesses for efficient, electronic document exchange and emerging regulatory requirements.

The Omtool Solution

        Business documents are typically exchanged in one of three ways: by e-mail, fax or paper. Omtool's enterprise software brings these channels together so that users can control, manage, archive and confirm the secure delivery of every important document leaving the office—without changing existing work habits. Omtool adds the functionality and security missing from existing messaging, multifunction, enterprise resource planning ("ERP") and document management systems. Omtool's security and hardcopy and fax archive features help companies meet ever-increasing government mandates and best practice policies that require the protection and preservation of confidential business and personal information that is transmitted electronically. Omtool's enterprise software and desktop application cost-effectively adds accountability, improved security and archiving, and easy access to popular document management systems for electronic document transactions.

        Omtool's products, licensed on a combination server/seat basis or on a server only or seat only basis provide users with an extensive, flexible feature set that converts, transmits, receives, and automatically archives documents in electronic formats. This enables users to streamline the handling and management of business documents and assists businesses with complying with government regulations. Corporate customers deploy the Company's products as a key component of business process systems. Examples of deployment of the Company's product include: legal document exchange, financial transactions, medical records, insurance claims, purchase order processing and sales quoting.

        The Company has invested heavily in re-architecting its core processing platform to be the common engine that supports all of Omtool's document exchange features and functionality. The

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common engine is referred to as the Omtool Messaging Server, and the base product that supports this new engine is its AccuRoute software.

AccuRoute

        Omtool's AccuRoute software enables users to capture and convert the data stored in hardcopy format to an image based (un-editable) or editable PDF format which is then routed and archived. The key to the power of this product is that it provides a common user interface for all brands of scan-enabled multifunctional devices and scanners by moving the document capture and delivery options from the device's control panel to the user's desktop. The AccuRoute software's desktop feature allows the user to pre-define the document route, providing full access to corporate global address lists and personal contact lists, as well as the profiling functionality of the resident document/records management system. The routing information is captured and encoded as a character-based string called an embedded directive which is the basis for the AccuRoute product's intelligent routing sheet. Printed, the intelligent routing sheet is combined with the document to be routed and scanned. At the multi-function device ("MFD"), rather than using the front panel to create the same routing list (if the capability even exists in the device) the user through a simple keystroke scans the document and directs the data to the AccuRoute server which reads the embedded directive and routes the document accordingly. Stored as a PDF, the intelligent routing sheet can be archived for re-use, distributed to team members or posted on a web site for general use routing documents to a predefined set of destinations.

        The modular design of the message server platform allows an organization to deploy a basic AccuRoute scan-to-route system for document capture, delivery and archive, adding full enterprise fax functionality, including desktop and scan to fax, as needed simply by purchasing the appropriate components and fax modem hardware. Document routing instructions encoded in an embedded directive can be combined with server routing rules to automatically archive inbound faxes in the resident document management system as well as route to numerous other locations. This type of automated document routing streamlines paper intensive processes by eliminating the in-house scanning step as the document is essentially scanned when it is faxed and provides efficient routing of electronic documents.

        Omtool's fax-based client/server software platform deployed as part of a full AccuRoute system or solely as the Genifax product, can be configured to automatically process data-streams from back-office manufacturing and other applications for automatic electronic exchange, thus providing a potential cost-savings in terms of materials and manpower.

Strategy

        The Company's objective is to maintain its position as a leading provider of client/server facsimile software solutions and to become a leading provider of business-to-business electronic document exchange solutions that include capture, conversion, archiving and exchange of either paper or electronically formatted documents. In addition, Omtool intends to take advantage of its customer base, partnerships and knowledge of communication and enterprise solutions to become a leading provider of business-to-business electronic document exchange solutions by implementing the following business strategy:

        Continue to Enhance Existing Products.    The Company intends to continue to add features to and consolidate its product offerings and to form strategic technology and distribution partnerships to further penetrate its markets.

        Maintain Technology Leadership in the Enterprise Market.    The Company intends to continue to invest in its electronic document delivery strategy through integration with other document and records management system platforms, by continuing to refine the Omtool message server based platform with

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additional features, and by integrating with other third-party systems. In addition, where appropriate, Omtool will continue to invest in and refine its fax and secure messaging technologies as part of the evolution of the AccuRoute platform to keep pace with its customer requirements. Where opportunities exist, Omtool will investigate repackaging parts of its existing technology to address opportunities that the Company believes exists for low cost, distributed products that provide limited document exchange capabities.

        Leverage Installed Base of Customers.    The Company believes that with the AccuRoute platform, opportunities exist to expand the user-base of its products and expand the use of its software applications at the Company's existing customer installations. The Company intends to pursue these opportunities by leveraging both its solution/reseller channel and expanding its direct sales force. In addition, the Company believes that its ability to maintain a high level of customer satisfaction among its install base is of critical importance in marketing its current and future products to new customers as well as to the Company's installed base. The Company will actively seek opportunities to sell its AccuRoute platform capabilities to existing customers who are currently using the Genifax software; specifically to improve processes, reduce costs and address regulatory issues relating to information archiving and access.

        Focus on Vertical Market Opportunities.    The Company believes that opportunity exists for its electronic document delivery solutions in specific vertical markets. The Company has achieved success in the legal, healthcare and Fortune 1000 markets and intends to continue to focus its marketing and sales efforts on the those markets.

        The Company believes that pending government regulations regarding privacy and the need to better manage paper documents will drive many healthcare organizations to re-examine existing methods of delivering patient-related information and investigate ways to streamline paper-based processes to improve efficiency and eliminate redundancy. Today, healthcare organizations use e-mail and fax to communicate patient information between providers of healthcare services, payor organizations and private corporations. With the formalization of the HIPAA regulations for document portability and privacy, both e-mail and fax must undergo significant change to insure that confidential patient information remains confidential to achieve and maintain HIPPA compliance. Omtool's products provide a fully-capable fax and e-mail solution that is designed to comply with HIPAA regulations. The solutions combine both procedural changes to physical workflow and technological changes. The healthcare market represents a major opportunity for Omtool's products and will be a vertical market focus.

        The Company will also seek new opportunities to leverage its document capture, and archiving capabilities as new government mandates such as Sarbanes-Oxley dictate policy for tracking and archiving any and all communications and documents relating to financial reporting.

        Build Direct Sales Organization and Leverage Distribution Channels.    The Company believes that success in the market requires it to build strong relationships with its customer base. The Company also believes that this type of relationship requires it to expand its sales team that focuses on account management. Additionally, the Company will continue to leverage its existing distribution channels where appropriate to broaden its reach to the target vertical markets and further penetrate its installed base. The Company continues to refine its North American and expand its international distribution network with the goal of developing close business partner relationships that will augment its direct sales efforts and provide market strength in various geographic regions.

        Increase International Sales Presence.    The Company intends to increase its international presence (primarily in Europe) in order to address its target markets outside of North America and to serve customers that operate on a multi-national basis. In 2001, 2002 and 2003, approximately 10%, 14% and 19%, respectively, of the Company's total revenues were derived from sales outside of North America

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(primarily in Europe). In 2004, the Company plans to increase its current level of investment in sales and marketing efforts directed towards international markets.

        Leadership in the Microsoft Server and Messaging Environments.    Windows server technology has become the dominant server operating system in the enterprise environment for messaging-based applications. The Company intends to continue its focus on near-term research and development, marketing and sales efforts to take advantage of Windows server functionality and that offered in future Microsoft operating and messaging systems.

        Leadership in the Document Capture and Delivery Software Environment.    The AccuRoute platform provides a common set of document capture and distribution tools across a broad set of multifunction devices from virtually all manufacturers. The Company believes that other companies will adopt policies to more effectively control information exchange and archiving as paper will become an obstacle as it does not fit into the e-mail culture of today's business environment. The AccuRoute platform provides a simple solution to the problem by enabling any MFD to become a means of seamlessly bridging the paper/electronic gap and because it is not hardware dependant, it is the ideal solution for mixed device environments.

        Continue to Pursue Strategic Relationships.    The Company has, over the past year, and will continue in the future, to form strategic relationships with leading providers of products and services that are complementary to the Company's offerings. The Company believes that these relationships will provide both a valuable source of sales leads and believes that these relationships will be beneficial in exposing its products to new markets and prospective customers.

        The Company has strategic alliances with companies such as Xerox, Inc. and Hewlett Packard, Inc., providers of digital scanning multifunction devices that, when combined with the Company's software products, enable users to easily integrate hardcopy documents into the electronic workflow. The Company believes that these strategic alliances will expose it to additional opportunities in the corporate, legal and healthcare markets. In addition, the Company maintains strategic relationships with Verisign, the leading provider of security infrastructure, as well as Avaya and Siemens, providers of PC-based unified messaging systems that include voice mail systems and computer-telephony integration solutions. Other strategic alliances include iManage, Hummingbird, Worldox, and AccuTrack, providers of information and collaboration management software for enterprises.

Current Products and Services

AccuRoute

        Omtool's AccuRoute software enables users to deliver a hardcopy documents from any brand of digital scanning and multifunction devices to multiple recipients via multiple channels simultaneously in a method that is as simple as using a photocopier. The multiple channels consist of fax, e-mail or archived to a resident document/records management system or network file share, or printed on any network connected printer. The AccuRoute software uses an intelligent routing page, created at the user's desktop that encodes the document routing information (a recipient list with corresponding delivery channels, as well as the printing and document management information). The AccuRoute software's routing sheet can be archived for re-use, included as an attachment to an email document (that can also contain an additional document attachment) and routed to the AccuRoute server for processing and delivery or printed, added to the paper document and scanned at the network-connected device.

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Genifax

        Omtool's Genifax software is multi-tiered client/server software for automating and integrating fax communication throughout an enterprise. As a component of an enterprise software system, the Genifax software is designed to be deployed on heterogeneous, multi-platform networks and to integrate with desktop and enterprise software applications. The Genifax software has been designed for high availability and high use incorporating features and capabilities essential for these criteria. These features include:

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Redundancy and failover capability to ensure a failsafe capability where fax-based messaging is mission critical;



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Fax Center as the administrative tool to replace the traditional fax room and manual distribution by providing controlled, delivery, of inbound fax messages. The FaxCenter operator can route by content, recipient, combine multiple faxes, annotate, forward and profile and archive in the resident document management systems ("DMS") all from the desktop. Embedded Directives, combined with routing rules automatically routes inbound faxes to predefined recipients using proprietary coding;



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Approval Workflow that allows administrative review and approval for both inbound and outbound activity; and



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The ability to configure the system to receive fax messages as image-based (non editable) or text base (editable) PDF



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Enhanced webclient enables users to send, receive, manage and view status of their fax inbox. The Genifax web client is an alternative to the email based send form for organizations wishing to keep email and fax traffic separate



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The Genifax software private fax feature that ensures the sender that the recipient fax machine is identified prior to the actual delivery.

        The private fax feature has specific utility to the legal, healthcare and financial services markets as well as other markets where maintaining confidentiality of faxed documents is either a regulated requirement or a best practice. An administrator may also take advantage of password/security features native to the Windows server operating system to provide needed protections.

        Genifax LE software is an enterprise fax server, based on the Genifax architecture with features and integrations developed specifically for the legal market and builds on Omtool's success and reputation in the legal market. In addition to a cost recovery component that enables law firms to track each delivery transaction and export the data to popular time and billing systems, Genifax LE software includes client software that integrates with existing DMS enabling users to queue and send documents as faxes from within the DMS application. Similar integration with popular office applications allows users to queue and send a document as a fax from the application that it was created simply by "printing" the document using the Genifax LE software printer driver. These features set Genifax LE software apart in the fax market by delivering critical electronic document delivery and control features to the legal desktop in the context of existing work-flows and habits.

Genidocs

        The Genidocs product line is a client/server messaging application that enables users throughout an enterprise to deliver documents via the Internet to external parties with comprehensive security and tracking functionality. It offers the security features and functionality that are provided through traditional, paper-based document communications with the speed, efficiency and cost advantages of electronic, Internet-based communications. The Genidocs product integrates with the e-mail application and digital paper-scanning devices that are most commonly used within an enterprise.

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        The Genidocs system implements a modular, component-based architecture that works within an enterprise's existing security infrastructure. The Genidocs product provides a multifaceted approach to securing document exchange that combines encryption with authentication, a time-stamped audit trail and digital signatures. The system can be configured for ad hoc-type communications in which each transmission is encrypted, delivered and processed individually. The Genidocs product also provides an enterprise solution for creating and distributing documents in Adobe's PDF format.

        Genidocs LE software is designed specifically for law firms. It provides a cost-effective, user-friendly means to effectively package, securely deliver and manage electronic delivery of high-value, confidential or time-sensitive documents. The Genidocs LE software expands the core functionality of the Genidocs product with features specific to the legal market. The Genidocs LE's software confirmed and secure electronic document delivery capabilities integrate readily with existing e-mail, document management and time and billing systems to provide:

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Automated PDF conversion and delivery;



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Cost recovery tracking and client bill-back reporting;



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Document management archiving;



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Encryption (including PKI);



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Digital signatures;



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Sender/Recipient authentication;



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Certified delivery notification, audit trails, 3rd party time stamps; and



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Secure reply.

Fax Sr.

        Fax Sr., Omtool's legacy network fax product is a client/server software solution for automating and integrating fax communication throughout an enterprise. As an integrated component of an enterprise software system, the Fax Sr. product is designed to be deployed on heterogeneous, multi-platform networks and to integrate with desktop and enterprise software applications. The Fax Sr. product is licensed typically on a shrink-wrap basis, primarily on the Windows NT and 2000 server operating systems.

LegalFax

        LegalFax, Omtool's legacy network fax product designed for use by law firms, is a client/server software solution, based on the Fax Sr. product that was developed specifically to enable law firms to automate and integrate fax communications and cost recovery systems. The LegalFax product was licensed typically on a shrink-wrap basis, primarily on the Windows 95/98 and Windows NT operating systems. The LegalFax product supported Microsoft Exchange, Novell GroupWise, and Lotus Notes, and allowed users to fax using native transport protocol. Additionally, the LegalFax product was fully-integrated with document management systems such as iManage and Hummingbird DOCS Open, as well as with time and billing systems such as Equitrac, Elite and CMS Open. During 2003, the Company announced the release of Genifax LE as its state of the art product to serve this market. As such, the Company has also been migrating the LegalFax customer base to Genifax LE and is discontinuing the active sales and marketing of the Legalfax product.

Hardware

        The Company resells from third-party vendors certain hardware products, including intelligent fax boards and fax modems, to its customers. Hardware sales are undertaken as a convenience to the

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Company's customers and hardware is not required to be purchased from the Company and can be alternatively obtained from a third party vendor. The fax boards and fax modems that are resold are not functional without the Company's software and the Company is not in the business of selling fax boards and modems.

Customer Service

        To aid in the successful deployment of the Company's products by its customers, the Company's customer service organization provides technical support. For an additional fee at the time of the initial licensing of the Company's products, the Company provides support services to its customers for a typical period of 12 months, including telephone support, software support comprised of maintenance releases, minor feature enhancement releases, technical bulletins and replacement of damaged media. Support services may be renewed at the customer's discretion on an annual basis. The Company currently provides annual support services based on a percentage of its product license fee. Additional services are provided on an as needed basis by the Company including installation, training and consulting services.

Sales and Marketing

        The Company targets large and mid-sized corporations, business and healthcare organizations, law firms and government entities as the primary markets for its complete electronic document delivery product line. In order to address the legal vertical market, the Company has enhanced its core products with features that address workflow needs and integrates with products that are specific to the legal vertical market. The Company has also invested in marketing programs and product branding targeted to the legal market. In addition, the Company believes that opportunity exists in the healthcare vertical for the Genifax and Genidocs product lines. The Company believes that pending government regulations regarding confidentiality and portability of patient records may indicate a shift toward electronic delivery methods for patient records that are consistent with the capabilities of the Company's products.

        To address the broad range of its sales opportunities, the Company relies on the coordinated efforts of its sales organization, key executives and marketing department. The Company also offers its product lines through indirect sales channels such as resellers, systems integrators and value added distributors and strategic partners. The Company has increased its efforts to establish a strong reseller channel by dedicating sales resources specifically to finding, qualifying and managing channel partners. The Company plans to add and maintain channel partners in geographic locations where Omtool's direct sales force does not have adequate presence.

        Outside of North America, the Company primarily utilizes independent distributors to promote, license and support its products. The Company expects to continue to market its products through independent distributors in strategic international markets. In 2001, 2002 and 2003, sales outside of North America (primarily Europe) represented approximately 10%, 14% and 19%, respectively, of total revenues.

        In support of its sales organization, the Company implements comprehensive marketing programs intended to promote and create awareness of the Company's products and position the Company in the enterprise, client/server facsimile and electronic document delivery and management software markets. These efforts may include product advertising, public relations, trade show participation, educational seminars, direct mail and telemarketing campaigns and participation in industry programs and forums.

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Customers

        As of December 31, 2003, the Company had more than 8,200 customers worldwide. The Company's customer base reflects the cross-industry applicability of the Company's products and services.

        No single customer accounted for 10% or more of total revenues in 2001, 2002 or 2003.

Research and Development

        The Company continues to invest in research and development. The Company believes its future success depends in large part on its ability to continue to consolidate and enhance the Genifax, Genidocs and AccuRoute products into a single feature flexible platform. Omtool deploys its engineers in product teams that focus on the concurrent development of a range of product enhancements that leverage its products' modular product architecture. Omtool's product development efforts are focused on new products, the exploration of emerging technologies and the continued enhancement of existing products. The Company also continually reviews opportunities to form alliances with third-party vendors of complementary technologies and products to enhance the functionality of its product families. In the future, the Company may, based on timing and cost considerations, continue to explore opportunities to license or acquire technologies or products from third-parties.

        The Company expects to retain skilled development engineers. If the Company needs to replace such engineers they are likely to be in short supply, and the Company's business, financial condition and results of operations could be adversely affected if it encounters delays in hiring or fails to retain the required skilled engineers. The Company's research and development expense for 2001, 2002 and 2003 was approximately $3.2 million, $2.8 million and $2.2 million, respectively. Since its inception, the Company has not capitalized any software development costs. The Company plans to continue to make significant investments in research and development, primarily through the compensation of skilled engineers and independent contractors.

Competition

        In the distributed document capture and delivery market where the AccuRoute software competes, the Company is likely to see competitive products being offered by hardware vendors such as Canon, Ricoh, Lexmark and others. In most cases these products are the result of partnerships with U.S.-based software companies. The Company also expects competition in this market from a number of software vendors whose business focus was initially the high volume production scanning segment such as Kofax, Captiva, or forms management and process routing companies such as Cardiff. e-Copy, a former Omtool business partner, has formed a relationship with Canon and has in the past year embedded their document capture and routing capabilities into the Canon device front panel. Other potential software competitors include ScanSoft, as well as the document management vendors like Hummingbird and iManage who are seeking to develop, either through partnerships or internally, scan-to-archive capabilities using standard e-mail as the transport, and a generic document profile as a means of entering the content into their repository. The Company expects this market to mature and become increasingly competitive with success resulting from the formation of critical partnerships and alliances with both selected hardware and software partners.

        The market for client/server computer-based facsimile solutions is also competitive, although this market is more established and mature than the markets in which the Genidocs and AccuRoute products compete. The Company believes its ability to compete successfully in the fax market depends upon a number of factors both within and beyond its control, including product performance; reliability and features; ease of use; product scalability; quality of support services; price/performance; timeliness of enhancements and new product releases by the Company and its competitors. Given these factors, the Company believes that in order to be successful, it must continue its focus and deliver a core,

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modular and scalable product on one of the most prolific system platforms, Windows 2000/2003, with features that appeal to the broadest segment of the electronic document exchange market, which includes fax and all of the of the other document control and management features that Omtool offers.

        The Company competes directly with a large number of vendors of facsimile products, including providers of facsimile software products for client/server networks such as RightFAX (a subsidiary of Captaris), Fenestrae, TopCall International and Biscom. The Company also competes with providers offering a range of alternative facsimile solutions including outsourcing network facsimile solutions, such as Easylink Services; operating systems containing facsimile and document e-mail features; low-end fax modem products; providers of 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.

        In the intensely competitive and rapidly changing business-to-business secure document exchange market, the Company competes directly with Authentica, Sigaba, Tumbleweed, and Zixit and a number of other providers. There are also other categories of technology solution that overlap and compete in certain ways with aspects of the Company's products. These include:

•

Document management solutions from vendors such as Documentum, Hummingbird and iManage whose electronic collaboration solutions compete with certain aspects of the Company's solutions;



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Electronic forms and electronic signature solutions from vendors such as Adobe, PureEdge, CreateForm and Silanis that offer the creation of electronic documents with electronic signatures; and



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Security infrastructure solutions from vendors such as Verisign and Entrust whose solutions can be used to build applications that enable secure document communications.

The Company expects the competition in the business-to-business secure document exchange market to increase over time.

        Many of Omtool's competitors and potential competitors have longer operating histories and greater financial, technical, sales, marketing and other resources, as well as greater name recognition and market acceptance of their products and technologies than the Company. In addition, there are relatively low barriers to entry in the markets in which the Company operates and intends to operate, and new competition may arise either from expansion by established companies or from new emerging companies or from resellers of the Company's products. There can be no assurance that current or potential competitors of Omtool 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 the Company will be able to compete successfully in the future. Increased competition will result in reductions in market share, pressure for price reductions and related reductions in gross margins, any of which could materially and 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.

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Proprietary Rights

        The Company regards its software as a trade secret and attempts to protect it with a combination of copyright and trade secret laws, and employee nondisclosure and assignment of invention agreements. The Company has one U.S. patent, three pending U.S. patent applications, one pending PCT application, two pending foreign patent applications, one pending U.S. trademark applications and four pending foreign trademark applications. The Company to date has not registered any copyrights. The Company generally licenses its products under "shrink-wrap" licenses (i.e., licenses included as part of the product packaging). Shrink-wrap licenses are not negotiated with or signed by individual licensees, and purport to take effect upon the opening of the product package. Certain provisions of such licenses, including provisions protecting against unauthorized use, copying, transfer and disclosure of the licensed program, may be unenforceable under the laws of many jurisdictions. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult, and although the Company is unable to determine the extent to which piracy of its products exists, such piracy can be expected to be a persistent problem, particularly in international markets. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as the laws of the United States. There can be no assurance that these protections will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies.

        There has been substantial litigation in the software industry involving intellectual property rights. There can be no assurance that claims of infringement of intellectual property rights will not be asserted against the Company and, if asserted, would not have a material adverse effect on the Company's business, financial condition and results of operations. In addition, inasmuch as the Company licenses certain components of its products from third-parties, its exposure to copyright and other infringement actions may increase because the Company must rely on such third-parties for information as to the origin and ownership of such licensed components. In the future, litigation may be necessary to enforce and protect trade secrets, copyrights and other intellectual property rights of the Company. The Company may also be subject to litigation to defend against claimed infringement of the rights of others or to determine the scope and validity of the intellectual property rights of others. Any such litigation could be costly and divert management's attention, either of which could have a material adverse effect on the Company's business, financial condition and results of operations. Adverse determinations in such litigation could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third-parties or prevent the Company from selling its products, any one of which would have a material adverse effect on the Company's business, financial condition and results of operations.

Employees

        As of December 31, 2003, the Company employed 72 persons. The Company is not subject to any collective bargaining agreements, has never experienced a work stoppage and considers its relations with its employees to be good.

Item 2. Properties

        The Company's executive offices are located at 8A Industrial Way, Salem, New Hampshire in a leased facility consisting of approximately 30,000 square feet, of which the Company occupies 25,500 square feet and 4,500 square feet of which the Company has subleased to a third party. The lease expires in December 31, 2005. The Company believes that this facility are adequate for its present operations. Additionally, the Company leases a facility for sales, customer service, accounting and support, in London, England, which expire in May 2005.

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Item 3. Legal Proceedings

        None.

Item 4. Submission of Matters to a Vote of Security Holders.

        None.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

        From August 8, 1997, the date of the Company's initial public offering of common stock, until November 19, 2002, the Company's common stock was traded on The Nasdaq National Stock Market under the symbol OMTL. Since November 26, 2002 the Company's Common Stock has been trading on the Nasdaq SmallCap Market. On January 14, 2003 Omtool's Board of Directors voted a one-for-seven stock split of the Company's Common Stock effective January 15, 2003 pursuant to a special meeting of stockholders that was held on the same day approving an amendment to the Company's Amended and Restated Certificate of Incorporation. Prior to August 8, 1997, there was no public market for the Company's common stock. The following table sets forth for the periods indicated the high and low bid prices for the common stock as reported by The Nasdaq Stock Market based on a split-adjusted actual sales price.

        On March 18, 2004, the closing price for the common stock was $13.75 per share. As of March 18, 2004, there were approximately 76 stockholders of record. The Company believes that shares of the Company's common stock held in bank, money management, institution and brokerage house "nominee" names may account for at least an estimated 912 additional beneficial holders.

        The Company has not paid any cash dividends on its capital stock and does not anticipate paying cash dividends in the foreseeable future. The Company intends to retain any earnings or other cash resources to finance future growth of its business. Any future determinations to pay cash dividends will be at the discretion of the Company's Board of Directors and will be dependent upon the Company's results of operations, financial condition and other factors deemed relevant by the Board of Directors.

        On January 14, 2003, Omtool's Board of Directors voted a one-for-seven stock split of the Company's Common Stock effective January 15, 2003 pursuant to a special meeting of stockholders that was held on the same day approving an amendment to the Company's Amended and Restated Certificate of Incorporation of the Company to effect a reverse stock split whereby each outstanding (7) shares would be combined, converted and changed into one share of Common Stock. All references in the Consolidated Financial Statements referring to shares, share prices, per share amounts and stock plans have been adjusted retroactively for the one-for-seven stock split. Additional information is presented in Footnote 6(d) of Notes to the Consolidated Financial Statements.

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Item 6. Selected Consolidated Financial Data

        The statements of consolidated operations data set forth below for the fiscal year ended December 31, 2001 have been derived from the Company's consolidated financial statements, which statements have been audited by Arthur Andersen LLP, independent public accountants, and are included herein. The statements of consolidated operations data set forth below for each of the fiscal years ended December 31, 2002 and 2003 and the balance sheet data as of December 31, 2002 and 2003 have been derived from the Company's consolidated financial statements, which statements have been audited by PricewaterhouseCoopers LLP, independent accountants, and are included herein. The statements of consolidated operations data for the fiscal years ended December 31, 1999 and 2000 and the balance sheet data as of December 31, 1999, 2000 and 2001, are derived from the Company's financial statements, which statements have been audited by Arthur Andersen LLP and are not included herein. The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Form 10-K.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        Except for the historical information contained herein, this Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding, among other items: the Company's growth strategies; anticipated trends in the Company's business; the Company's ability to expand its product and service offerings; and the Company's ability to satisfy working capital requirements. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of a number of factors including, but not limited to, those factors described in "Certain Factors Affecting Future Operating Results."

Overview

        Omtool is a leading provider of electronic document delivery and management software that enables efficient, secure, confirmed and cost-efficient document exchange between businesses. The Company was incorporated in March 1991 and shipped its initial facsimile software products in 1991. Omtool's products provide users with an extensive, flexible feature set that converts, transmits, receives, and automatically archives documents in electronic formats. Included in the Company's products is a suite of utility and control functions that enables the conversion of paper documents to standard electronic formats and integrates with industry recognized document and records management systems. Omtool's products enable the integration of business processes that include the exchange of hard copy and electronic documents such as legal contracts, financial transactions, medical records and purchase order processing. Omtool's products minimize risks by preserving the security of high value documents while facilitating increased productivity, reducing costs and fulfilling emerging business requirements. AccuRoute, Omtool's document routing and distribution software, integrates with many digital scanning and multifunctional devices to allow paper documents to be digitized, distributed and archived. In addition, Omtool's AccuRoute software provides capture, distribution and compliance for movement of electronic documents and information. Genifax™, Omtool's enterprise fax software, offers a scalable, server-based feature set and shares a common Windows server-based architecture with the Genidocs product line. Genidocs™, the Company's secure document delivery application, integrates with existing e-mail systems and provides multiple options for content and attachment encryption, authentication, audit trail and delivery confirmation, and digital signatures. AccuRoute further unifies the codes base and architecture of Genidocs and Genifax, coupled with the routing capabilities of the AccuRoute platform to provide a truly unique customer specific product to easily manage documents, both paper and electronic documents with little or no user training required. A significant portion of the Company's revenues is derived from licensing the rights to use its fax software products directly to end-users and indirectly through resellers.

        The Company resells, from third-party vendors, certain hardware products, including intelligent fax boards and fax modems, to its customers. Hardware sales are undertaken as a convenience to the Company's customers and hardware is not required to be purchased from the Company and can be alternatively obtained from a third-party vendor. The fax boards and fax modems that are resold are not functional without the Company's software and the Company is not in the business of selling fax boards and modems. The Company purchases these hardware products as needed to ship to its customers and the Company maintains a minimal inventory of these hardware products. Management believes that it has a good business relationship with suppliers of these products and that supply of these products is stable.

        Service and other revenues have consisted primarily of the sale of support contracts. Revenue from support contracts is recognized ratably over the term of the support contract period. The Company

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generates a smaller portion of its service and other revenues from consulting, training and installation services.

        The Company's financial results for 2003 improved from 2002 as the net loss was reduced from $5.5 million in 2002 to $1.9 million in 2003. The Company also recorded a net profit of $400,000 for the quarter ended December 31, 2003. Quarterly revenue for the last three quarters of 2003 was higher than it was for the same three quarters of 2002. However, annual revenue for 2003 was 5% lower than it was for 2002 due to a weak first quarter in 2003. The Company's revenue however has grown in each subsequent quarter. The Company believes that there has been some improvement in the demand for enterprise software solutions over this period which has led to an increase in information technology spending. The sales growth the Company has been experiencing in the last three quarters of 2003 is a result of a steady improvement of sales transactions over the same time period. The current expected level of sales transactions and resulting revenues for 2004 combined with lower annual expenses (resulting from the third quarter of 2003 restructuring charge) leads management to believe that its results of operations will be better in each quarter in 2004 than in the comparable quarter of 2003. However, this expectation is subject to change if the current economic environment changes and the general softness in information technology spending returns or if the Company's products do not achieve market acceptance. As a result of the losses incurred in the first three quarters of 2003, the Company reduced its work force and office space in September 2003 to lower the overall cost of operations. Although the Company's operating cash flow for the year ended December 31, 2003 resulted in a use of cash of $1.4 million, the Company's cash and cash equivalents at December 31, 2003 were approximately $8.2 million. As such, the Company believes that its existing cash and cash equivalents will be sufficient to meet the Company's working capital and capital expenditures for at least the next year.

        Although the Company believes that recently there has been some improvement in the demand for enterprise software solutions, it cannot predict when that market will change. When the market does change, the Company cannot predict whether, and to what extent, the demand for its products will increase or decrease. Any decrease in demand for the Company's products would most likely result in decreased revenue which would in turn have a significant impact on the Company's financial results, particularly because a significant portion of the Company's operating costs (such as personnel, rent and depreciation) are fixed in advance of a particular quarter. As a result, despite cost savings realized from the Company's September 2003 restructuring, the Company's costs for sales and marketing, research and development and general and administrative could continue to increase as a percentage of revenues, thereby affecting the Company's operating results.

        The Company's future revenues and operating results may fluctuate from quarter to quarter based on the number and size of sales transactions the Company enters into with customers, the adequacy of provisions for losses, general economic conditions and other factors. In addition, revenues from a large order may constitute a significant portion of the Company's total revenues in a particular quarter.

        The Company has historically derived a majority of its total revenues from sales within North America. Sales outside of North America (primarily in Europe) represented approximately 19%, 14% and 10% of the Company's total revenues in 2003, 2002 and 2001, respectively. The Company's gross profit on these sales approximates the gross profit on sales within North America. The Company's strategy is to expand its international presence (primarily in Europe) and to increase its investment in sales and marketing efforts directed toward international markets. There can be no assurance that the Company will be able to maintain or increase international sales of its produ