10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 2008

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 0-25186

CAPTARIS, INC.

(Name of Registrant as Specified in Its Charter)

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

301 116th Ave SE, Suite 400 Bellevue, WA	98004
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (425) 455-6000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    ¨	Accelerated filer     x
Non-accelerated filer    ¨    (Do not check if a smaller reporting company)	Smaller reporting company     ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

The number of outstanding shares of the registrant’s common stock as of April 30, 2008 was 26,466,844.

CAPTARIS, INC.

FORM 10-Q

For the Quarter Ended March 31, 2008

Table of Contents

PART I.	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements Of Operations (Unaudited)	5
	Condensed Consolidated Statements Of Cash Flows (Unaudited)	6
	Condensed Consolidated Statement Of Shareholders’ Equity (Unaudited)	7
	Notes To Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	23
Item 3.	Quantitative And Qualitative Disclosures About Market Risk	36
Item 4.	Controls And Procedures	39
Part II.	Other Information
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales Of Equity Securities And Use Of Proceeds	41
Item 6.	Exhibits	41
Signature		42

2

CAPTARIS, INC.

Forward-Looking Statements

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “target,” or the negative of these terms or other terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors that may cause our actual results to differ materially from any forward-looking statements. Factors that could affect Captaris’s actual results include, without limitation:

• Quarterly and seasonal fluctuations in operating results, which may negatively impact the trading price of our common stock.

• Our inability to compete successfully against current and future competitors.

• Our inability to meet technology and customer demands in a rapidly changing industry.

• Our inability to integrate recent and future acquisitions, including acquired technologies, products, personnel or operations.

• Our inability to obtain fax processing circuit boards and related software, including Fax Over Internet Protocol (“FOIP”), a key component of our RightFax product, on acceptable terms, which may be affected by significant changes in technology, issues regarding quality performance, delays, interruptions or reductions in our supply, or unfavorable changes to price and delivery terms.

• Our inability to maintain or expand our network of resellers, distributors and Information Technology (“IT”) service providers.

• Our inability to establish and maintain Original Equipment Manufacturers (“OEM”) and strategic relationships.

• Our inability to maintain and expand our international operations, which are subject to numerous risks, including, difficulty in adapting products to local languages and technologies, regulatory requirements, exchange rate fluctuations, restrictive governmental actions, import/export licensing requirements, limits on the repatriation of funds, longer receivables cycles, staffing/managing international operations, adverse tax consequences and changing local and international environments.

• Our inability to affect and forestall potential declines in the average sales prices of our products which could cause our overall gross margins to decline.

• Our inability to protect our proprietary rights or to operate without infringing the patents and proprietary rights of others.

• Ongoing litigation matters and disputes, including litigation related to the Telephone Consumer Protection Act (as further described under “Legal Proceedings” in this report).

• Our inability to protect against security breaches and exposure of confidential data, which if breached could subject us to litigation, liability and decreased market acceptance of our products.

• Our inability to attract and retain qualified employees.

• Adverse economic conditions, which may cause declines in customers’ investments in our products.

• Our inability to comply with the financial restrictions and other covenants in our credit facility, which could adversely impact our financial condition and liquidity.

• Our evaluation of strategic alternatives may not result in a definitive transaction or enhance shareholder value, and may create a distraction for our management and uncertainty that may adversely affect our operating results and business.

More information about factors that potentially could affect Captaris’s financial results is included under Item 1A “Risk Factors” in our most recent Annual Report on Form 10-K filed by us with the Securities and Exchange Commission (“SEC”), and in Part II, Item 1A of this Quarterly Report on Form 10-Q. Readers are cautioned not to place undue reliance upon these forward-looking statements that speak only as to the date of this report. Except as required by law, Captaris undertakes no obligation to update any forward-looking or other statements in this report whether as a result of new information, future events or otherwise.

3

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CAPTARIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)

	March 31, 2008 (Unaudited)		December 31, 2007 (Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	39,851	$	46,182
Restricted cash		—		1,000
Accounts receivable, net		21,647		19,348
Inventories		2,568		1,681
Prepaid expenses and other current assets		2,252		4,564
Income tax receivable and current deferred tax assets, net		3,263		3,527
Total current assets		69,581		76,302
Other long-term assets		1,122		847
Equipment and leasehold improvements, net		10,220		7,735
Intangible assets, net		31,851		11,748
Goodwill		57,181		37,522
Long-term deferred tax assets, net		2,199		5,344
Total assets	$	172,154	$	139,498
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,589	$	8,621
Accrued compensation and benefits		6,114		5,528
Other accrued liabilities		3,708		1,706
Income taxes payable		49		327
Deferred revenue		25,791		22,747
Total current liabilities		49,251		38,929
Other long-term accrued liabilities		654		696
Long-term deferred revenue		5,716		5,962
Pension and other long-term employee benefit obligations		19,513		—
Bank loan		9,675		—
Total liabilities		84,809		45,587
Commitments and contingencies
Shareholders’ equity:
Preferred stock, par value $0.01 per share, 2,000 shares authorized; none issued and outstanding		—		—
Common stock, par value $0.01 per share, 120,000 shares authorized; 26,393 and 26,378 issued and outstanding, respectively		264		264
Additional paid-in capital		41,442		40,971
Retained earnings		43,314		49,961
Accumulated other comprehensive income		2,325		2,715
Total shareholders’ equity		87,345		93,911
Total liabilities and shareholders’ equity	$	172,154	$	139,498

See the accompanying notes to unaudited condensed consolidated financial statements.

4

CAPTARIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Quarter Ended March 31,
	2008			2007
Net revenue	$	27,919		$	20,513
Cost of revenue		9,753			6,258
Gross profit		18,166			14,255
Operating expenses:
Research and development		6,351			3,186
Selling and marketing		12,222			8,278
General and administrative		6,461			4,716
Amortization of intangible assets		664			141
In-process research and development		1,224			—
Gain on sale of discontinued product line CallXpress		—			(1,000	)
Total operating expenses		26,922			15,321
Operating loss		(8,756	)		(1,066	)
Other income (expense):
Interest income		271			575
Interest expense		(440	)		—
Other income (expense), net		474			144
Other income		305			719
Loss from continuing operations before income tax expense		(8,451	)		(347	)
Income tax benefit		(1,805	)		(84	)
Loss from continuing operations		(6,646	)		(263	)
Discontinued operations:
Loss on sale of MediaTel assets, net of income tax benefit		(1	)		(2	)
Loss from discontinued operations		(1	)		(2	)
Net loss	$	(6,647	)	$	(265	)
Basic and diluted net loss per common share:
Loss from continuing operations	$	(0.25	)	$	(0.01	)
Loss from discontinued operations		(0.00	)		(0.00	)
Basic and diluted net loss	$	(0.25	)	$	(0.01	)
Weighted average shares used in computation of basic and diluted net loss per share		26,406			27,476

See the accompanying notes to unaudited condensed consolidated financial statements.

5

CAPTARIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

	Quarter Ended March 31,
	2008			2007
Cash flows from operating activities:
Net loss	$	(6,647	)	$	(265	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		936			726
Amortization		1,744			622
Stock-based compensation expense		396			195
Gain on foreign currency revaluation		(525	)		(63	)
Pension and long-term employee benefit expense		458			—
Provision for doubtful accounts		64			49
In-process research and development		1,224			—
(Gain) loss on disposition of assets		29			(46	)
Deferred income tax expense		(1,717	)		(426	)
Changes in assets and liabilities (net of acquired assets and liabilities):
Accounts receivable		3,180			1,415
Inventories		(346	)		362
Prepaid expenses and other assets		(622	)		(401	)
Accounts payable		2,514			(778	)
Accrued compensation and benefits		(1,538	)		(882	)
Other accrued liabilities		857			(243	)
Income taxes payable		(8	)		(40	)
Pension liability		(43	)		—
Deferred revenue		880			1,914
Net cash provided by operating activities		836			2,139
Cash flows from investing activities:
Purchase of equipment and leasehold improvements		(2,590	)		(1,149	)
Purchase of investments		—			(10,171	)
Purchase of CDT		(17,926	)		—
Proceeds from disposals of assets		35			55
Proceeds from sales and maturities of investments		4			7,328
Net cash used in investing activities		(20,477	)		(3,937	)
Cash flows from financing activities:
Proceeds from bank loan		9,675			—
Proceeds from release of restricted cash		1,000			—
Proceeds from exercise of common stock options		208			1,009
Repurchase of common stock		(138	)		(2,649	)
Excess tax benefits from stock-based compensation		5			135
Net cash provided by (used in) financing activities		10,750			(1,505	)
Net decrease in cash		(8,891	)		(3,303	)
Effect of exchange rate changes on cash		2,560			(3	)
Cash and cash equivalents at beginning of period		46,182			10,695
Cash and cash equivalents at end of period	$	39,851		$	7,389
Supplemental disclosures:
Cash paid during the period for income taxes	$	195		$	199
CDT acquisition:
Fair value of assets acquired	$	48,173		$	—
Cash paid		(17,926	)		—
Liabilities assumed	$	30,247		$	—
Software acquired with three year payment terms:
Fair value of software acquired	$	—		$	935
Cash paid		—			(301	)
Liability assumed	$	—		$	634

See the accompanying notes to unaudited condensed consolidated financial statements.

6

CAPTARIS, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

	Common Shares		Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (loss)			Retained Earnings			Total Shareholders’ Equity			Total Comprehensive loss
Balance at December 31, 2007	26,378,044		$	264	$	40,971		$	2,715		$	49,961		$	93,911		$	—
Exercise of stock options	51,000			—		208			—			—			208			—
Repurchase of common stock	(36,000	)		—		(138	)		—			—			(138	)		—
Stock-based compensation expense	—			—		396			—			—			396			—
Stock-based compensation tax benefit	—			—		5			—			—			5			—
Foreign currency translation adjustment	—			—		—			(390	)		—			(390	)		(390	)
Net loss	—			—		—			—			(6,647	)		(6,647	)		(6,647	)
Balance at March 31, 2008	26,393,044		$	264	$	41,442		$	2,325		$	43,314		$	87,345		$	(7,037	)

See the accompanying notes to unaudited condensed consolidated financial statements.

7

CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of the Business and Summary of Significant Accounting Policies

The Business

Captaris, Inc., (“we”, “us”, “our”) is a corporation formed in the State of Washington in 1982. Our principal executive offices are located in Bellevue, Washington. We are a provider of computer products that automate document-centric business processes. With a comprehensive suite of software, hardware and services, we help organizations gain control over many processes that include the need to integrate documents more securely and efficiently. Our solutions also provide interoperability between documents, business applications and technology platforms.

We operate under one business unit segment to deliver our product and software solutions. We develop products and services for document capture, intelligent document recognition and classification, routing, workflow, document management and document delivery. Our product lineup includes the brand names RightFax, FaxPress, Captaris Workflow, Alchemy, Single Click Entry, DOKuStar and RecoStar.

Our products are distributed and supported through a global network of technology partners. This distribution system consists of business partners from all levels of the information technology (“IT”) spectrum: value-added resellers, original equipment manufacturers (“OEMs”), system integrators, distributors, mass market resellers, online retailers, office equipment dealers, and independent software vendors (“ISVs”). We believe the use of multiple distribution channels increases the likelihood that our products will be sold to more customers.

Basis of Presentation and Preparation

The accompanying unaudited condensed consolidated financial statements as of March 31, 2008, and for the quarters ended March 31, 2008 and 2007 and audited balance sheet as of December 31, 2007, have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted for interim financial information in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These unaudited condensed consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal and recurring adjustments and accruals, necessary for a fair presentation of our financial condition, results of operations and cash flows for the periods indicated.

Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of Captaris, Inc. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience, current conditions and various other assumptions we believe to be reasonable under the circumstances. Our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, as well as identifying and assessing appropriate accrual and disclosure treatment with respect to commitments and contingencies. Actual results may differ significantly from these estimates. To the extent that there are material differences between these estimates and actual results, our presentation of our financial condition or results of operations may be affected.

Cash and Cash Equivalents

Since we acquired Captaris Document Technologies GmbH (“CDT”), and through the date of this report, the majority of our consolidated cash and cash equivalents are held by CDT in Germany. We intend to have CDT remit its excess cash to

8

CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Captaris in repayment of the intercompany loan. However, in accordance with capital maintenance rules under German law, CDT is prohibited from using its excess cash to satisfy its intercompany obligation except for the €3.1 million of profit-sharing Captaris paid to CDT’s former owner on behalf of CDT. We are in the process of merging CDT into our wholly-owned subsidiary, Captaris Verwaltungs GmbH (“CV GmbH”), with CV GmbH being the surviving company. We expect the structure of the merger will allow CV GmbH to remit approximately €4.0 million ($6.3 million) of cash to Captaris in repayment of the intercompany loan. We expect the merger and remittance of the €4.0 million ($6.3 million) to occur late in the second quarter of 2008. See Note 7.

Inventories

Inventories consist primarily of fax boards, which we either resell or forward integrate into finished goods and components for our appliance product. We value these inventories on our consolidated balance sheets at the lower of cost or market (as determined by the first-in, first out method). Due to rapid changes in technology, it is possible that older products in inventory may become obsolete or that we may sell these products below cost. If actual market conditions are less favorable than we project, inventory write-downs may be required. When we determine that the carrying value of inventories is not recoverable, we write-down inventories to market value.

Inventories consisted of the following:

(in thousands)	March 31, 2008		December 31, 2007
Finished goods	$	1,504	$	1,131
Components		1,064		550
	$	2,568	$	1,681

Business Combinations

We include the results of operations of acquired businesses from the date of acquisition. We record net assets acquired at their fair value at the date of acquisition. We include the excess of the purchase price over the fair value of net assets acquired as goodwill in the accompanying unaudited condensed consolidated balance sheets. We have recorded the goodwill on the acquired foreign subsidiary’s balance sheet resulting in foreign currency translation differences in goodwill upon consolidation.

Revenue Recognition

Our revenue recognition policies follow the guidelines of the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) No. 97-2, Software Revenue Recognition, as amended. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable and collection is reasonably assured.

We sell products through resellers, Original Equipment Manufacturers (“OEM”) and other channel partners, as well as directly to end-users. Generally our resellers do not stock product, and except for OEM sales described below, we recognize product revenue upon shipment, net of estimated returns, provided that collection is determined to be probable and no significant obligations remain. If a reseller does stock product, we defer this revenue until the reseller sells the product through to end-users.

Sales of our appliance products are made through stocking distributors. For sales to distributors we recognize revenues on either the sell-through or sell-in method of revenue recognition as determined by the contractual arrangement with each distributor. When the distributor is entitled to stock rotation rights we recognize revenue upon delivery of the appliances to the distributor less a provision for an estimate of those rights (the “sell-in” method). Otherwise, revenue is recognized upon delivery of the appliances to the end-user (the “sell-through” method).

Revenue from perpetual software licenses is recognized when the software has been shipped, provided that collection for such revenue is deemed probable. Revenue from term software licenses is recognized over the term of the license, generally 12 months.

Whenever a software license, hardware, installation and post-contract customer support (“PCS”) elements are sold together, we allocate the total arrangement fee among each element based on its respective fair value, which is the price charged when that element is sold separately. The amount of revenue assigned to each element is impacted by our judgment as to whether an

9

CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

arrangement includes multiple elements and, if so, whether vendor-specific objective evidence (“VSOE”) of fair value exists for those elements. Changes to the elements in an arrangement and our ability to establish VSOE for those elements could affect the timing of revenue recognition for these elements. Revenue for PCS is recognized on a straight-line basis over the service contract term, ranging from one to five years. PCS includes rights to unspecified upgrades and updates, when and if available, and bug fixes.

Installation revenue is recognized when the product has been installed at the customer’s site and accepted by the customer. Recognition of revenue from software sold with installation services is recognized either when the software is shipped or when the installation services are completed, depending on our agreement with the customer and whether the installation services are integral to the functionality of the software.

We have entered into agreements with certain OEMs from which we receive royalty payments periodically. Under the terms of the OEM license agreements, each OEM will qualify our software on their hardware and software configurations. Once the software has been qualified, the OEM will begin to ship products and report net sales to us. Most OEMs pay a license fee based on the number of copies of licensed software included in the products sold to their customers. These OEMs pay fees on a per-unit basis and we record associated revenue when we receive notification of the OEMs’ sales of the licensed software to an end-user. The terms of the license agreements generally require the OEMs to notify us of sales of our products within 30 to 45 days after the end of the month or quarter in which the sales occur. As a result, we recognize the revenue in the month or quarter following the sales of the product to these OEMs’ customers.

We provide allowances for estimated returns, and return rights that exist for some customers. In general, customers are not granted return rights at the time of sale. However, we have historically accepted returns and therefore, reduce revenue recognized for estimated product returns. For those customers to whom we do grant return rights, we reduce revenue by an estimate of these returns. If we cannot reasonably estimate these returns, we defer the revenue until the return rights lapse. For software sold to resellers for which we have granted exchange rights, we defer the revenue until the reseller sells the software through to end-users. When customer acceptance provisions are present and we cannot reasonably estimate returns, we recognize revenue upon the earlier of customer acceptance or expiration of the acceptance period.

Professional services are customarily billed at fixed rates, plus out-of-pocket expenses and revenue is recognized when the service has been completed. However, if it is determined that a consulting engagement will be unprofitable, we recognize the loss at the time of such determination. Training revenue is recognized when the training is completed.

Impairment of goodwill

Our judgments regarding the existence of impairment indicators include our assessment of the impacts of legal factors; market and economic conditions; the results of our operational performance and strategic plans; competition and market share; and any potential for the sale or disposal of a significant portion of our principal operations. If we conclude that indicators of impairment exist, we then assess the fair value of goodwill. Our valuation process provides an estimate of a fair value of goodwill using a discounted cash flow model and includes many assumptions and estimates. Once the valuation is determined, we will write-down goodwill to its determined fair value, if necessary. Any write-down could have a material adverse effect on our financial condition and results of operations. We test goodwill for impairment on an annual basis in the first quarter of the year. We conducted our annual assessment during the first quarter of 2008 and determined our goodwill at March 31, 2008 was not impaired.

Impairment of intangibles

We periodically review our intangibles that are more likely than not to be sold or otherwise disposed of before the end of the asset’s previously estimated useful life to determine if there is any impairment of these assets. We assess the impairment of these assets, or the need to accelerate amortization, whenever events or changes in circumstances indicate that the asset carrying value may not be recoverable. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our intangibles. We determined that no impairment indicators were present during the first three months of 2008; therefore, we have not evaluated our intangible assets for impairment as of March 31, 2008. Future events could cause us to conclude that impairment indicators exist and that the assets should be reviewed to determine their fair value. We assess the assets for impairment based on the estimated future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value. Fair value is generally determined based on a valuation process that provides an estimate of a fair value of these assets using a discounted cash flow model, which includes many assumptions and estimates. Once the valuation is determined, we will write down these assets to their determined fair value, if necessary. Any write-down could have a material adverse effect on our financial condition and results of operations.

10

CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Foreign Currency Exchange Forward Contract Obligation

On January 11, 2008 we purchased a foreign currency exchange forward contract, agreeing to sell approximately €31.6 million on April 4, 2008 at an exchange rate of $1.4721 per Euro. We purchased this contract to mitigate the foreign currency risk on an intercompany loan we made to our Germany subsidiary in connection with the acquisition of CDT. See Note 7.

The value of the foreign currency exchange forward contract varies with the change in exchange rates between the U.S. dollar and Euro. At inception, the contract had a value of zero. A decrease in the value of the U.S. dollar in relation to the Euro results in a loss on the contract and an amount due the bank in the amount of the loss. An increase in the value of the U.S. dollar in relation to the Euro results in a gain on the contract and an amount receivable from the bank in the amount of the gain. On March 31, 2008 we valued this contract at the rate of $1.5808 per Euro resulting in a loss of $3.4 million. This loss is recognized in Other Income (expense), net, in our results of operations and accounts payable at March 31, 2008. This loss was offset by a $3.4 million gain on the revaluation of the intercompany loan which was also recognized in Other Income (expense), net, in our results of operations.

On April 4, 2008 when the exchange rate was $1.5697 per Euro, we realized a loss of $3.1 million on the foreign currency exchange forward contract and paid the bank $3.1 million to settle the contract. This cash loss was offset by a non-cash gain of $3.1 million on the revaluation of the intercompany loan balance on April 4, 2008. On April 30, 2008, to again mitigate the majority of our foreign currency exposure on the outstanding intercompany loan, we entered into a cross-currency swap contract for a notional amount of €21.5 million and a forward currency contract with a maturity date of June 27, 2008 for a notional amount of €4.0 million. We expect to receive a €4.0 million payment from our subsidiary in June 2008 once the merger of CDT with CV GmbH, as discussed above, is completed. To the extent that this forward currency contract is in a loss position on the date it is due and we do not receive a corresponding payment from our subsidiary, we will have to settle the contract in U.S. dollars equal to the amount of the loss. The cross-currency swap payment dates and amounts match the amounts and dates we expect to receive payments on the loan from our subsidiary. If our subsidiary is unable to remit cash in repayment of the intercompany loan in accordance with the agreed payment schedule, we are exposed to U.S. dollar cash flow risks. To the extent that any payment due on the cross-currency swap contract is in a loss position on the date it is due and we do not receive a corresponding payment from our subsidiary, we will have to settle the contract in U.S. dollars equal to the amount of the loss. The payments on the cross-currency swap and the corresponding payments from our subsidiary are scheduled to be made quarterly, including principal and accrued interest, and begin on January 15, 2009 and end on October 15, 2013.

Postretirement Obligations

Pension Plan

Our wholly-owned subsidiary, CDT, sponsors an unfunded defined benefit pension plan covering substantially all employees. Benefits under the pension plan are generally based on age at retirement and years of service and the employee’s annual earnings. The net periodic cost of our pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. If gains and losses, which occur when actual experience differs from actuarial assumptions, exceed ten percent of plan liabilities, we amortize them over the average future service period of employees.

Long-term Employee Benefit Obligations

Anniversary Plan

Our wholly-owned subsidiary, CDT, sponsors an unfunded defined benefit plan for our long-tenured employees (“Anniversary” plan). Benefits under the Anniversary plan are generally based on employees’ compensation and the number of years of service. The net periodic cost of our Anniversary plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated salary increases.

Early Retirement Plan

CDT also sponsors an early retirement program, “Altersteilzeit”. This program is designed to create an incentive for employees, within a certain age group, to transition from (full or part-time) employment into retirement before their legal retirement age. This plan allows employees upon reaching a certain age to elect to work full-time for a period of time and be paid 50% of their full time salary. Then after working within this arrangement for a designated period of time, the employee is eligible to take early retirement and receive payments from the earned but unpaid salaries until they are eligible to receive payments under the postretirement benefit plan discussed above. Benefits under the early retirement plan are generally based on the employees’ compensation and the number of years of service. The net periodic cost of the early retirement plan is calculated in accordance with the Financial Accounting Standards Board’s Emerging Issues Task Force (“EITF”) Issue No. 05-5, Accounting for Early Retirement or Post employment Programs with Specific Features.

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CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Net Loss per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period, including vested stock units. Diluted net loss per common share is computed by dividing net loss by the sum of (a) the basic weighted average number of shares of common stock outstanding during the period and (b) additional shares that would have been issued, including unvested stock units, had all dilutive options been exercised less shares that would be repurchased with the proceeds from such exercises. Dilutive options are those that have an exercise price less than the average stock price during the period. For the quarters ended March 31, 2008 and 2007, we excluded 140,351 and 254,099, respectively, common stock equivalents from the calculation of diluted net loss per share. Since we are reporting a loss from continuing operations for both periods presented, the effect of these additional shares is anti-dilutive and therefore, the number of shares in the calculation of basic and diluted net loss per common share is the same.

The following table sets forth the computation of basic and diluted income per common share:

	Quarter Ended March 31,
	2008			2007
	(in thousands, except per share amounts)
Numerator:
Loss from continuing operations	$	(6,646	)	$	(263	)
Loss from discontinued operations		(1	)		(2	)
Net loss	$	(6,647	)	$	(265	)
Denominator:
Weighted average shares outstanding – basic		26,406			27,476
Dilutive effect of common shares from stock options and stock units		—			—
Weighted average shares outstanding – diluted		26,406			27,476
Basic and diluted net loss per common share:
Loss from continuing operations	$	(0.25	)	$	(0.01	)
Loss from discontinued operations		(0.00	)		(0.00	)
Basic and diluted net loss	$	(0.25	)	$	(0.01	)

Employee stock options to purchase 4,929,319 and 3,692,207 common shares for the quarters ended March 31, 2008 and 2007, respectively, were outstanding, but were not included in the computation of diluted net loss per share because the exercise price of the stock options was greater than the average share price of the common shares; therefore, the effect would have been anti-dilutive.

2. Segment Reporting

For segment reporting purposes, we operate as one segment. Our results of operations may fluctuate as a result of seasonal variabilities. In recent years, our product lines have experienced seasonality with a decline in revenue during the first quarter compared to the prior year’s fourth quarter, building gradually during the second and third quarters, and ending with the fourth quarter as our largest quarter for revenue.

Revenue by geographic region, as determined by shipping destination, are as follows:

	Quarter Ended March 31,
	2008		2007
	(in thousands)
North America	$	17,809	$	15,244
Europe		7,291		2,482
Asia Pacific		1,233		1,427
Rest of world		1,586		1,360
Total net revenue	$	27,919	$	20,513

12

CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Revenue from the rest of world consists primarily of sales to the Middle East, Africa, India and countries in the Latin America region. Revenue from the United States was $16.8 million and $14.4 million for the quarters ended March 31, 2008 and 2007, respectively. No single customer represented more than 10% of our net revenue for the quarters ended March 31, 2008 and 2007. The large increase in revenue from Europe is due to the inclusion of CDT’s revenue in our operating results for the quarter ended March 31, 2008. We acquired CDT on January 4, 2008. See Note 7.

3. Stock-Based Compensation

Included in stock-based compensation are expenses relating to both our stock options and our stock units. The amount of stock-based compensation expense, net of forfeitures, recognized in the first quarter of 2008 and 2007 was $396,000 and $195,000, respectively. Total unamortized compensation expense at March 31, 2008 was $4.2 million, net of forfeitures, which will be recognized over a weighted average period of three years.

13

CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table summarizes the allocation of stock-based compensation to our expense categories for the periods indicated:

	Quarter Ended March 31,
	2008		2007
	(in thousands)
Cost of revenue	$	7	$	4
Research and development		56		12
Selling and marketing		62		30
General and administrative		271		149
Total stock-based compensation expense	$	396	$	195

The following weighted average assumptions were used in the Black-Scholes option pricing model to determine the fair value of stock options granted in the periods indicated:

	Quarter Ended March 31,
	2008		2007
Dividend yield	0.00	%	0.00	%
Risk-free interest rate	2.50	%	4.54	%
Expected volatility	33.54	%	41.21	%
Expected term (years)	6.25		5.27

We have not declared or paid any dividends and do not currently expect to do so in the future. The risk-free interest rate used in the Black-Scholes valuation model is based on the implied yield currently available in U.S. Treasury securities at maturity with an equivalent term. Expected volatility is based on the annualized daily historical volatility plus implied volatility of our stock price, including consideration of the implied volatility and market prices of traded options for comparable entities within our industry. The expected term of options represents the period that our stock-based awards are expected to be outstanding and was determined based on historical weighted average holding periods and projected holding periods for the remaining unexercised shares. Consideration was given to the contractual terms of our stock-based awards, vesting schedules and expectations of future employee behavior.

Our stock price volatility and expected term reflect our best estimates, both of which impact the fair value of an option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option. SFAS No. 123R also requires that we recognize compensation expense for only the portion of options expected to vest; therefore, we applied an estimated forfeiture rate that we derived from historical employee termination behavior. If the actual number of forfeitures differs from our estimates, additional adjustments to compensation expense may be required in future periods.

Stock Options

Stock-based compensation expense related to stock options was $299,000 and $145,000 in the first quarter of 2008 and 2007, respectively. At March 31, 2008, total unamortized deferred compensation costs related to stock options was $3.1 million, net of estimated forfeitures. Total unamortized deferred compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted average period of three years.

14

CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

A summary of the status of our stock option plans at March 31, 2008, and the changes during the three months then ended, is presented in the following table:

	Options Available for Grant		Number of Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)
Beginning of period at December 31, 2007	1,949,450		5,372,162		$	5.11	6.28
Granted (1)	(621,872	)	230,500			3.59
Exercised	—		(51,000	)		4.07
Cancelled	85,237		—			6.03
Forfeited	—		(20,703	)		5.69
Expired	(51,888	)	(64,534	)		6.14
End of period	1,360,927		5,466,425			5.04	6.22
Vested and expected to vest at March 31, 2008			5,110,576			5.06	6.00
Exercisable at March 31, 2008			3,650,704			5.15	5.05

⁽¹⁾ The difference in shares granted under options available for grant and number of options outstanding is due to stock unit grants. In accordance with the 2006 Plan, each stock unit granted is to be counted as two shares against the number of shares available for issuance.

During the first quarters of 2008 and 2007, we granted 230,500 and 708,675 options, respectively, with a weighted average Black-Scholes fair value of $1.36 and $2.60 per share, respectively.

The intrinsic value of options exercised during the first quarters of 2008 and 2007, was $15,000 and $384,000, respectively. The aggregate intrinsic value of options outstanding, options vested and expected to vest and options exercisable as of March 31, 2008, was $1.2 million, $1.1 million and $785,000, respectively. The intrinsic value is calculated as the difference between the market value of our common stock as of March 31, 2008 and the exercise price of the options. The market value on March 31, 2008 was $4.40, the average of the high and low stock price as reported by The Nasdaq Global Market.

Stock Units

Compensation expense related to stock units was $97,000 and $50,000 for the quarters ended March 31, 2008 and 2007, respectively.

Information related to non-vested stock units at March 31, 2008 is as follows:

	Shares	Weighted Average Fair Value		Weighted Average Remaining Contractual Term (in years)
Non-vested at beginning of period	195,081	$	5.31	3.14
Awarded	195,061		3.59
Exercised	—		—
Canceled	—		—
Outstanding at end of period	390,142		4.45	2.61
Expected to vest	359,413		4.53	2.28
Exercisable	51,442		4.51

The aggregate intrinsic value of stock units outstanding, vested or expected to vest, and exercisable as of March 31, 2008 was $1.7 million, $1.4 million and $226,000, respectively.

Total unamortized deferred compensation expense related to stock units at March 31, 2008 was $1.1 million, net of estimated forfeitures, which will be recognized over a weighted average period of four years.

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CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

4. Stock Repurchase Program

We repurchase our common stock under a Rule 10b5-1 repurchase plan and in the case of any discretionary purchases outside of the plan, subject to open trading windows, overall market conditions, our stock price and our cash position and other requirements, in each case pursuant to our previously announced stock repurchase program authorized by our Board of Directors. A Rule 10b5-1 repurchase plan allows the purchase of our common shares at times when we ordinarily would not be in the market because of self-imposed trading blackout periods.

Pursuant to our repurchase plan, during the quarters ended March 31, 2008 and 2007, we repurchased 36,000 and 361,900 of our common shares, respectively, for $138,000 and $2.6 million, respectively. At March 31, 2008, approximately $9.5 million was available under our repurchase plan. We may repurchase shares in the future subject to the rules of our 10b5-1 repurchase plan and in the case of any discretionary purchases outside of the plan, subject to open trading windows, overall market conditions, our stock price and our cash position and other requirements. The repurchase plan will continue until the earlier of (a) such time when the maximum dollar amount authorized has been utilized or (b) our Board of Directors elects to discontinue the repurchase plan.

5. Commitments and Contingencies

In the normal course of our business we are periodically involved in litigation or claims, including patent infringement claims. We follow the provisions of SFAS No. 5, Accounting for Contingencies, to record litigation or claim-related expenses. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We accrue for settlements when the outcome is probable and the amount or range of the settlement can be reasonably estimated. In addition to our judgments and use of estimates, there are inherent uncertainties surrounding litigation and claims that could result in actual settlement amounts that differ materially from estimates. We expense our legal costs associated with these matters when incurred.

6. Comprehensive Loss

Total comprehensive loss for the quarter ended March 31, 2008 was $7.0 million compared to $220,000 for the quarter ended March 31, 2007. The primary difference between net loss as reported and comprehensive loss is foreign currency translation adjustments and unrealized gains (losses), net of income taxes, on our investment portfolio.

7. Business Combination and Intercompany Loan

To increase our product portfolio and expand our presence in the document capture market, on January 4, 2008, our wholly-owned subsidiary, CV GmbH, a German limited liability company, acquired Océ Document Technologies GmbH (“ODT”), pursuant to a Sale and Purchase Agreement (the “SPA”) by and between CV GmbH and Océ Deutschland Holding GmbH & Co. KG, a German limited partnership (the “Seller”), dated December 20, 2007. Under the terms of the SPA, CV GmbH acquired all of the outstanding equity of ODT from the Seller, and ODT became a wholly-owned subsidiary of CV GmbH and an indirect wholly-owned subsidiary of Captaris. After our acquisition, we re-named ODT to Captaris Document Technologies GmbH (“CDT”).

Under the terms of the acquisition agreement, CV GmbH acquired CDT for a purchase price of approximately $17.9 million, net of CDT’s cash balance as of the closing of approximately $32.0 million, including transaction costs of $2.8 million plus assumed liabilities of $30.2 million. The assumed liabilities include $18.1 million in future retirement and employee benefit obligations, deferred revenue of $1.8 million and accounts payable and accrued liabilities of $10.3 million. The acquisition of CDT has been accounted for as a purchase. We recognized a $1.2 million charge for acquired in-process research and development in January 2008.

In January 2008, we loaned our wholly-owned subsidiary CV GmbH, €31.6 million to finance the acquisition of CDT as well as pay on behalf of CDT approximately €3.1 million of profit-sharing owed to its former parent company. The loan accrues interest at a rate equal to the 3 months EURIBOR rate plus 2.75% per annum. Until the intercompany loan is repaid, this loan exposes us to significant gains and losses from fluctuations in the exchange rate of Euros to U.S. dollars. To mitigate this risk, we entered into a foreign currency exchange forward contract, agreeing to sell approximately €31.6 million on April 4, 2008.

On April 9, 2008 our subsidiary, CDT, paid €2.7 million to Captaris reducing the outstanding intercompany loan balance to €29.6 million ($46.8 million) including accrued interest. The €2.7 million payment was comprised of €3.1 million for the repayment of the profit-sharing Captaris paid on CDT’s behalf to the Seller, net of additional purchase price paid to the Seller of €463,000. Pursuant to the SPA, the purchase price at closing included a payment for CDT’s estimated cash balance on December 31, 2007 and included a provision to adjust the purchase price once CDT’s actual cash balance at December 31, 2007 could be determined. The additional purchase price of €463,000 represents the additional cash CDT held at December 31, 2007.

16

CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In accordance with SFAS No. 141, Business Combinations, all acquired identifiable assets and liabilities were assigned a portion of the cost of the acquisition based on their respective fair values. We have engaged a valuation firm to provide an estimated fair value for all identifiable intangible assets including technology, trade names and customer relationships, using an income and a cost approach. At March 31, 2008 we have completed a preliminary analysis of the value of the intangible assets acquired. The determination of fair value is a critical and complex consideration that involves significant assumptions and estimates. These assumptions and estimates in our preliminary analysis were based on our best judgments and resulted in the allocation of purchase price for this acquisition as detailed below. The purchase price allocation below is subject to our finalization of the valuation of intangible assets and other assets acquired and liabilities assumed which may result in changes to the reported fair values of the acquired assets. The excess of the purchase price over the preliminary fair value of the assets acquired was allocated to goodwill. Based on our preliminary analysis, we have allocated $18.5 million to goodwill and it is not deductible for tax purposes.

CDT was combined in our single business segment and our results of operations include CDT’s results of operations for the period from January 4, 2008 to March 31, 2008, including an in-process research and development charge of $1.2 million.

CDT Preliminary Purchase Price Allocation:	(in thousands)
Acquired intangibles	$	20,350
Goodwill		18,483
Other assets		8,116
Acquired in-process research and development		1,224
Total purchase price	$	48,173

The following table presents details of the intangible assets acquired (in thousands, except number of years):

	Assigned Value		Weighted- average amortization period (in years)
Technology	$	14,550	6.7
Trade names		600	7.0
Customer relationships		5,200	4.0
Total	$	20,350	6.0

All identified amortizable intangible assets will be amortized on a straight-line basis over their estimated useful lives, ranging from 4 to 7 years, with no residual value. Using an exchange rate of $1.5805 U.S. dollars to Euros, we will recognize amortization expense for these intangible assets of approximately $3.0 million for the remainder of 2008, $3.6 million in 2009, $3.6 million in 2010, $3.6 million in 2011, $2.3 million in 2012, $1.8 million in 2013 and $1.8 million in 2014.

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CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following unaudited pro forma information represents the results of operations for Captaris, inclusive of CDT, for the quarter ended March 31, 2007, as if the acquisition had been consummated as of January 1, 2007. Pro forma information for the quarter ended March 31, 2008 is not materially different than our actual results reported for the quarter ended March 31, 2008. The pro forma information presented below does not purport to be indicative of what may occur in the future. In addition, the pro forma information presented below includes a charge for non-recurring acquired in-process research and development of $1.2 million.

(Unaudited)	Quarter Ended March 31, 2007
	(in thousands)
Net revenue	$	27,530
Loss from continuing operations	$	(2,122	)
Loss from discontinued operations		(2	)
Net loss	$	(2,124	)
Basic and diluted net loss per common share:
Loss from continuing operations	$	(0.08	)
Loss from discontinued operations		(0.00	)
Basic and diluted net loss	$	(0.08	)
Weighted average shares used in computation of basic and diluted net loss per share		27,476

8. Postretirement Obligations

Our wholly-owned subsidiary, CDT, maintains an unfunded defined benefit plan for its employees, which provide for old age, disability and survivors´ benefits. Postretirement plan benefits are primarily based on the employees’ compensation and the number of years of service. In determining the fair value of our postretirement plan obligations at March 31, 2008, we used the following weighted average key assumptions:

Assumptions	Per Annum
Salary increases	2.25	%
Pension increases	2.00	%
Interest rate	5.50	%
Employee fluctuation rate:
to age 30	3.00	%
to age 35	2.00	%
to age 40	2.00	%
to age 45	1.50	%
to age 50	0.50	%
from age 51	0.00	%

Net periodic benefit costs for our postretirement plan for the quarter ended March 31, 2008 was $398,000. The provision for the postretirement plan for the period January 4, 2008 through March 31, 2008 is as follows:

(in thousands)
Balance at January 4, 2008	$	16,369
Service cost (5.5%)		164
Interest cost (5.5%)		234
Benefits paid		(43	)
Foreign currency translation		1,243
Net periodic benefit cost	$	17,967
Less current portion		(248	)
Non-current pension liability	$	17,719

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CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The projected postretirement obligation at January 4, 2008 was €11.1 million ($17.6 million based on the March 31, 2008 exchange rate of $1.5805). The projected benefit obligation at December 31, 2008 is expected to be €12.0 million ($19.0 million based on the March 31, 2008 exchange rate of $1.5805). The 2008 service and interest costs are expected to be €429,000 and €612,000, respectively, ($678,000 and $967,000, respectively,) based on the March 31, 2008 exchange rate.

Anticipated pension payments for the remainder of 2008 and the next nine business years are:

	Anticipated Pension Payments		Anticipated Pension Payments (1)
Nine months ended December 31, 2008	€	113	$	179
Year ended December 31, 2009		222		351
Year ended December 31, 2010		273		431
Year ended December 31, 2011		295		466
Year ended December 31, 2012		319		504
Years ended December 31, 2013 through 2017		2,654		4,193
	€	3,876	$	6,124

(1) Converted to U.S. dollars at March 31, 2008 exchange rate of $1.5805.

9. Long-term Employee Benefit Obligations

Long-term employee benefit obligations include obligations pursuant to CDT’s Anniversary plan and its early retirement plan. In determining the fair value of our Anniversary plan obligation at January 4, 2008, we used the following weighted average key assumptions:

Assumptions	Per Annum
Salary increases	2.25	%
Interest rate	5.50	%
Employee fluctuation rate:
to age 30	3.00	%
to age 35	2.00	%
to age 40	2.00	%
to age 45	1.50	%
to age 50	0.50	%
from age 51	0.00	%

The provision for CDT’s Anniversary plan from January 4, 2008 to March 31, 2008 is as follows:

(in thousands)
Balance at January 4, 2008	$	1,179
Additions		—
Reductions		(49	)
Foreign currency translation		87
Balance at March 31, 2008		1,217
Less current portion		(115	)
Non-current balance at March 31, 2008	$	1,102

19

CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The provision for CDT’s early retirement plan obligation from January 4, 2008 to March 31, 2008 is as follows:

(in thousands)
Balance at January 4, 2008	$	586
Additions		85
Reductions		(25	)
Foreign currency translation		46
Balance at March 31, 2008	$	692

10. Sale of CallXpress Product Line

In September of 2003, we sold our CallXpress product line to Applied Voice and Speech Technologies, Inc. (“AVST”). Concurrent with the transaction, we entered into an earn-out agreement with AVST which entitled us to receive additional payments of up to $1.0 million per year for each of the three years following the sale, depending on AVST’s success in achieving certain revenue targets. In March 2007 we received the final payment under this agreement. This cash receipt was classified on our income statement as a credit to operating expenses in the first quarter of 2007.

11. Credit Facility

On January 2, 2008, we entered into a credit agreement providing for a senior secured revolving credit facility with Wells Fargo Foothill, LLC, as arranger, administrative agent, swing lender, and letter of credit issuer, and the other lenders party thereto (the “Credit Facility”).

The Credit Facility provides for a $10.0 million revolving line of credit commitment, which may be used (i) for revolving loans, (ii) for swing line advances, subject to a sublimit of $2.0 million and (iii) to request the issuance of letters of credit on our behalf, subject to a sublimit of $5.0 million. On April 2, 2008, as allowed under the facility, we requested and received an increase to the Credit Facility of $10.0 million, bringing the total Credit Facility to $20.0 million. The credit available under the Credit Facility was used to pay a portion of the purchase price for the acquisition of Océ Document Technologies GmbH as described in Note 7 and to finance our ongoing working capital, capital expenditure, and general corporate needs. Upon the closing of the Credit Facility and during the first quarter of 2008 we obtained cash advances totaling $9.7 million. On April 3, 2008 we obtained an additional cash advance of $3.1 million.

We may, subject to applicable conditions, elect interest rates on our revolving borrowings calculated by reference to (i) the LIBOR rate (the “LIBOR Rate”) fixed for given interest periods, plus a margin determined by our average daily balance of the revolving loan usage during the preceding month or (ii) Wells Fargo Bank, National Association’s prime rate (or, if greater, the average rate on overnight federal funds plus one half of one percent) (the “Base Rate”), plus a margin determined by our average daily balance of the revolving loan usage during the preceding month. For swing line borrowings, we will pay interest at the Base Rate, plus a margin determined by our average daily balance of the revolving loan usage during the preceding month. For borrowings made with the LIBOR Rate, the margin ranges from 250 to 275 basis points, while for borrowings made with the Base Rate, the margin ranges from 100 to 125 basis points. The weighted average interest rate on our outstanding loan balance during the quarter ended March 31, 2008 was 7.44%.

The Credit Facility matures on January 2, 2013, at which time all outstanding borrowings and accrued but unpaid interest must be repaid and all outstanding letters of credit must have been cash collateralized.

The Credit Facility provides for the payment of specified fees and expenses, including commitment and unused line fees, and contains certain loan covenants, including, among others, financial covenants providing for a minimum EBITDA and maximum amount of capital expenditures, and limitations on our ability with regard to the incurrence of debt, the existence of liens, stock repurchases and dividends, investments, and mergers, dispositions and acquisitions, and events constituting a change in control. Our obligations under the Credit Facility are guaranteed by certain of our direct and indirect domestic subsidiaries (collectively, the “Guarantors”).

The Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, and cross defaults to certain other indebtedness. The occurrence of an event of default will increase the applicable rate of interest and could result in the acceleration of our obligations under the Credit Facility and the obligations of any or all of the Guarantors to pay the full amount of our obligations under the Credit Facility.

20

CAPTARIS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

12. Legal Proceedings

As reported in our Annual Report on Form 10-K for the year ended December 31, 2007, Captaris has been involved in an ongoing lawsuit in Circuit Court in Cook County, Illinois. The lawsuit was filed by Travel 100 Group, Inc. (“Travel 100”), against Mediterranean Shipping Company (“Mediterranean”). The complaint alleges violations of the Telephone Consumer Protection Act in connection with the receipt of facsimile advertisements that were transmitted by MediaTel Corporation, a wholly-owned subsidiary of Captaris, on behalf of travel service providers, including Mediterranean. All of the assets of MediaTel were sold to a subsidiary of PTEK Holdings, Inc. on September 1, 2003.

The Travel 100 complaint sought injunctive relief and unspecified damages and certification as a class action on behalf of Travel 100 and others similarly situated throughout the United States that received the facsimile advertisements. Mediterranean named Captaris as a third-party defendant and asserted that, to the extent that it is liable, Captaris should be liable under theories of indemnification, contribution or breach of contract for any damages suffered by Mediterranean. Both Captaris and MediaTel have denied any liability in the case because, among other facts and defenses, MediaTel understood that the database and lists of travel agent recipients to whom faxes were sent had authorized that information could be sent to them by fax.

On September 29, 2006, the court in the Mediterranean case granted summary judgment in favor of Mediterranean and Captaris and dismissed the case. In granting summary judgment, the court ruled that Travel 100 had invited the facsimile advertisements and there was no violation of the Telephone Consumer Protection Act. Travel 100 filed a motion for reconsideration, which the court denied. Travel 100 then filed a notice of appeal on December 29, 2006. All briefing on the appeal is complete; however no date has been set for oral argument.

Our insurance carrier has agreed to pay defense costs in the Mediterranean case, but has reserved its rights to contest their duty to indemnify Captaris with respect to this matter. We intend to vigorously defend the appeal of the Mediterranean summary judgment ruling; however, litigation is subject to numerous uncertainties and we are unable to predict the ultimate outcome of the Mediterranean case. There is no guarantee that we will not be required to pay damages in respect of this case in the future, which could materially and adversely affect our results of operations, cash flows and financial condition for the quarter or year in which any accrual is recorded or any damages are paid.

13. Income Taxes

We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As required by FIN No. 48, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amounts we recognize in the financial statements are the largest benefits that have a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. We adjust these accruals in light of changing facts and circumstances, such as the closing of a tax audit or the expiration of statutes of limitations. The provision for income taxes includes the impact of potential tax claims and changes to accruals that we consider appropriate, as well as the related penalties and interest.

Our effective tax rates differ from the statutory rate primarily due to state income taxes, foreign income taxes, tax exempt interest income, research and development credits and accruals for certain tax exposures discussed above. We recorded an income tax benefit of $1.8 million and $84,000 in the quarters ended March 31, 2008 and 2007, respectively, on loss from continuing operations.

At March 31, 2008, we have available unused net operating losses that may be applied against future taxable income. These net operating losses consist of international losses of $4.7 million that do not expire, federal losses of $10.4 million that expire from 2021 to 2028, and state losses of $14.5 million that expire from 2009 to 2028. Additionally, we have $2.9 million of tax attributes from our Canadian subsidiary which are primarily investment tax credits and deferred research and development expenditures which begin to expire in 2010.

Our policy is to evaluate our deferred tax assets on a jurisdiction by jurisdiction basis and record a valuation allowance for our deferred tax assets if we do not have sufficient positive evidence indicating that we will have future taxable income available to utilize our deferred tax assets. In assessing the need for a valuation allowance, we first examine our historical cumulative three year pre-tax book income (loss). At the quarters, we examine our historical cumulative trailing three year pre-tax book income (loss). If we have historical cumulative three year pre-tax book income, we consider this to be strong positive evidence indicating we will be able to realize our deferred tax assets in the future. Absent the existence of any negative evidence outweighing the positive evidence of cumulative three year pre-tax book income, we do not record a valuation allowance for our deferred tax assets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

If we have historical cumulative three year pre-tax book losses, we then examine our historical cumulative three year pre-tax book losses to determine whether any unusual or abnormal events occurred in this time period which would cause the results not to be an indicator of future performance. As such, we normalize our historical cumulative three year pre-tax results by excluding abnormal items that are not expected to occur in the future. This analysis of “normalized” historical book income includes material management assumptions that relate to the appropriateness of excluding non-recurring items. If, after excluding non-recurring items, we have “normalized” historical cumulative three year pre-tax book income, we consider this strong positive evidence indicating we will be able to realize our deferred tax assets in the future. We then assess any additional positive and negative evidence such as the existence or absence of historical cumulative three year taxable income, future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carry forwards and taxable income in prior carry back years. After reviewing and weighing all of the positive and negative evidence, if the positive evidence outweighs the negative evidence then we do not record a valuation allowance for our deferred tax assets. If the negative evidence outweighs the positive evidence, then we record a valuation allowance for our deferred tax assets.

For our U.S. federal jurisdiction, we incurred U.S. cumulative pre-tax book losses of $2.5 million for the three years ended December 31, 2007. As of March 31, 2008, we continue to believe, based on the weight of available evidence, that no valuation allowance is required at March 31, 2008 for our deferred tax assets related to U.S. federal net operating losses and other U.S. deferred tax assets because the preponderance of objectively verifiable positive evidence outweighs available negative evidence.

Objectively verifiable positive evidence considered for purposes of this determination includes our “normalized” cumulative pre-tax book income of $1.0 million for the three years ended December 31, 2007 exclusive of certain expenses in 2005 that we believe were aberrations including: (1) $2.1 million for incentive compensation paid pursuant to an earn-out agreement with the former founders of Teamplate which we acquired in 2003 and (2) $1.4 million of increased accounting and consulting fees incurred to comply with the Sarbanes Oxley Act of 2002 which we consider to be in excess of our normal and recurring fees for annual compliance. We believe these are unusual items that are not indicative of a continuing condition and should be considered an aberration for purposes of determining our earnings history for assessing the realizability of our deferred tax assets in accordance with the recognition criteria of SFAS No. 109. In addition to the objective positive evidence, we also have positive evidence that is more subjective in nature including projected cumulative 3 year earnings for the period 2006 through 2008, projected cumulative 3 year taxable income for the period 2008 through 2010 and projected future earnings from Castelle which we acquired in July 2007. We incurred a U.S. pretax loss of $3.5 million for the quarter ended March 31, 2008, however, our U.S. results are tracking to our plan for the twelve months ending December 31, 2008. We believe we will generate pretax income in the U.S. for the year ending December 31, 2008. These positive evidences are less certain than the objective positive evidences and therefore carry less weight when evaluating whether a valuation allowance is not needed. Negative evidence we considered was our history of cumulative book losses for the three years ended December 31, 2007, which we believe was an aberration, as discussed above. Based on the weight of all available evidence, we believe it is more likely than not that we will generate sufficient future U.S. taxable income to realize our U.S. deferred tax assets at March 31, 2008. In addition, we believe it is more likely than not that we will utilize our net operating loss carry forwards and they will not be limited by Internal Revenue Code Section 382 before they expire. We also believe that because of our assumptions and judgment involved with this analysis, there is an element of uncertainty that these U.S. federal net operating losses and U.S. deferred tax assets will be utilized in the future. Therefore, in the future we will continue to closely monitor evidence on a quarterly basis. If we believe that our negative evidence outweighs our positive evidence, we will record a valuation allowance against the U.S. net operating losses and the U.S. deferred tax assets at that time.

In Canada, we recorded a full valuation allowance against our investment tax credits because we do not believe it is more likely than not that we will utilize the credits prior to the expiration of the statutory carry forward period. Our Canadian subsidiary has a history of losses, and with projected Canadian income insufficient to support utilization of the investment tax credit carryovers prior to expiration, there is substantial negative evidence supporting our conclusion regarding realizability of the tax credit carryovers.

In our other foreign jurisdictions, we believe that our net operating losses are more likely than not to be realized. Our history of income and net operating loss utilization, coupled with an indefinite carry forward period for net operating losses provide sufficient objectively verifiable positive evidence to support our conclusion regarding realizability of these carry forwards.

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

This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included in this document and our 2007 audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 17, 2008.

This Quarterly Report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” “seek,” “target” or the negative of these terms or other terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined at the beginning of this report under “Forward-Looking Statements,” Part II, Item 1A of this report and in Part I, Item 1A of our most recent Annual Report on Form 10-K. These factors may cause our actual results to differ materially from any forward-looking statements. Except as required by law, we undertake no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Overview

Founded in 1982, Captaris, Inc., (“we”, “us”, “our”) is a provider of computer products that automate document-centric business processes. With a comprehensive suite of software, hardware and services, we help organizations gain control over many processes that include the need to integrate documents more securely and efficiently. Our solutions also provide interoperability between documents and business applications and technology platforms.

We develop products and services for document capture, intelligent document recognition and classification, routing, workflow, document management and document delivery. Our product lineup includes the brand names RightFax, FaxPress, Captaris Workflow, Alchemy, Single Click Entry, DOKuStar and RecoStar.

Our products are distributed and supported through a global network of technology partners. This distribution system consists of business partners from all levels of the information technology (“IT”) spectrum: value-added resellers, original equipment manufacturers (“OEMs”), system integrators, distributors, mass market resellers, online retailers, office equipment dealers, and independent software vendors (“ISVs”). We believe the use of multiple distribution channels increases the likelihood that our products will be sold to more customers.

We have a large installed base of customers that includes, as of the date of this report, the entire Fortune 100, the majority of the Global 2000 companies, and thousands of mid-sized enterprises. Our customers use our products to reduce costs, comply with regulations, increase the performance and productivity of critical business processes, and leverage their IT system investments.

In July 2007, we bolstered our product portfolio, customer base, and distribution capabilities by acquiring Castelle, a provider of “all-in-one” network fax appliance solutions for businesses and enterprises. Castelle FaxPress products are designed to be easily deployed and maintained and are generally intended for lower volume use at lower price points than our RightFax product offerings. FaxPress provides Captaris with a fax server product that can be positioned in the tier below RightFax for customers looking for basic fax services that are low cost and easily deployable. The FaxPress products are available through a worldwide network of distributors, resellers, and online retailers.

Included in our single business segment, Castelle’s expertise in building “all-in-one” network appliance solutions facilitates our plan to broaden our offerings in the areas of document capture, routing and management. The network appliance design combines software and hardware into a “plug and play” device, and we believe this design is particularly well suited to support our focus on achieving synergies with multi-function product manufacturers and their dealer networks.

We further increased our product portfolio, customer base and distribution capabilities with the acquisition of Ocė Document Technologies GmbH (“ODT”) in January 2008. ODT is a provider of software and solutions for document capture, text recognition, and document classification. ODT, a wholly-owned subsidiary of the Ocė Group since 2000, has approximately 178 employees and maintains its global headquarters in Constance, Germany, and its North American office in Bethesda, Maryland. On an unaudited basis, ODT’s revenue was approximately €22.5 million for the 12 months ended November 30, 2007 and their gross margin was approximately 65%. ODT’s revenue includes software licenses, maintenance and support, hardware and professional services. In contrast to our business prior to acquisition, ODT’s revenue includes a higher percentage of professional services and a larger portion of their sales are made directly rather than through partners. As a result of these factors, and a smaller revenue and customer base, ODT has a lower gross margin and more revenue variability.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

After our acquisition, we re-named ODT to Captaris Document Technologies GmbH (“CDT”). CDT develops intelligent document and character recognition technologies that can read and extract the important information from documents needed to drive business processes and decisions. CDT products include RecoStar, DOKuStar and Single Click Entry. CDT customers include some large ISVs and OEMs with capture offerings, as well as blue chip end-user accounts in Germany. CDT’s expertise in intelligent document recognition supports our vision of fully enabling document capture, collaboration and workflow. As we continue to merge our products, we anticipate leveraging CDT’s technology to enhance capture and routing in both the RightFax and Alchemy platforms. The ability to classify documents and extract critical meta-data will also enable deeper integrations with line of business applications and business process management.

Executive Summary

We derive net revenue primarily from licensing software as well as follow-on sales of add-on software modules, incremental capacity and the sale of maintenance, support and service agreements, professional services, appliances and the resale of fax boards.

We work with resellers and distributors located throughout the world. These resellers and distributors sell and install our products and they receive discounts based on the volume of sales. Within our selling and marketing groups, we dedicate significant resources to monitor our resellers and distributors and to generate demand and provide market positioning and support.

We believe that utilizing an indirect channel approach provides several advantages, including minimizing our investment in office facilities and personnel in field locations and applying greater resources to sales and implementation efforts. However, with a channel sales model, we have more difficulty tracking the number and location of all end-users utilizing our products. This also limits our ability to capture information around product usage, system integration characteristics, and deployment satisfaction directly from our customers’ perspective in order to enhance or build new products, solutions and services.

We have extensive service offerings that are sold in conjunction with our products, including: maintenance, support, professional services and solutions. All of these offerings are designed to help customers protect and extend their software investment.

Our $7.4 million revenue increase in the first quarter of 2008 over the prior year first quarter was primarily attributable to the inclusion of CDT and Castelle in our results of operations (we acquired Castelle in July 2007), and the continuing growth of our traditional maintenance, support and service revenue. In comparison to the year ended December 31, 2007, we expect revenue increases in our software, appliances, and services categories for the year ending December 31, 2008. This expectation is based on including in our 2008 results of operations revenue from Castelle for the entire year and CDT as discussed in the “Acquisition” section below, new product releases anticipated mid-year, as well as increased customer demand for existing products resulting from increased investment in our sales organization, particularly in international markets. We expect hardware revenue will be flat to declining compared to 2007 and a smaller percentage of total revenue due to market shifts to software-based fax over Internet protocol, which does not rely on fax hardware in many Internet protocol environments, and decreasing hardware revenue at CDT. We also expect a significant shift in our revenue distribution on a geographic basis. As a result of the acquisition of CDT, with operations primarily in Europe, and increased investment in our sales organization in international markets, we anticipate approximately 40% of revenue in 2008 will be from international markets, compared to approximately 27% in 2007. No single customer represented more than 10% of our net revenue for each of the quarters ended March 31, 2008 or 2007.

Our gross profit is the selling price of our products, net of estimated returns, less cost of revenue. Our cost of revenue includes manufacturing and distribution costs, royalties for licensed products, amortization of acquired technology, product warranty costs, operation costs related to product support and costs associated with the delivery of professional services.

Our $3.9 million gross profit increase in the first quarter of 2008 over the same quarter of 2007 was primarily attributable to the inclusion of CDT and Castelle in our results of operations for the quarter and the continuing growth of our traditional maintenance, support and service revenue. We expect our gross profit will increase in 2008 due to anticipated increases in revenue mentioned above. We expect gross profit as a percentage of revenue to decline in 2008 compared to 2007 for two reasons. First, CDT has traditionally recorded lower gross margins than Captaris primarily because of a higher portion of professional services; therefore including CDT in our results of operations will have the effect of reducing our overall gross profit as a percentage of revenue. Second, amortization expense of $634,000 related to the technology acquired from CDT and Castelle is recorded in cost of revenue in the first quarter of 2008 and we will recognize approximately $1.8 million of amortization expense related to CDT in the remaining 9 months of 2008. This will also reduce gross profit as a percentage of revenue.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Our operating expenses were $26.9 million and $15.3 million for the quarters ended March 31, 2008 and 2007, respectively. The $11.6 million increase from 2007 to 2008 was due primarily to the inclusion of Castelle and CDT in our operating results. Castelle operating expenses were $1.4 million and CDT’s operating expenses were $6.9 million, including a charge for acquired in-process research and development expense of $1.2 million and amortization of intangibles of $356,000. We recorded $396,000 and $195,000, respectively, in the first quarter of 2008 and 2007 as stock-based compensation expense relating to stock options and stock units.

Our principal sources of liquidity are cash and cash equivalents and our $20.0 million Credit Facility described below under “Liquidity and Capital Resources.” The balance of cash, cash equivalents and short- and long-term investments at March 31, 2008 totaled $39.9 million compared to $47.2 million at December 31, 2007. The decrease in cash, cash equivalents and short and long-term investments from 2007 to 2008 was primarily due to the CDT acquisition of $17.9 million, capital purchases of $2.6 million and repurchase of our common stock of $138,000. These decreases were partially offset by cash from operations of $836,000, proceeds from draws on our Credit Facility of $9.7 million and proceeds of $208,000 from the exercise of stock options. Capital expenditures during the quarter ended March 31, 2008 consisted primarily of leasehold improvements related to our new offices in Bellevue, Washington and Tucson, Arizona. In the first quarter of 2008, we paid $680,000 for management incentive bonuses accrued in 2007.

Acquisition

On January 4, 2008, our wholly-owned subsidiary, Captaris Verwaltungs GmbH, a German limited liability company (“CV GmbH “), acquired Océ Document Technologies GmbH (“ODT”), pursuant to a Sale and Purchase Agreement (the “SPA”) by and between CV GmbH and Océ Deutschland Holding GmbH & Co. KG, a German limited partnership (the “Seller”), dated December 20, 2007. Under the terms of the SPA, CV GmbH acquired all of the outstanding equity of ODT from the Seller, and ODT became a wholly-owned subsidiary of CV GmbH and an indirect wholly-owned subsidiary of Captaris. After our acquisition, we re-named ODT to Captaris Document Technologies GmbH (“CDT”). CDT has approximately 178 employees and maintains its global headquarters in Constance, Germany, and its North American office in Bethesda, Maryland. We combined CDT in our single business segment and our results of operations include CDT’s results of operations for the period from January 4, 2008 to March 31, 2008.

Under the terms of the acquisition agreement, CV GmbH acquired CDT for a purchase price of approximately $17.9 million, net of CDT’s cash balance as of the closing of approximately $32.0 million, including transaction costs of $2.8 million plus assumed liabilities of $30.2 million. The assumed liabilities include $18.1 million in future retirement and employee benefit obligations, deferred revenue of $1.8 million and accounts payable and accrued liabilities of $10.3 million. At the closing, €2.0 million ($3.0 million) of the purchase price was deposited in a third-party escrow account for 12 months as security for any post-closing purchase price adjustment and, subject to certain limitations, for indemnification claims against the Seller; however, we released the full amount of the escrow to the Seller in connection with the resolution of a post-closing dispute with the Seller during the first quarter of 2008. The acquisition of CDT has been accounted for as a purchase. We recognized a charge of $1.2 million for acquired in-process research and development in January 2008. See Note 7 to our unaudited condensed consolidated financial statements.

In January 2008, we loaned our wholly-owned subsidiary CV GmbH, €31.6 million to finance the acquisition of CDT as well as pay on behalf of CDT approximately €3.1 million of profit-sharing CDT owed to its former owner. The loan accrues interest at a rate equal to the 3 months EURIBOR rate plus 2.75% per annum. Since the acquisition, and through the date of this report, the majority of our consolidated cash is held by CDT in Germany. See Liquidity and Capital Resources below.

Evaluation of Strategic Alternatives

In March 2008, we announced that our Board of Directors decided to evaluate strategic alternatives to further enhance shareholder value. To oversee and expedite this process, the Board established a special committee of the Board comprised of independent directors. We have incurred significant additional legal and professional fees in the first quarter of 2008 in connection with this process and expect to continue to incur additional fees, which may continue to increase our general and administrative expenses and our operating expenses generally. Moreover, there can be no assurance that our evaluation of strategic alternatives will result in any agreements or transactions. We do not intend to disclose developments with respect to the evaluation of strategic alternatives unless and until our Board of Directors deems it appropriate.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Critical Accounting Judgments and Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience, current conditions and various other assumptions we believe to be reasonable under the circumstances. Our estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, as well as identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results may differ significantly from these estimates. To the extent that there are material differences between these estimates and actual results, our presentation of our financial condition or results of operations may be affected.

On an ongoing basis, we evaluate our estimates used, including those related to the valuation of stock options, valuation of goodwill and other intangible assets, useful lives of intangible assets and equipment and leasehold improvements, inventory valuation allowances, revenue recognition, the estimated allowances for sales returns and doubtful accounts and income tax accruals. We believe that the following accounting policies are critical to understanding our historical and future performance, as these policies may involve a higher degree of judgment and complexity than others. For a detailed discussion on the application of these and other accounting policies, see Note 1 in Notes to Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008.

Our most critical accounting judgments and estimates relate to the following areas:

• Revenue recognition;

• Allowances for sales returns and doubtful accounts;

• Valuation of inventory at lower of cost or market value;

• Classification of investments and assessment of related unrealized losses;

• Valuation of acquired businesses, assets and liabilities;

• Impairment of goodwill;

• Impairment of equipment, leasehold improvements, long-lived assets and other intangible assets;

• Useful lives of equipment, leasehold improvements and intangible assets;

• Contingencies;

• Stock-based compensation plans; and

• Accounting for income taxes.

Revenue recognition. Our revenue recognition policies follow the guidelines of the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) No. 97-2, Software Revenue Recognition, as amended. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable and collection is reasonably assured.

We sell products through resellers, Original Equipment Manufacturers (“OEM”) and other channel partners, as well as directly to end-users. Generally our resellers do not stock product, and except for OEM sales described below, we recognize product revenue upon shipment, net of estimated returns, provided that collection is determined to be probable and no significant obligations remain. If a reseller does stock product, we defer this revenue until the reseller sells the product through to end-users.

Sales of our appliance products are made through stocking distributors. For sales to distributors we recognize revenues on either the sell-through or sell-in method of revenue recognition as determined by the contractual arrangement with each distributor. When the distributor is entitled to stock rotation rights we recognize revenue upon delivery of the appliances to the distributor less a provision for an estimate of those rights (the “sell-in” method). Otherwise, revenue is recognized upon delivery of the appliances to the end-user (the “sell-through” method).

Revenue from perpetual software licenses is recognized when the software has been shipped, provided that collection for such revenue is deemed probable. Revenue from term software licenses is recognized over the term of the license, generally 12 months.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Whenever a software license, hardware, installation and post-contract customer support (“PCS”) elements are sold together, we allocate the total arrangement fee among each element based on its respective fair value, which is the price charged when that element is sold separately. The amount of revenue assigned to each element is impacted by our judgment as to whether an arrangement includes multiple elements and, if so, whether vendor-specific objective evidence (“VSOE”) of fair value exists for those elements. Changes to the elements in an arrangement and our ability to establish VSOE for those elements could affect the timing of revenue recognition for these elements. Revenue for PCS is recognized on a straight-line basis over the service contract term, ranging from one to five years. PCS includes rights to unspecified upgrades and updates, when and if available, and bug fixes.

Installation revenue is recognized when the product has been installed at the customer’s site and accepted by the customer. Recognition of revenue from software sold with installation services is recognized either when the software is shipped or when the installation services are completed, depending on our agreement with the customer and whether the installation services are integral to the functionality of the software.

We have entered into agreements with certain OEMs from which we receive royalty payments periodically. Under the terms of the OEM license agreements, each OEM will qualify our software on their hardware and software configurations. Once the software has been qualified, the OEM will begin to ship products and report net sales to us. Most OEMs pay a license fee based on the number of copies of licensed software included in the products sold to their customers. These OEMs pay fees on a per-unit basis and we record associated revenue when we receive notification of the OEMs’ sales of the licensed software to an end-user. The terms of the license agreements generally require the OEMs to notify us of sales of our products within 30 to 45 days after the end of the month or quarter in which the sales occur. As a result, we recognize the revenue in the month or quarter following the sales of the product to these OEMs’ customers.

We provide allowances for estimated returns, and return rights that exist for some customers. In general, customers are not granted return rights at the time of sale. However, we have historically accepted returns and therefore, reduce revenue recognized for estimated product returns. For those customers to whom we do grant return rights, we reduce revenue by an estimate of these returns. If we cannot reasonably estimate these returns, we defer the revenue until the return rights lapse. For software sold to resellers for which we have granted exchange rights, we defer the revenue until the reseller sells the software through to end-users. When customer acceptance provisions are present and we cannot reasonably estimate returns, we recognize revenue upon the earlier of customer acceptance or expiration of the acceptance period.

Professional services are customarily billed at fixed rates, plus out-of-pocket expenses and revenue is recognized when the service has been completed. However, if it is determined that a consulting engagement will be unprofitable, we recognize the loss at the time of such determination. Training revenue is recognized when the training is completed.

Allowance for sales return. We estimate potential future product returns related to current period revenue based on our historical returns, current economic trends, changes in customer demand and acceptance of our products. We periodically review the adequacy of our sales returns allowance and underlying assumptions. If the assumptions we use to calculate the estimated sales returns do not properly reflect future returns, a change in accruals for sales returns would be made in the period in which such a determination was made. Historically, our accruals for sales returns have been adequate.

Allowance for doubtful accounts. We make ongoing assumptions as to the collectibility of our accounts receivable in our calculation of the allowance for doubtful accounts. In determining the amount of the allowance, we make estimates based on our historical bad debts, the aging of customer accounts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment patterns. Our reserves historically have been adequate to cover our actual credit losses. However, if actual credit losses were to fluctuate significantly from the reserves we have established, our general and administrative expenses could be adversely affected.

Valuation of inventory at lower of cost or market value. Due to rapid changes in technology, it is possible that older products in inventory may become obsolete or that we may sell these products below cost. When we determine that the carrying value of inventories is not recoverable, we write-down inventories to market value. If actual market conditions are less favorable than we project, inventory write-downs may be required, which may have a material adverse effect on our financial results.

Valuation of acquired businesses, assets and liabilities. Our business acquisitions typically result in goodwill and other intangible assets, and the recorded values of those assets may become impaired in the future. As of March 31, 2008 our goodwill and intangible assets, net of accumulated amortization, were $89.0 million. The determination of the fair value of such intangible assets and goodwill is a critical and complex consideration that involves significant assumptions and estimates. These assumptions and estimates are based on our best judgments and could materially affect our financial condition and results of operations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

Impairment of goodwill. Our judgments regarding the existence of impairment indicators include our assessment of the impacts of legal factors; market and economic conditions; the results of our operational performance and strategic plans; competition and market share; and any potential for the sale or disposal of a significant portion of our principal operations. If we conclude that indicators of impairment exist, we then assess the fair value of goodwill. Our valuation process provides an estimate of a fair value of goodwill using a discounted cash flow model and includes many assumptions and estimates. We test goodwill for impairment on an annual basis in the first quarter of the year, and on an interim basis in certain circumstances. We conducted our annual assessment during the first quarter of 2008 and determined our goodwill at March 31, 2008 was not impaired. In the event that, in the future, we conclude that our goodwill or our amortizable intangible assets are impaired, we would be required to record a charge to earnings in our financial statements and that charge may significantly decrease our results of operations.

Impairment of equipment, leasehold improvements, long-lived assets and other intangible assets. We periodically review long-lived assets, other intangibles and product lines that we may sell or otherwise dispose of before the end of the asset’s previously estimated useful life to determine if there is any impairment of these assets. We assess the impairment of these assets, or the need to accelerate amortization, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our long-lived assets and other intangibles. Future events could cause us to conclude that impairment indicators exist and that the assets should be reviewed to determine their fair value. We assess the assets for impairment based on the estimated future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value. Fair value is generally determined based on a valuation process that provides an estimate of a fair value of these assets using a discounted cash flow model, which includes many assumptions and estimates. Once the valuation is determined, we will write-down these assets to their determined fair value, if necessary. Any write-down could have a material adverse effect on our financial condition and results of operations.

Useful lives of equipment, leasehold improvements and intangible assets. Equipment and leasehold improvements, identifiable intangible assets and certain other long-lived assets are recorded at cost less accumulated amortization and are amortized over their useful lives on a straight-line basis. Useful lives for equipment and leasehold improvements are based on our estimates of the period that the equipment or leasehold improvement will be used, which typically range from two to five years. The useful lives of our leasehold improvements are typically less than the lives of the applicable leases. Useful lives for intangible assets are based on our estimates of the period that the intangible assets will generate cash. Changes in estimated useful lives could have a material effect on our financial condition and results of operations.

Postretirement Obligations. Our wholly-owned subsidiary, CDT, sponsors an unfunded defined benefit pension plan covering substantially all employees. Benefits under the pension plan are generally based on age at retirement and years of service and the employee’s annual earnings. The net periodic cost of our pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate, and estimated service costs. If gains and losses, which occur when actual experience differs from actuarial assumptions, exceed ten percent of plan liabilities, we amortize them over the average future service period of employees. This could have a material adverse effect on our financial position, results of operations and cash flows.

Long-term Employee Benefit Obligations. Our wholly-owned subsidiary, CDT, sponsors an unfunded defined benefit plan for our long-tenured employees (“Anniversary” plan). Benefits under the Anniversary plan are generally based on employees’ compensation and the number of years of service. The net periodic cost of our Anniversary plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate, and estimated salary increases. If actual experience differs from our actuarial assumptions, this could have a material adverse effect on our financial position, results of operations and cash flows.

CDT also sponsors an early retirement program, “Altersteilzeit”. This program is designed to create an incentive for employees, within a certain age group, to transition from (full or part-time) employment into retirement before their legal retirement age. This plan allows employees after reaching a certain age to elect to work full-time for a period of time and be paid 50% of their full time salary. Then after working within this arrangement for a designated period of time, the employee is eligible to take early retirement and receive payments until they are eligible to receive payments under the postretirement benefit plan

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Continued)

discussed above. Benefits under the early retirement plan are generally based on the employees’ compensation and the number of years of service. The net periodic cost of the early retirement plan is calculated in accordance with the Financial Accounting Standards Board’s Emerging Issues Task Force (“EITF”) Issue No. 05-5, Accounting for Early Retirement or Post employment Programs with Specific Features. If actual salary increases and interest rates differ from our assumptions, this could have a material adverse effect on our financial position, results of operations and cash flows.

Contingencies. We are periodically involved in litigation or claims, including patent infringement claims, in the normal course of our business. We follow the provisions of SFAS No. 5, Accounting for Contingencies, to record litigation or claim-related expenses. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We accrue for settlements when the outcome is probable and the amount or range of the settlement can be reasonably estimated. In addition to our judgments and use of estimates, there are inherent uncertainties surrounding litigation and claims that could result in actual settlement amounts that differ materially from estimates. We expense our legal costs associated with these matters when incurred.

Stock-Based Compensation Expense. We account for stock-based compensation under the provisions of SFAS No. 123(R), Share-Based Payment which requires us to recognize expense related to the fair value of our stock-based compensation. Our stock-based compensation expense includes expense related to our stock options and our stock units. The amount of stock-based compensation expense, net of forfeitures, recognized in the quarters ended March 31, 2008 and 2007 was $396,000 and $195,000, respectively. Total unamortized compensation expense as of March 31, 2008 and 2007 was $4.2 million and $3.2 million, respectively, net of estimated forfeitures. Total unamortized stock-based compensation cost will be adjusted for future changes in estimated forfeitures and is expected to be recognized over a weighted average period of three years.

Accounting for income taxes. We follow the asset and liability method of accounting for income taxes as set forth by SFAS No. 109, Accounting for Income Taxes, and account for uncertainties related to income taxes under the provisions of FASB Interpretation No. 48, Accounting for Uncertainties in Income Taxes an interpretation of FASB Statement No. 109 (“FIN No. 48”). Accordingly, we are required to estimate our potential income tax claims in each of the jurisdictions in which we operate as part of the process of preparing our consolidated financial statements. Significant judgment is required in evaluating our tax positions and in determining our provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As required by FIN No. 48, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amounts we recognize in the financial statements are the largest benefits that have a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. We will establish a valuation allowance to reduce deferred tax assets unless it is more likely than not that we will generate sufficient taxable income to allow for the realization of our deferred net tax assets. The provision for income taxes includes the impact of potential tax claims and changes to accruals and valuation allowances that we consider appropriate, as well as the related penalties and interest expense. In addition to our judgments and use of estimates, there are inherent uncertainties surrounding income taxes that could result in actual amounts that differ materially from our estimates. Any adjustments in our tax provision related to these contingencies could have a material effect on our financial condition, results of operations and cash flow.

Results of Operations

Net Revenue

Net revenue is calculated as the selling price of our products less an estimate for returns. We derive net revenue primarily from licensing software as well as follow on sales of add-on software modules, incremental capacity and the sale of maintenance, support and service agreements, professional services, appliances and the resale of fax boards.

The following table provides revenue data for the periods indicated (in thousands, except % amounts):

	Quarter Ended March 31,
	2008		2007		Percent Change
Software revenue	$	8,855	$	7,093	24.8	%
Maintenance, support and services revenue		14,385		9,379	53.4	%
Hardware revenue		3,662		4,041	(9.4	)%
Appliance revenue		1,017		—	100.0	%
Net revenue	$	27,919	$	20,513	36.1	%

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Revenue increased in the quarter ended March 31, 2008 compared to the quarter ended March 31, 2007 primarily due to the inclusion of the results of CDT from January 4, 2008 and Castelle for the entire quarter ended March 31, 2008.

Software, maintenance support and services, and appliance revenue increased for the quarter compared to the prior year first quarter primarily due to inclusion of CDT and Castelle in our operating results. Excluding the acquisitions of CDT and Castelle, software revenue was approximately flat, and maintenance and support and services revenue increased approximately 13.9%.

We resell third party hardware with our RightFax and CDT product lines as part of solution. We resell fax boards with a significant number of our RightFax software products, and the volume and associated revenue will vary from period to period depending upon the mix of software sold and customer requirements. Hardware revenue for the quarter decreased in comparison to the prior year quarter primarily due to several large sales to large customers in the first quarter of 2007.

Revenue by geographic region, as determined by shipping destination, was as follows:

	Quarter Ended March 31,
	2008		2007
	(in thousands)
North America	$	17,809	$	15,244
Europe		7,291		2,482
Asia Pacific		1,233		1,427
Rest of world		1,586		1,360
Total net revenue	$	27,919	$	20,513

Revenue from the rest of world consists primarily of sales to the Middle East, Africa, India and countries in the Latin America region. Revenue from the United States was $16.8 million and $14.4 million for the quarters ended March 31, 2008 and 2007, respectively. No single customer represented more than 10% of our net revenue for the quarters ended March 31, 2008 and 2007. The large increase in revenue from Europe is due to the inclusion of CDT’s revenue in our operating results for the quarter ended March 31, 2008.

International revenue, outside North America, as a percent of total revenue and as determined by shipping destination, was as follows:

	Quarter Ended March 31,
	2008		2007
Software revenue	14.0	%	11.9	%
Maintenance, support and services revenue	16.8	%	7.2	%
Hardware revenue	4.7	%	6.6	%
Appliance revenue	0.7	%	—
Net international revenue	36.2	%	25.7	%

Revenue from international customers generally reflects less seasonal variabilities compared to North America customers.

We anticipate revenue will increase in the second quarter of 2008 compared to the first quarter due to the seasonality of our revenue which typically increases over the course of the year. We also anticipate revenue will increase in the next quarter compared to the prior year quarter primarily due to the inclusion of revenue from the CDT and Castelle product lines.

Gross Profit

Gross profit is calculated as the difference between net revenue and the cost of revenue. Cost of revenue includes manufacturing and distribution costs for products and programs sold, royalties for licensed products, amortization of acquired technology, product warranty costs, operation costs related to product technical support and costs associated with the delivery of professional services. Gross margin is calculated by dividing gross profit by total revenue.

The following table provides gross profit data for the periods indicated:

	Quarter Ended March 31,
	2008			2007			Percent change
	(in thousands, except % amounts)
Gross profit	$	18,166		$	14,255		27.4	%
Gross margin		65.1	%		69.5	%

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(Continued)

In comparison to the prior year quarter, gross margin decreased for the quarter ended March 31, 2008. The decrease was primarily due to the inclusion of the operating results of CDT and Castelle which have lower profit margins than our traditional business. Technology amortization expense recognized in the first quarter of 2008 related to Castelle and CDT was $634,000.

Research and Development

Research and development expenses consist of the salaries and related benefits for our product development personnel, prototype materials and expenses related to the development of new and improved products, facilities and depreciation expenses.

	Quarter Ended March 31,
	2008			2007			Percent change
	(in thousands, except % amounts)
Research and development	$	6,351		$	3,186		99.3	%
Percentage of revenue		22.7	%		15.5	%

For the quarter ended March 31, 2008, research and development expenses increased $3.2 million compared to the quarter ended March 31, 2007, primarily due to additional staff as a result of the acquisitions of Castelle and CDT ($2.4 million) and increased payments to third parties for outsourcing programs of $753,000.

We expect overall research and development expenses to be approximately flat compared to the first quarter of 2008 for the remaining quarters in 2008.

Selling and Marketing

Selling and marketing expenses consist primarily of salaries and benefits, sales commissions, travel expenses and related facilities costs for our sales, business development, marketing and order management personnel. Selling expenses also include professional fees associated with partner development, as well as costs of programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs.

	Quarter Ended March 31,
	2008			2007			Percent change
	(in thousands, except % amounts)
Selling and marketing	$	12,222		$	8,278		47.6	%
Percentage of revenue		43.8	%		40.4	%

The increase of $3.9 million in selling and marketing expenses for the quarter ended March 31, 2008 compared to the quarter ended March 31, 2007, was due primarily to increases in staffing costs of $3.1 million primarily related to the inclusion of Castelle and CDT sales and marketing personnel and $1.1 million related to adding additional personnel in our North America and International sales organizations. These increases were offset by decreases in staffing costs of $273,000 as we have fewer personnel in our marketing department than a year ago.

We expect selling and marketing expenses will be flat to modestly higher in the remaining quarters of 2008 compared to the first quarter of 2008, with increased investment in international markets and new product launch programs offset by reductions in other spending categories.

General and Administrative

General and administrative expenses consist of the salaries, benefits and related costs of our executive, finance, information technology, human resource and legal personnel, third-party professional service fees, bad debt charges, facilities, and depreciation expenses.

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	Quarter Ended March 31,
	2008			2007			Percent change
	(in thousands, except % amounts)
General and administrative	$	6,461		$	4,716		37.0	%
Percentage of revenue		23.1	%		23.0	%

The $1.7 million increase in general and administrative expenses in the quarter ended March 31, 2008 compared to the same period last year was due primarily to increases in staffing costs of $906,000 primarily related to including Castelle and CDT employees, increased legal and professional fees of $695,000 primarily associated with our evaluation of strategic alternatives and related shareholder matters, increased stock compensation expense of $122,000 and additional business and occupation taxes of $140,000 offset by miscellaneous expense reductions of $118,000.

Excluding costs associated with our evaluation of strategic alternatives and related shareholder matters, which we are unable to predict but which could be material in a given quarter and for the year, we expect general and administrative costs to decline in the remaining quarters in 2008 compared to the first quarter of 2008 due to anticipated acquisition synergies and higher efficiency from infrastructure improvements.

Amortization of Intangible Assets

Amortization expense includes amortization of intangible assets acquired with our acquisitions of CDT, Castelle, IMR, Teamplate and Infinite Technologies, in addition to amortization expense associated with two nonexclusive license agreements with Syntellect and AudioFax. Amortization expense for acquired core technology and license agreements is recorded in cost of revenue and was $1.1 million and $481,000 for the quarters ended March 31, 2008 and 2007 respectively. Amortization expense recorded in operating expenses related to the acquisitions was $664,000 and $141,000 for the quarters March 31, 2008 and 2007, respectively. The increase in amortization expense in the first quarter of 2008 compared to the first quarter of 2007 is due to the amortization of CDT and Castelle intangibles acquired in January 2008 and July 2007, respectively. We expect amortization expense for 2008 to increase for the remainder of 2008, in comparison to 2007, due to the amortization of the CDT and Castelle intangibles. See Note 7 to our unaudited condensed consolidated financial statements.

Sale of CallXpress Product Line

In September of 2003, we sold our CallXpress product line to Applied Voice and Speech Technologies, Inc. (“AVST”). Concurrent with the transaction, we entered into an earn-out agreement with AVST which entitled us to receive additional payments of up to $1.0 million per year for each of the three years following the sale, depending on AVST’s success in achieving certain revenue targets. In March 2007 we received the final cash payment of $1.0 million pursuant to this agreement. This cash receipt was classified on our income statement in operating expenses in the first quarter of 2007.

Other Income, Net

Other income, net, consists primarily of investment income, interest expense on our Credit Facility and foreign currency transaction gains and losses. For the quarters ended March 31, 2008 and 2007, net other income was $305,000 and $719,000, respectively. The decrease in other income for the quarter ended March 30, 2008 compared to the prior year quarter was due primarily to a decrease in interest income as a result of having less cash available to invest as a result of our acquisition of CDT. In addition, we incurred interest expense on CDT’s pension plan of $234,000, interest expense of $184,000 on our Credit Facility and other interest expense of $22,000. Included in other income for the quarters ended March 31, 2008 and 2007 were gains on foreign currency of $474,000 and $125,000, respectively. On March 31, 2008 we also recognized in Other Income (expense), net, a loss of $3.4 million on our foreign currency exchange forward contract. The loss was offset by a $3.4 million gain on the revaluation of the intercompany loan which was also recognized in Other Income (expense), net. Assuming interest rates and currency exchange rates remain constant, we expect other income, net to decrease in the next quarter compared to prior years due to having less cash available to invest compared to the prior year and due to interest expense on the CDT pension plan and Credit Facility.

Income Tax Benefit

We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As required by FIN No. 48, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amounts we

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(Continued)

recognize in the financial statements are the largest benefits that have a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. We adjust these accruals in light of changing facts and circumstances, such as the closing of a tax audit or the expiration of statutes of limitations. The provision for income taxes includes the impact of potential tax claims and changes to accruals that we consider appropriate, as well as the related penalties and interest.

Our effective tax rates differ from the statutory rate primarily due to state income taxes, foreign income taxes, tax exempt interest income, research and development credits and accruals for certain tax exposures discussed above. We recorded an income tax benefit of $1.8 million and $84,000 in the quarters ended March 31, 2008 and 2007, respectively, on loss from continuing operations.

At March 31, 2008, we have available unused net operating losses that may be applied against future taxable income. These net operating losses consist of international losses of $4.7 million that do not expire, federal losses of $10.4 million that expire from 2021 to 2028, and state losses of $14.5 million that expire from 2009 to 2028. Additionally, we have $2.9 million of tax attributes from our Canadian subsidiary which are primarily investment tax credits and deferred research and development expenditures which begin to expire in 2010.

Our policy is to evaluate our deferred tax assets on a jurisdiction by jurisdiction basis and record a valuation allowance for our deferred tax assets if we do not have sufficient positive evidence indicating that we will have future taxable income available to utilize our deferred tax assets. In assessing the need for a valuation allowance, we first examine our historical cumulative three year pre-tax book income (loss). At the quarters, we examine our historical cumulative trailing three year pre-tax book income (loss). If we have historical cumulative three year pre-tax book income, we consider this to be strong positive evidence indicating we will be able to realize our deferred tax assets in the future. Absent the existence of any negative evidence outweighing the positive evidence of cumulative three year pre-tax book income, we do not record a valuation allowance for our deferred tax assets.

If we have historical cumulative three year pre-tax book losses, we then examine our historical cumulative three year pre-tax book losses to determine whether any unusual or abnormal events occurred in this time period which would cause the results not to be an indicator of future performance. As such, we normalize our historical cumulative three year pre-tax results by excluding abnormal items that are not expected to occur in the future. This analysis of “normalized” historical book income includes material management assumptions that relate to the appropriateness of excluding non-recurring items. If, after excluding non-recurring items, we have “normalized” historical cumulative three year pre-tax book income, we consider this strong positive evidence indicating we will be able to realize our deferred tax assets in the future. We then assess any additional positive and negative evidence such as the existence or absence of historical cumulative three year taxable income, future reversals of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carry forwards and taxable income in prior carry back years. After reviewing and weighing all of the positive and negative evidence, if the positive evidence outweighs the negative evidence then we do not record a valuation allowance for our deferred tax assets. If the negative evidence outweighs the positive evidence, then we record a valuation allowance for our deferred tax assets.

For our U.S. federal jurisdiction, we incurred U.S. cumulative pre-tax book losses of $2.5 million for the three years ended December 31, 2007. As of March 31, 2008, we continue to believe, based on the weight of available evidence, that no valuation allowance is required at March 31, 2008 for our deferred tax assets related to U.S. federal net operating losses and other U.S. deferred tax assets because the preponderance of objectively verifiable positive evidence outweighs available negative evidence.

Objectively verifiable positive evidence considered for purposes of this determination includes our “normalized” cumulative pre-tax book income of $1.0 million for the three years ended December 31, 2007 exclusive of certain expenses in 2005 that we believe were aberrations including: (1) $2.1 million for incentive compensation paid pursuant to an earn-out agreement with the former founders of Teamplate which we acquired in 2003 and (2) $1.4 million of increased accounting and consulting fees incurred to comply with the Sarbanes Oxley Act of 2002 which we consider to be in excess of our normal and recurring fees for annual compliance. We believe these are unusual items that are not indicative of a continuing condition and should be considered an aberration for purposes of determining our earnings history for assessing the realizability of our deferred tax assets in accordance with the recognition criteria of SFAS No. 109. In addition to the objective positive evidence, we also have positive evidence that is more subjective in nature including projected cumulative 3 year earnings for the period 2006 through 2008, projected cumulative 3 year taxable income for the period 2008 through 2010 and projected future earnings from Castelle which we acquired in July 2007. We incurred a U.S. pretax loss of $3.5 million for the quarter ended March 31, 2008, however, our U.S. results are tracking to our plan for the twelve months ending December 31, 2008. We believe we will generate pretax income in the U.S. for the year ending December 31, 2008. These positive evidences are less certain than the objective positive evidences and therefore carry less weight when evaluating whether a valuation allowance is not needed. Negative

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(Continued)

evidence we considered was our history of cumulative book losses for the three years ended December 31, 2007, which we believe was an aberration, as discussed above. Based on the weight of all available evidence, we believe it is more likely than not that we will generate sufficient future U.S. taxable income to realize our U.S. deferred tax assets at March 31, 2008. In addition, we believe it is more likely than not that we will utilize our net operating loss carry forwards and they will not be limited by Internal Revenue Code Section 382 before they expire. We also believe that because of our assumptions and judgment involved with this analysis, there is an element of uncertainty that these U.S. federal net operating losses and U.S. deferred tax assets will be utilized in the future. Therefore, in the future we will continue to closely monitor evidence on a quarterly basis. If we believe that our negative evidence outweighs our positive evidence, we will record a valuation allowance against the U.S. net operating losses and the U.S. deferred tax assets at that time.

In Canada, we recorded a full valuation allowance against our investment tax credits because we do not believe it is more likely than not that we will utilize the credits prior to the expiration of the statutory carry forward period. Our Canadian subsidiary has a history of losses, and with projected Canadian income insufficient to support utilization of the investment tax credit carryovers prior to expiration, there is substantial negative evidence supporting our conclusion regarding realizability of the tax credit carryovers.

In our other foreign jurisdictions, we believe that our net operating losses are more likely than not to be realized. Our history of income and net operating loss utilization, coupled with an indefinite carry forward period for net operating losses provide sufficient objectively verifiable positive evidence to support our conclusion regarding realizability of these carry forwards.

Liquidity and Capital Resources

Our principal sources of liquidity are our cash and cash equivalents and our Credit Facility. Cash, cash equivalents and investments at March 31, 2008 totaled $39.9 million, a decrease of $6.3 million from December 31, 2007. This decrease was primarily due to $17.9 million of cash used to purchase CDT, $2.6 million used for capital purchases and $138,000 used to repurchase our common stock. These decreases were partially offset by cash provided by operations of $836,000, proceeds from our Credit Facility of $9.7 million and proceeds of $208,000 from the exercise of stock options. Capital expenditures during the quarter ended March 31, 2008 consisted primarily of leasehold improvements related to our new offices in Bellevue, Washington and Tucson, Arizona. In the first quarter of 2008, we paid $680,000 for management incentive bonuses we accrued in 2007. We believe existing cash and cash equivalents together with funds generated from operations will be sufficient to meet our anticipated working capital needs and capital expenditure needs for the next 12 months and the foreseeable future.

Cash provided by operations during the first quarter of 2008 was $836,000 compared to $2.1 million during the first quarter of 2007. Cash provided by operations in the first quarter of 2008 was primarily due to the collection of accounts receivable, an increase in our deferred revenue billings and delayed payments on our accounts payable, offset by our operating loss during the quarter. Cash provided by operations in the first quarter of 2007 was primarily due to the collection of accounts receivable and an increase in our deferred revenue billings. Cash provided by operations in the first quarter of 2008 decreased significantly due to incurring a cash operating loss of $4.0 million compared with our cash operating income during the first quarter of 2007 of $792,000.

Cash used in investing activities during the first quarter of 2008 was $20.5 million and included $17.9 million used to purchase CDT, net of cash acquired, and $2.6 million used to purchase leasehold improvements and equipment. Capital asset purchases in the first quarter of 2008 were $2.6 million compared to $1.1 million in the first quarter of 2007. We anticipate our capital spending will decrease in the remaining quarters of 2008 compared to the first quarter as we have completed our office moves which primarily occurred in the first quarter.

Cash provided by financing activities during the first quarter of 2008 was $10.7 million compared to cash used in financing activities of $1.5 million during the first quarter of 2007. In the first quarter of 2008 we obtained a $9.7 million cash advance on our Credit Facility. In addition, we repurchased 36,000 shares of our common stock for $138,000 under our stock repurchase program. Cash used in financing activities was partially offset by cash provided from the exercise of stock options through our employee stock option plans of $208,000 as well as related excess tax benefits from stock-based compensation. We repurchased 361,900 shares of our common stock for $2.6 million in the first quarter of 2007. This was partially offset by cash provided from the exercise of stock options through our employee stock purchase plan of $1.0 million and related excess tax benefits from stock-based compensation of $135,000 in the first quarter of 2007.

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(Continued)

In January 2008, we loaned our wholly-owned subsidiary CV GmbH, €31.6 million to finance the acquisition of CDT as well as pay on behalf of CDT approximately €3.1 million of profit-sharing CDT owed to its former owner. The loan accrues interest at a rate equal to the 3 months EURIBOR rate plus 2.75% per annum. Since the acquisition, and through the date of this report, the majority of our consolidated cash is held by CDT in Germany. We intend to have CDT remit its excess cash to Captaris in repayment of the intercompany loan. However, in accordance with capital maintenance rules under German law, CDT is prohibited from using its excess cash to satisfy its intercompany obligation except for the €3.1 million of profit-sharing Captaris paid to CDT’s former owner on behalf of CDT. We are in the process of merging CDT into CV GmbH, with CV GmbH being the surviving company. We expect the structure of the merger will allow CV GmbH to remit approximately €4.0 million ($6.3 million) of cash to Captaris in repayment of the intercompany loan. We expect the merger and remittance of the €4.0 million ($6.3 million) to occur late in the second quarter of 2008.

Until the intercompany loan is repaid, this loan exposes us to significant gains and losses from fluctuations in the exchange rate of Euros to U.S. dollars. To mitigate this risk, we entered into a foreign currency exchange forward contract, agreeing to sell approximately €31.6 million on April 4, 2008. On April 4, 2008 we recognized a cash loss of $3.1 million on the forward contract. This cash loss is offset by a non-cash gain of $3.1 million on the revaluation of the intercompany loan balance on April 4, 2008.

On April 9, 2008 our subsidiary, CDT, paid €2.7 million to Captaris reducing the outstanding intercompany loan balance to €29.6 million ($46.8 million) including accrued interest. The €2.7 million payment was comprised of €3.1 million for the repayment of the profit-sharing Captaris paid on CDT’s behalf to the Seller, net of additional purchase price paid to the Seller of €463,000. Pursuant to the SPA, the purchase price paid at closing included a payment for CDT’s estimated cash balance on December 31, 2007 and included a provision to adjust the purchase price once CDT’s actual cash balance at December 31, 2007 could be determined. The additional purchase price of €463,000 represents the additional cash CDT held at December 31, 2007.

On April 30, 2008, to mitigate the majority of our foreign currency exposure on the outstanding intercompany loan, we entered into a cross-currency swap contract for a notional amount of €21.5 million and a forward currency contract with a maturity date of June 27, 2008 for a notional amount of €4.0 million. We expect to receive a €4.0 million payment from our subsidiary in June 2008 once the merger of CDT with CV GmbH, as discussed above, is completed. To the extent that this forward currency contract is in a loss position on the date it is due and we do not receive a corresponding payment from our subsidiary, we will have to settle the contract in U.S. dollars equal to the amount of the loss. The cross-currency swap payment dates and amounts match the amounts and dates we expect to receive payments on the loan from our subsidiary. If our subsidiary is unable to remit cash in repayment of the intercompany loan in accordance with the agreed payment schedule, we are exposed to U.S. dollar cash flow risks. To the extent that any payment due on the cross-currency swap contract is in a loss position on the date it is due and we do not receive a corresponding payment from our subsidiary, we will have to settle the contract in U.S. dollars equal to the amount of the loss. The payments on the cross-currency swap and the corresponding payments from our subsidiary are scheduled to be made quarterly, including principal and accrued interest, and begin on January 15, 2009 and end on October 15, 2013.

Contractual Obligations and Commercial Commitments

On January 2, 2008, we entered into a credit agreement providing for a senior secured revolving credit facility with Wells Fargo Foothill, LLC, as arranger, administrative agent, swing lender, and letter of credit issuer, and the other lenders party thereto (the “Credit Facility”).

The Credit Facility provides for a $10.0 million revolving line of credit commitment, which may be used (i) for revolving loans, (ii) for swing line advances, subject to a sublimit of $2.0 million and (iii) to request the issuance of letters of credit on our behalf, subject to a sublimit of $5.0 million. On April 2, 2008, as allowed under the facility, we requested and received an increase to the Credit Facility for $10.0 million, bringing the total Credit Facility to $20.0 million. The credit available under the Credit Facility was used to pay a portion of the purchase price for the acquisition of Océ Document Technologies GmbH as described in Note 7 to our unaudited condensed consolidated financial statements and to finance our ongoing working capital, capital expenditure, and general corporate needs. Upon the closing of the Credit Facility and during the first quarter of 2008 we obtained cash advances totaling $9.7 million. On April 3, 2008 we obtained an additional cash advance of $3.1 million.

We may, subject to applicable conditions, elect interest rates on our revolving borrowings calculated by reference to (i) the LIBOR rate (the “LIBOR Rate”) fixed for given interest periods, plus a margin determined by our average daily balance of the revolving loan usage during the preceding month or (ii) Wells Fargo Bank, National Association’s prime rate (or, if greater, the

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(Continued)

average rate on overnight federal funds plus one half of one percent) (the “Base Rate”), plus a margin determined by our average daily balance of the revolving loan usage during the preceding month. For swing line borrowings, we will pay interest at the Base Rate, plus a margin determined by our average daily balance of the revolving loan usage during the preceding month. For borrowings made with the LIBOR Rate, the margin ranges from 250 to 275 basis points, while for borrowings made with the Base Rate, the margin ranges from 100 to 125 basis points. The weighted average interest rate on our outstanding loan balance during the quarter ended March 31, 2008 was 7.44%.

The Credit Facility matures on January 2, 2013, at which time all outstanding borrowings and accrued but unpaid interest must be repaid and all outstanding letters of credit must have been cash collateralized.

The Credit Facility provides for the payment of specified fees and expenses, including commitment and unused line fees, and contains certain loan covenants, including, among others, financial covenants providing for a minimum EBITDA and maximum amount of capital expenditures, and limitations on our ability with regard to the incurrence of debt, the existence of liens, stock repurchases and dividends, investments, and mergers, dispositions and acquisitions, and events constituting a change in control. Our obligations under the Credit Facility are guaranteed by certain of our direct and indirect domestic subsidiaries (collectively, the “Guarantors”).

The Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, and cross defaults to certain other indebtedness. The occurrence of an event of default will increase the applicable rate of interest and could result in the acceleration of our obligations under the Credit Facility and the obligations of any or all of the Guarantors to pay the full amount of our obligations under the Credit Facility.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our company is exposed to market risks, including changes in interest rates and foreign currency exchange rates, each of which could adversely affect the value of certain assets and liabilities. Except as described below, we do not, as of the date of this report, use derivative financial instruments to hedge this risk.

Interest rate risk

On January 2, 2008, we entered into a credit agreement providing for a senior secured revolving credit facility of $10.0 million. On April 2, 2008 we requested and received an increase to the Credit Facility for $10.0 million, bringing the total Credit Facility to $20.0 million. Upon closing of the credit facility and during the first quarter of 2008, we obtained cash advances totaling $9.7 million and on April 3, 2008 we obtained an additional cash advance of $3.1 million. The interest rate on the credit facility is based upon either: LIBOR plus an applicable margin, or the prime rate or base rate plus an applicable margin. The credit facility matures on January 2, 2013. See Note 11 in Notes to unaudited condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.

Based on our outstanding credit facility obligation of $12.8 million as of the date of this report, assuming a hypothetical increase of 5%, 10% and 20% in interest rates over the next year, annualized interest expense would increase by approximately $640,000, $1.3 million and $2.6 million, respectively. Such potential increases are based on certain simplified assumptions, including an immediate, across-the-board increase in the level of interest rates with no other subsequent changes for the remainder of the periods.

Foreign currency risk

Currently, our U.S. sales and some international sales are denominated in U.S. dollars. We may also price our international sales to the United Kingdom in British pounds sterling, to Canada in Canadian dollars, to Australia in Australian dollars and to participating European Community countries in Euros. Increases in the value of the U.S. dollar against any local currencies could cause our U.S.-based products to become relatively more expensive to customers in a particular country or region, leading to reduced revenue or profitability in that country or region. We expect to continue to expand our international operations, particularly with the acquisition of CDT in January 2008, and accordingly, we expect our non-U.S.-dollar-denominated revenue, expenses, and intercompany balances and our exposure to gains and losses on international currency transactions will increase.

Based on the net foreign currency denominated balances held by our U.S. parent company at March 31, 2008 of $51.3 million, an assumed hypothetical 5%, 10% and 20% strengthening of the U.S. dollar in relation to the denominated foreign currencies would result in losses of $2.6 million, $5.1 million, and $10.3 million, respectively. We would record these losses in “other income (expense), net” in our Consolidated Statements of Operations.

36

CAPTARIS, INC.

In addition, the results of operations and financial condition of our international operations and subsidiaries are exposed to foreign exchange rate fluctuations due to translation to U.S. dollars for reporting purposes. Upon translation, operating results may differ materially from expectations, and we may record significant gains or losses on the remeasurement of certain balances denominated in foreign currencies. For example, with respect to our net assets or net revenue denominated in currencies other than the U.S. dollar, a strengthening U.S. dollar would result in less net assets or net revenue when converted to U.S. dollars, which could have a material adverse impact on our financial condition or results of operations. Conversely, for an entity with various financial instruments denominated in a foreign currency in a net liability position and net expenses, a weakening in the U.S. dollar would result in more net liabilities or net expenses when converted to U.S. dollars. As we have expanded our international operations, and particularly with the acquisition of CDT in early January 2008, our exposure to these exchange rate risks has increased. As of the date of this report, a significant portion of our net assets are denominated in Euros and, to a lesser extent, in Canadian dollars, Australian dollars and British pounds sterling. Moreover, with the acquisition of CDT, a significant portion of our consolidated revenue and expenses will be denominated in Euros. Historically, we have not hedged our foreign currency translation risk, although we may do so in the future. We performed a sensitivity analysis assuming a hypothetical adverse movement in foreign exchange rates to the underlying foreign currency exposures for our asset and liability positions based in foreign currencies as of March 31, 2008. The sensitivity analysis indicated that a hypothetical 5%, 10% and 20% adverse movement in foreign currency exchange rates would result in a $388,000, $777,000 and $1.6 million, respectively, loss in fair values of foreign currency based assets and liabilities as of March 31, 2008 compared to a $411,000, $822,000 and $1.6 million, respectively, loss in fair values of foreign currency based assets and liabilities at March 31, 2007. Fluctuations in our foreign denominated assets and liabilities are recorded in “accumulated other comprehensive income (loss),” a separate component of stockholders’ equity.

In January 2008, we loaned our wholly-owned subsidiary CV GmbH, €31.6 million to finance the acquisition of CDT as well as pay on behalf of CDT approximately €3.1 million of profit-sharing CDT owed to its former owner. The loan accrues interest at a rate equal to the 3 months EURIBOR rate plus 2.75% per annum. Since the acquisition, and through the date of this report, the majority of our consolidated cash is held by CDT in Germany. We intend to have CDT remit its excess cash to Captaris in repayment of the intercompany loan. However, in accordance with capital maintenance rules under German law, CDT is prohibited from using its excess cash to satisfy its intercompany obligation except for the €3.1 million of profit-sharing Captaris paid to CDT’s former owner on behalf of CDT. We are in the process of merging CDT into CV GmbH, with CV GmbH being the surviving company. We expect the structure of the merger will allow CV GmbH to remit approximately €4.0 million ($6.3 million) of cash to Captaris in repayment of the intercompany loan. We expect the merger and remittance of the €4.0 million ($6.3 million) to occur late in the second quarter of 2008.

Until the intercompany loan is repaid, this loan exposes us to significant gains and losses from fluctuations in the exchange rate of Euros to U.S. dollars. To mitigate this risk, we entered into a foreign currency exchange forward contract, agreeing to sell approximately €31.6 million on April 4, 2008. On April 4, 2008 we recognized a cash loss of $3.1 million on the forward contract. This cash loss is offset by a non-cash gain of $3.1 million on the revaluation of the intercompany loan balance on April 4, 2008.

On April 9, 2008 our subsidiary, CDT, paid €2.7 million to Captaris reducing the outstanding intercompany loan balance to €29.6 million ($46.8 million) including accrued interest. The €2.7 million payment was comprised of €3.1 million for the repayment of the profit-sharing Captaris paid on CDT’s behalf to the Seller, net of additional purchase price paid to the Seller of €463,000. Pursuant to the Sale and Purchase Agreement, the purchase price paid at closing included a payment for CDT’s estimated cash balance on December 31, 2007 and included a provision to adjust the purchase price once CDT’s actual cash balance at December 31, 2007 could be determined. The additional purchase price of €463,000 represents the additional cash CDT held at December 31, 2007.

37

CAPTARIS, INC.

On April 30, 2008, to mitigate the majority of our foreign currency exposure on the outstanding intercompany loan, we entered into a cross-currency swap contract for a notional amount of €21.5 million and a forward currency contract with a maturity date of June 27, 2008 for a notional amount of €4.0 million. We expect to receive a €4.0 million payment from our subsidiary in June 2008 once the merger of CDT with CV GmbH, as discussed above, is completed. To the extent that this forward currency contract is in a loss position on the date it is due and we do not receive a corresponding payment from our subsidiary, we will have to settle the contract in U.S. dollars equal to the amount of the loss. The cross-currency swap payment dates and amounts match the amounts and dates we expect to receive payments on the loan from our subsidiary. If our subsidiary is unable to remit cash in repayment of the intercompany loan in accordance with the agreed payment schedule, we are exposed to U.S. dollar cash flow risks. To the extent that any payment due on the cross-currency swap contract is in a loss position on the date it is due and we do not receive a corresponding payment from our subsidiary, we will have to settle the contract in U.S. dollars equal to the amount of the loss. The payments on the cross-currency swap and the corresponding payments from our subsidiary are scheduled to be made quarterly, including principal and accrued interest, and begin on January 15, 2009 and end on October 15, 2013.

We performed a sensitivity analysis assuming a hypothetical adverse change in the value of the foreign currency forward contract discussed above. The sensitivity analysis indicated that a hypothetical 5%, 10% and 20% adverse movement in foreign currency exchange rates would result in a loss of $300,000, $624,000 and $1.2 million, respectively, as of March 31, 2008.

38

CAPTARIS, INC.

We performed a sensitivity analysis assuming a hypothetical adverse change in the value of the cross-currency swap contract discussed above. The sensitivity analysis indicated that a hypothetical 5%, 10% and 20% adverse movement in foreign currency exchange rates would result in a loss of $1.7 million, $3.4 million and $6.7 million, respectively, as of March 31, 2008.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the chief executive officer and chief financial officer, Captaris has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2008, the end of the period covered by this report. Based upon that evaluation, the chief executive officer and chief financial officer concluded that these disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

As reported in our Annual Report on Form 10-K for the year ended December 31, 2007, Captaris has been involved in an ongoing lawsuit in Circuit Court in Cook County, Illinois. The lawsuit was filed by Travel 100 Group, Inc. (“Travel 100”), against Mediterranean Shipping Company (“Mediterranean”). The complaint alleges violations of the Telephone Consumer Protection Act in connection with the receipt of facsimile advertisements that were transmitted by MediaTel Corporation, a wholly owned subsidiary of Captaris, on behalf of travel service providers, including Mediterranean. All of the assets of MediaTel were sold to a subsidiary of PTEK Holdings, Inc. on September 1, 2003.

The Travel 100 complaint sought injunctive relief and unspecified damages and certification as a class action on behalf of Travel 100 and others similarly situated throughout the United States that received the facsimile advertisements. Mediterranean named Captaris as a third-party defendant and asserted that, to the extent that it is liable, Captaris should be liable under theories of indemnification, contribution or breach of contract for any damages suffered by Mediterranean. Both Captaris and MediaTel have denied any liability in the cases because, among other facts and defenses, MediaTel understood that the database and lists of travel agent recipients to whom faxes were sent had authorized that information could be sent to them by fax.

On September 29, 2006, the court in the Mediterranean case granted summary judgment in favor of Mediterranean and Captaris and dismissed the case. In granting summary judgment, the court ruled that Travel 100 had invited the facsimile advertisements and there was no violation of the Telephone Consumer Protection Act. Travel 100 filed a motion for reconsideration, which the court denied. Travel 100 then filed a notice of appeal on December 29, 2006. On July 20, 2007, Travel 100 filed their Appellate brief. At this time, no date has been set for oral argument on this matter. There can be no assurance that we will be successful in defending the appeal.

Our insurance carrier has agreed to pay defense costs in the Mediterranean case, but has reserved its rights to contest their duty to indemnify Captaris with respect to this matter. We intend to vigorously defend the appeal of the Mediterranean summary judgment ruling; however, litigation is subject to numerous uncertainties and we are unable to predict the ultimate outcome of the Mediterranean case. There is no guarantee that we will not be required to pay damages in respect of this case in the future, which could materially and adversely affect our results of operations, cash flows and financial condition for the quarter or year in which any accrual is recorded or any damages are paid.

39

CAPTARIS, INC.

Item 1A. RISK FACTORS

Our evaluation of strategic alternatives may not result in a definitive transaction or enhance shareholder value, and may create a distraction for our management and uncertainty that may adversely affect our operating results and business.

We have formed an independent board committee and retained financial and legal advisors to assist us in evaluating our strategic alternatives to further enhance shareholder value. As this evaluation is in its early stages, we are uncertain as to what strategic alternatives may be available to us, if any, whether we will elect to pursue any such strategic alternatives, whether we will be able to consummate a definitive transaction, and whether we will enhance shareholder value through this evaluation process. There are various uncertainties and risks relating to our evaluation of strategic alternatives and our ability to consummate a definitive transaction, including:

• exploration of strategic alternatives may distract management from focusing our time and resources on our most promising assets and disrupt day-to-day operations, which could have a material adverse effect on our operating results and business;

• the process of evaluating strategic alternatives may be time consuming and expensive and may result in the loss of business opportunities;

• perceived uncertainties as to our future direction may result in increased difficulties in retaining key employees and recruiting new employees, particularly senior management;

• perceived uncertainties as to our future may cause business partners to terminate, or not to renew or enter into, arrangements with us;

• numerous factors, some of which are outside our control, including factors affecting the availability of financing for transactions or the financial markets in general; and

• we may not be able to successfully achieve the benefits of any strategic alternative undertaken by us.

In addition, the market price of our common stock could be highly volatile for several months as we explore strategic alternatives and may continue to be more volatile if and when we announce that we are no longer evaluating strategic alternatives.

We are exposed to U.S. dollar cash flow risks in connection with our foreign currency hedging contracts.

As discussed in this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and “Quantitative and Qualitative Disclosures About Market Risk,” in April 2008, to mitigate the majority of our foreign currency exposure on our outstanding intercompany loan to our wholly-owned German subsidiary, CV GmbH, we entered into a cross-currency swap contract for a notional amount of €21.5 million and a forward currency contract with a maturity date of June 27, 2008 for a notional amount of €4.0 million. We expect to receive a €4.0 million payment from our subsidiary in June once the merger of CDT with CV GmbH is completed. The cross-currency swap payment dates and amounts match the amounts and dates we expect to receive payments on the loan from our subsidiary. However, if our subsidiary is unable to remit cash in repayment of the intercompany loan in accordance with the agreed payment schedule, we are exposed to U.S. dollar cash flow risks. To the extent that any payment due on the forward currency contract or the cross-currency swap contract is in a loss position on the date it is due and we do not receive a corresponding payment from our subsidiary, we will have to settle the contract in U.S. dollars equal to the amount of the loss, which could have a material adverse effect on our financial condition, results of operations, cash flows and liquidity.

With the exception of the risk factors above, there have been no material changes that we are aware of from the risk factors set forth in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission on March 17, 2008.

40

CAPTARIS, INC.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarters ended March 31, 2008 and 2007, we repurchased 36,000 and 361,900 of our common shares for $138,000 and $2.6 million, respectively. The following table summarizes information regarding shares repurchased during the quarter ended March 31, 2008.

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
January 1 through 31, 2008	21,000	$	4.00	21,000	$	9,507,697
February 1 through 29, 2008	12,000	$	3.49	12,000	$	9,465,832
March 1 through 31, 2008	3,000	$	4.19	3,000	$	9,453,257
Total	36,000	$	3.85	36,000	$	9,453,257

(1) On June 8, 2006, our Board of Directors authorized us to enter into a Rule 10b5-1 plan to facilitate the repurchase of our common shares in accordance with our previously announced stock repurchase plan pursuant to which we were authorized to repurchase approximately $15 million in shares of our common stock. A Rule 10b5-1 repurchase plan allows the purchase of our common shares at times when we ordinarily would not be in the market because of self-imposed trading blackout periods. The stock repurchase plan will continue until the earlier of (a) such time when the maximum dollar amount authorized has been utilized or (b) our Board of Directors elects to discontinue the stock repurchase plan. We may repurchase shares in the future subject to the rules of our 10b5-1 repurchase plan and in the case of any discretionary purchases outside of the plan, subject to open trading windows, overall market conditions, our stock price and our cash position and other requirements.

Item 6. EXHIBITS

3(ii)+	Amended and Restated Bylaws of Captaris, Inc., as amended on September 30, 2007, March 30, 2008 and April 3, 2008
10.1+*	Captaris, Inc. 2008 Incentive Plan.
10.2+*	Second Amendment to Change of Control Agreement, dated as of March 25, 2008, between David P. Anastasi and Captaris, Inc.
10.3+*	Second Amendment to Change of Control Agreement, dated as of March 25, 2008, between Peter Papano and Captaris, Inc.
10.4+*	Change in Control Agreement, dated as of March 17, 2008, between Paul Yantus and Captaris, Inc.
10.5+*	Change in Control Agreement, dated as of March 22, 2008, between Doug Anderson and Captaris, Inc.
10.6+*	Captaris, Inc. Executive Severance Pay Plan, as amended through March 13, 2008.
10.7+*	2008 Sales Commission Plan for Doug Anderson.
10.8+*	Captaris, Inc. Summary of Nonemployee Director Compensation.
10.9	Credit Agreement, dated January 2, 2008, among Captaris, Inc., as borrower, Wells Fargo Foothill, LLC, as arranger, administrative agent, swing lender, and letter of credit issuer, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to Captaris’s Form 8-K (File No. 0-25186) filed on January 8, 2008).
31.1+	Rule 13a-14(a) Certification (Chief Executive Officer)
31.2+	Rule 13a-14(a) Certification (Chief Financial Officer)
32.1+	Section 1350 Certification (Chief Executive Officer)
32.2+	Section 1350 Certification (Chief Financial Officer)

+ Filed herewith.

* Management contract or compensatory plan or arrangement.

41

CAPTARIS, INC.

SIGNATURE

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 on the 9th day of May 2008.

CAPTARIS, INC.
By:	/s/ Peter Papano
	Peter Papano Chief Financial Officer and Treasurer

42

EX-3.II

Exhibit 3(ii)

AMENDED AND RESTATED BYLAWS

OF

CAPTARIS, INC.

ORIGINALLY ADOPTED BY THE BOARD OF DIRECTORS ON 10/7/94

AMENDED AND RESTATED BY THE BOARD OF DIRECTORS ON 1/20/04

AMENDMENTS

Section	Effect of Amendment	Date of Amendment
Added New Section 6.7	6.7 Shares Without Certificates Notwithstanding any other provisions herein, the Board may authorize the issuance of some or all of the shares of any or all of the corporation’s classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation. Within a reasonable time after the issuance or transfer of shares without certificates, the corporation shall send the shareholder a record containing the information required on certificates by applicable Washington law.	9/20/07
Amended Section 3.3.1 in its entirety to read:	3.3.1 Nomination Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations for the election of Directors may be made (a) by or at the direction of the Board or (b) by any shareholder of record entitled to vote for the election of Directors at such meeting; provided, however, that a shareholder may nominate persons for election as Directors only if written notice (in accordance with subsection 2.6.3 hereof) of such shareholder’s intention to make such nominations is received by the Secretary (i) with respect to an election to be held at an annual meeting of the shareholders, not fewer than 60 nor more than 90 days prior to the anniversary date of the prior year’s annual meeting; provided that if the date of the annual meeting is advanced more	3/30/08

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE i

than 30 days prior to, or delayed by more than 30 days after, the anniversary of the preceding year’s annual meeting, notice by the shareholder to be timely must be so delivered not later than the close of business on the later of (A) the 90^th day prior to such annual meeting or (B) the tenth day following the earlier of the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made; provided further, however, that with respect to the 2008 annual meeting, notice by the shareholder to be timely must be so delivered not later than the close of business on the tenth day following the earlier of the day on which notice of the 2008 annual meeting was mailed or public disclosure of the 2008 annual meeting was made, and (ii) with respect to an election to be held at a special meeting of the shareholders for the election of Directors, not later than the close of business on the seventh business day following the date on which notice of such meeting is first given to shareholders. Any such shareholder’s notice shall set forth (a) the name and address of the shareholder who intends to make a nomination; (b) a representation that the shareholder is entitled to vote at such meeting and a statement of the number of shares of the corporation which are beneficially owned by the shareholder; (c) a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (d) as to each person the shareholder proposes to nominate for election or re-election as a Director, the name and address of such person and such other information regarding such nominee as would be required in a proxy statement filed

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE ii

	pursuant to the proxy rules of the Securities and Exchange Commission had such nominee been nominated by the Board, and a description of any arrangements or understandings between the shareholder and such nominee and any other persons (including their names), pursuant to which the nomination is to be made; and (e) the consent of each such nominee to serve as a Director if elected. If the facts warrant, the Board, or the chairman of a shareholders’ meeting at which Directors are to be elected, shall determine and declare that a nomination was not made in accordance with the foregoing procedure and, if it is so determined, the defective nomination shall be disregarded. The right of shareholders to make nominations pursuant to the foregoing procedure is subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation. The procedures set forth in this Section 3.3 for nomination for the election of Directors by shareholders are in addition to, and not in limitation of, any procedures now in effect or hereafter adopted by or at the direction of the Board or any committee thereof.
Amended Section 2.6.1 in its entirety to read:	2.6.1 Business at Annual Meetings In addition to the election of directors, other proper business may be transacted at an annual meeting of shareholders, provided that such business is properly brought before such meeting. To be properly brought before an annual meeting, business must be (a) brought by or at the direction of the Board or (b) brought before the meeting by a shareholder pursuant to written notice	4/3/08

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE iii

thereof, in accordance with subsection 2.6.3 hereof, and received by the Secretary not fewer than 60 nor more than 90 days prior to the anniversary date of the prior year’s annual meeting; provided that if the date of the annual meeting is advanced more than 30 days prior to, or delayed by more than 30 days after, the anniversary of the preceding year’s annual meeting, notice by the shareholder to be timely must be so delivered not later than the close of business on the later of (i) the 90th day prior to such annual meeting or (ii) the tenth day following the earlier of the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made; provided further, however, that with respect to the 2008 annual meeting, notice by the shareholder to be timely must be so delivered not later than the close of business on the tenth day following the earlier of the day on which notice of the 2008 annual meeting was mailed or public disclosure of the 2008 annual meeting was made. Any such shareholder notice shall set forth (i) the name and address of the shareholder proposing such business; (ii) a representation that the shareholder is entitled to vote at such meeting and a statement of the number of shares of the corporation which are beneficially owned by the shareholder; (iii) a representation that the shareholder intends to appear in person or by proxy at the meeting to propose such business; and (iv) as to each matter the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE iv

business at the meeting, the language of the proposal (if appropriate), and any material interest of the shareholder in such business. No business shall be conducted at any annual meeting of shareholders except in accordance with this subsection 2.6.1. If the facts warrant, the Board, or the chairman of an annual meeting of shareholders, may determine and declare that (a) a proposal does not constitute proper business to be transacted at the meeting or (b) business was not properly brought before the meeting in accordance with the provisions of this subsection 2.6.1 and, if, in either case, it is so determined, any such business shall not be transacted. In addition to the procedures set forth in this subsection 2.6.1, shareholders desiring to include a proposal in the corporation’s proxy statement must also comply with the requirements set forth in Rule 14a-8 under Section l4 of the Securities Exchange Act of 1934, as amended, or any successor provision.

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE v

CONTENTS

SECTION 1. OFFICES			1
SECTION 2. SHAREHOLDERS			1
2.1	Annual Meeting		1
2.2	Special Meetings		1
2.3	Meetings by Communication Equipment		1
2.4	Date, Time and Place of Meeting		1
2.5	Notice of Meeting		2
2.6	Business for Shareholders' Meetings		2
	2.6.1	Business at Annual Meetings	2
	2.6.2	Business at Special Meetings	3
	2.6.3	Notice to Corporation	3
2.7	Waiver of Notice		3
2.8	Fixing of Record Date for Determining Shareholders		3
2.9	Voting Record		4
2.10	Quorum		4
2.11	Manner of Acting		4
2.12	Proxies		5
2.13	Voting of Shares		5
2.14	Voting for Directors		5
2.15	Action by Shareholders Without a Meeting		5
SECTION 3. BOARD OF DIRECTORS			5
3.1	General Powers		5
3.2	Number and Tenure		6
3.3	Nomination and Election		6
	3.3.1	Nomination	6
	3.3.2	Election	7
3.4	Chairperson of the Board		7
3.5	Lead Independent Director		8
3.6	Annual and Regular Meetings		8
3.7	Special Meetings		8
3.8	Meetings by Communication Equipment		8
3.9	Notice of Special Meetings		8
	3.9.1	Personal Delivery	8
	3.9.2	Delivery by Mail	8
	3.9.3	Delivery by Private Carrier	9
	3.9.4	Facsimile Notice	9
	3.9.5	Delivery by Telegraph	9
	3.9.6	Oral Notice	9
3.10	Waiver of Notice		9

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE vi

	3.10.1	In Writing	9
	3.10.2	By Attendance	9
3.11	Quorum		10
3.12	Manner of Acting		10
3.13	Presumption of Assent		10
3.14	Action by Board or Committees Without a Meeting		10
3.15	Resignation		10
3.16	Removal		11
3.17	Vacancies		11
3.18	Executive and Other Committees		12
	3.18.1	Creation of Committees	12
	3.18.2	Authority of Committees	12
	3.18.3	Audit Committee	12
	3.18.4	Compensation Committee	13
	3.18.5	Nominating and/or Governance Committee	13
	3.18.6	Quorum and Manner of Acting	13
	3.18.7	Minutes of Meetings	13
	3.18.8	Resignation	13
	3.18.9	Removal	13
3.19	Compensation		14
SECTION 4. OFFICERS			14
4.1	Appointment and Terms		14
4.2	Resignation		14
4.3	Removal		14
4.4	Contract Rights of Officers		15
4.5	President		15
4.6	Vice President		15
4.7	Secretary		15
4.8	Treasurer		16
4.9	Salaries		16
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS			16
5.1	Contracts		16
5.2	Loans to the Corporation		16
5.3	Checks, Drafts, Etc.		16
5.4	Deposits		17
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER			17
6.1	Issuance of Shares		17
6.2	Certificates for Shares		17
6.3	Stock Records		17
6.4	Restriction on Transfer		17
6.5	Transfer of Shares		18

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE vii

6.6	Lost or Destroyed Certificates	18
SECTION 7. BOOKS AND RECORDS		18
SECTION 8. ACCOUNTING YEAR		19
SECTION 9. SEAL		19
SECTION 10. INDEMNIFICATION		19
10.1	Right to Indemnification	19
10.2	Restrictions on Indemnification	20
10.3	Advancement of Expenses	20
10.4	Right of Indemnitee to Bring Suit	20
10.5	Procedures Exclusive	21
10.6	Nonexclusivity of Rights	21
10.7	Insurance, Contracts and Funding	21
10.8	Indemnification of Employees and Agents of the Corporation	21
10.9	Persons Serving Other Entities	22
SECTION 11. AMENDMENTS		22

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE viii

AMENDED AND RESTATED BYLAWS

OF

CAPTARIS, INC.

SECTION 1. OFFICES

The principal office of the corporation shall be located at the principal place of business or such other place as the Board of Directors (the “Board”) may designate. The corporation may have such other offices, either within or without the State of Washington, as the Board may designate or as the business of the corporation may require from time to time.

SECTION 2. SHAREHOLDERS

2.1 Annual Meeting

The annual meeting of the shareholders shall be held each year, for the purpose of electing Directors and transacting such other business as may properly come before the meeting, on such date and time to be determined by the Board.

2.2 Special Meetings

The Chairman of the Board, the President or the Board may call special meetings of the shareholders for any purpose. Further, a special meeting of the shareholders shall be held if the holders of not less than 30% of all the votes entitled to be cast on any issue proposed to be considered at such special meeting have dated, signed and delivered to the Secretary one or more written demands for such meeting, describing the purpose or purposes for which it is to be held.

2.3 Meetings by Communication Equipment

Shareholders may participate in any meeting of the shareholders by any means of communication by which all persons participating in the meeting can hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting.

2.4 Date, Time and Place of Meeting

Except as otherwise provided herein, all meetings of shareholders, including those held pursuant to demand by shareholders as provided herein, shall be held on such date and at such time and place, within or without the State of Washington, designated by or at the direction of the Board.

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2.5 Notice of Meeting

Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be given by or at the direction of the Board, the Chairman of the Board, the President or the Secretary to each shareholder entitled to notice of or to vote at the meeting not less than 10 nor more than 60 days before the meeting, provided that notice of a meeting to act on an amendment to the Restated Articles of Incorporation, a plan of merger or share exchange, the sale, lease, exchange or other disposition of all or substantially all of the corporation’s assets other than in the regular course of business or the dissolution of the corporation shall be given not less than 20 nor more than 60 days before such meeting. Such notice may be transmitted by mail, private carrier, personal delivery, telegraph, teletype or communications equipment which transmits a facsimile of the notice to like equipment which receives and reproduces such notice. If these forms of written notice are impractical in the view of the Board, the Chairman of the Board, the President or the Secretary, written notice may be transmitted by an advertisement in a newspaper of general circulation in the area of the corporation’s principal office. If such notice is mailed, it shall be deemed effective when deposited in the official government mail, first-class postage prepaid, properly addressed to the shareholder at such shareholder’s address as it appears in the corporation’s current record of shareholders. Notice given in any other manner shall be deemed effective when dispatched to the shareholder’s address, telephone number or other number appearing on the records of the corporation. Any notice given by publication as herein provided shall be deemed effective five days after first publication.

2.6 Business for Shareholders’ Meetings

2.6.1    Business at Annual Meetings

In addition to the election of directors, other proper business may be transacted at an annual meeting of shareholders, provided that such business is properly brought before such meeting. To be properly brought before an annual meeting, business must be (a) brought by or at the direction of the Board or (b) brought before the meeting by a shareholder pursuant to written notice thereof, in accordance with subsection 2.6.3 hereof, and received by the Secretary not fewer than 60 nor more than 90 days prior to the anniversary date of the prior year’s annual meeting; provided that if the date of the annual meeting is advanced more than 30 days prior to, or delayed by more than 30 days after, the anniversary of the preceding year’s annual meeting, notice by the shareholder to be timely must be so delivered not later than the close of business on the later of (i) the 90^th day prior to such annual meeting or (ii) the tenth day following the earlier of the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made. Any such shareholder notice shall set forth (i) the name and address of the shareholder proposing such business; (ii) a representation that the shareholder is entitled to vote at such meeting and a statement of the number of shares of the corporation which are beneficially owned by the shareholder; (iii) a representation that the shareholder intends to appear in person or by proxy

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at the meeting to propose such business; and (iv) as to each matter the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, the language of the proposal (if appropriate), and any material interest of the shareholder in such business. No business shall be conducted at any annual meeting of shareholders except in accordance with this subsection 2.6.1. If the facts warrant, the Board, or the chairman of an annual meeting of shareholders, may determine and declare that (a) a proposal does not constitute proper business to be transacted at the meeting or (b) business was not properly brought before the meeting in accordance with the provisions of this subsection 2.6.1 and, if, in either case, it is so determined, any such business shall not be transacted. In addition to the procedures set forth in this subsection 2.6.1, shareholders desiring to include a proposal in the corporation’s proxy statement must also comply with the requirements set forth in Rule 14a-8 under Section l4 of the Securities Exchange Act of 1934, as amended, or any successor provision.

2.6.2    Business at Special Meetings

At any special meeting of the shareholders, only such business as is specified in the notice of such special meeting given by or at the direction of the person or persons calling such meeting, in accordance with Section 2.5 hereof, shall come before such meeting.

2.6.3    Notice to Corporation

Any written notice required to be delivered by a shareholder to the corporation pursuant to Section 2.2, subsection 2.6.1 or subsection 2.6.2 hereof must be given, either by personal delivery or by registered or certified mail, postage prepaid, to the Secretary at the corporation’s principal office.

2.7 Waiver of Notice

Whenever any notice is required to be given to any shareholder under the provisions of these Bylaws, the Restated Articles of Incorporation or the Washington Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice and delivered to the corporation, whether before or after the date and time of the meeting, shall be deemed equivalent to the giving of such notice. Further, notice of the time, place and purpose of any meeting will be deemed to be waived by any shareholder by attendance thereat in person or by proxy, unless such shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting.

2.8 Fixing of Record Date for Determining Shareholders

For the purpose of determining shareholders entitled (a) to notice of or to vote at any meeting of shareholders or any adjournment thereof, (b) to demand a special meeting, or (c) to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose, the Board may fix a future date as the record date for any such determination. Such record date shall be not more than 70 days, and, in the case of a meeting

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of shareholders, not less than 10 days, prior to the date on which the particular action requiring such determination is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting, the record date shall be the day immediately preceding the date on which notice of the meeting is first given to shareholders. Such a determination shall apply to any adjournment of the meeting unless the Board fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. If no record date is set for the determination of shareholders entitled to receive payment of any stock dividend or distribution (other than one involving a purchase, redemption or other acquisition of the corporation’s shares) the record date shall be the date the Board authorizes the stock dividend or distribution.

2.9 Voting Record

At least ten days before each meeting of shareholders, an alphabetical list of the shareholders entitled to notice of such meeting shall be made, arranged by voting group and by each class or series of shares therein, with the address of and number of shares held by each shareholder. This record shall be kept at the principal office of the corporation for ten days prior to such meeting, and shall be kept open at such meeting, for the inspection of any shareholder or any shareholder’s agent.

2.10 Quorum

A majority of the votes entitled to be cast on a matter by the holders of shares that, pursuant to the Restated Articles of Incorporation or the Washington Business Corporation Act, are entitled to vote and be counted collectively upon such matter, represented in person or by proxy, shall constitute a quorum of such shares at a meeting of shareholders. If less than a majority of such votes are represented at a meeting, the holders of a majority of the votes so represented may adjourn the meeting from time to time without further notice if the new date, time or place is announced at the meeting before adjournment. Any business may be transacted at a reconvened meeting that might have been transacted at the meeting as originally called, provided a quorum is present or represented thereat. Once a share is represented for any purpose at a meeting other than solely to object to holding the meeting or transacting business thereat, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof (unless a new record date is or must be set for the adjourned meeting) notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

2.11 Manner of Acting

If a quorum is present, action on a matter other than the election of Directors shall be approved if the votes cast in favor of the action by the shares entitled to vote and be counted collectively upon such matter exceed the votes cast against such action by the shares entitled to vote and be counted collectively thereon, unless the Restated Articles of Incorporation or the Washington Business Corporation Act requires a greater number of affirmative votes.

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2.12 Proxies

A shareholder may vote by proxy executed in writing by the shareholder or by his or her attorney-in-fact or agent. Such proxy shall be effective when received by the Secretary or other officer or agent authorized to tabulate votes. A proxy shall became invalid 11 months after the date of its execution, unless otherwise provided in the proxy. A proxy with respect to a specified meeting shall entitle the holder thereof to vote at any reconvened meeting following adornment of such meeting but shall not be valid after the final adjournment thereof.

2.13 Voting of Shares

Except as provided in the Restated Articles of Incorporation or in Section 2.14 hereof, each outstanding share entitled to vote with respect to a matter submitted to a meeting of shareholders shall be entitled to one vote upon such matter.

2.14 Voting for Directors

Each shareholder entitled to vote at an election of Directors may vote, in person or by proxy, the number of shares owned by such shareholder for as many persons as there are Directors to be elected and for whose election such shareholder has a right to vote. Unless otherwise provided in the Restated Articles of Incorporation or in Section 3.14 hereof, the candidates elected shall be those receiving the largest number of votes cast, up to the number of Directors to be elected.

2.15 Action by Shareholders Without a Meeting

Any action which could be taken at a meeting of the shareholders may be taken without a meeting if one or more written consents setting forth the action so taken are signed by all shareholders entitled to vote on the action and are delivered to the corporation. If not otherwise fixed by the Board, the record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent. A shareholder may withdraw a consent only by delivering a written notice of withdrawal to the corporation prior to the time that all consents are in the possession of the corporation. Action taken by written consent of shareholders without a meeting is effective when all consents are in the possession of the corporation, unless the consent specifies a later effective date. Any such consent shall be inserted in the minute book as if it were the minutes of a meeting of the shareholders.

SECTION 3. BOARD OF DIRECTORS

3.1 General Powers

All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board, except as may be otherwise provided in these Bylaws, the Restated Articles of Incorporation or the Washington Business Corporation Act.

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3.2 Number and Tenure

The Board shall be composed of not less than four nor more than ten Directors, the specific number to be set by resolution of the Board. The number of Directors may be changed from time to time by amendment to these Bylaws, but no decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Directors need not be shareholders of the corporation or residents of the State of Washington and need not meet any other qualifications.

At the first election of Directors following the approval by the shareholders of the Restated Articles of Incorporation, the Board of Directors shall be divided into three classes, with said classes to be as equal in number as may be possible. At the first election of Directors to such classified Board of Directors, any Director or Directors in excess of the number divisible by three shall be assigned to Class 1 or to Class 1 and Class 2, as the case may be. At the first election of Directors to such classified Board of Directors, each Class 1 Director shall be elected to serve until the next ensuing annual meeting of shareholders, each Class 2 Director shall be elected to serve until the second ensuing annual meeting of shareholders and each Class 3 Director shall be elected to serve until the third ensuing annual meeting of shareholders. For so long as the authorized number of Directors, as determined in the manner provided in this Section 3.2 above, exceeds two, at each annual meeting of shareholders following the meeting at which the Board of Directors is initially classified, the number of Directors equal to the number of Directors in the class whose term expires at the time of such meeting shall be elected to serve until the third ensuing annual meeting of shareholders. Notwithstanding any of the foregoing provisions of this Section 3.2, Directors shall serve until their successors are elected and qualified or until their earlier death, resignation or removal from office, or until there is a decrease in the number of Directors; provided, however, that no decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director.

3.3 Nomination and Election

3.3.1    Nomination

Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations for the election of Directors may be made (a) by or at the direction of the Board or (b) by any shareholder of record entitled to vote for the election of Directors at such meeting; provided, however, that a shareholder may nominate persons for election as Directors only if written notice (in accordance with subsection 2.6.3 hereof) of such shareholder’s intention to make such nominations is received by the Secretary (i) with respect to an election to be held at an annual meeting of the shareholders, not fewer than 60 nor more than 90 days prior to the anniversary date of the prior year’s annual meeting; provided that if the date of the annual meeting is advanced more

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than 30 days prior to, or delayed by more than 30 days after, the anniversary of the preceding year’s annual meeting, notice by the shareholder to be timely must be so delivered not later than the close of business on the later of (A) the 90^th day prior to such annual meeting or (B) the tenth day following the earlier of the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made and (ii) with respect to an election to be held at a special meeting of the shareholders for the election of Directors, not later than the close of business on the seventh business day following the date on which notice of such meeting is first given to shareholders. Any such shareholder’s notice shall set forth (a) the name and address of the shareholder who intends to make a nomination; (b) a representation that the shareholder is entitled to vote at such meeting and a statement of the number of shares of the corporation which are beneficially owned by the shareholder; (c) a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (d) as to each person the shareholder proposes to nominate for election or re-election as a Director, the name and address of such person and such other information regarding such nominee as would be required in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had such nominee been nominated by the Board, and a description of any arrangements or understandings between the shareholder and such nominee and any other persons (including their names), pursuant to which the nomination is to be made; and (e) the consent of each such nominee to serve as a Director if elected. If the facts warrant, the Board, or the chairman of a shareholders’ meeting at which Directors are to be elected, shall determine and declare that a nomination was not made in accordance with the foregoing procedure and, if it is so determined, the defective nomination shall be disregarded. The right of shareholders to make nominations pursuant to the foregoing procedure is subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation. The procedures set forth in this Section 3.3 for nomination for the election of Directors by shareholders are in addition to, and not in limitation of, any procedures now in effect or hereafter adopted by or at the direction of the Board or any committee thereof.

3.3.2    Election

At each election of Directors, the persons receiving the greatest number of votes shall be the Directors.

3.4 Chairperson of the Board

If appointed, the Chairperson of the Board shall perform such duties as shall be assigned to him or her by the Board from time to time and shall preside over meetings of the Board and shareholders unless another officer is appointed or designated by the Board as Chairperson of such meetings. The Chairperson shall have such duties as may be prescribed by the Board, or any policy or guidelines approved by the Board and shall perform such other duties commonly incident to his or her office. The Chairperson of the Board must be a Director of the corporation.

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3.5 Lead Independent Director

If the Chairperson of the Board is not an independent Director, the Board may appoint a Lead Independent Director who shall have such duties as may be prescribed by the Board, or by policy or guidelines approved by the Board. The Lead Independent Director must be a Director of the corporation.

3.6 Annual and Regular Meetings

An annual Board meeting shall be held without notice immediately after and at the same place as the annual meeting of shareholders. By resolution the Board, or any committee thereof, may specify the time and place either within or without the State of Washington for holding regular meetings thereof without notice other than such resolution.

3.7 Special Meetings

Special meetings of the Board or any committee designated by the Board may be called by or at the request of the Chairman of the Board, the President, the Secretary or, in the case of special Board meetings, any two Directors and, in the case of any special meeting of any committee designated by the Board, by the Chairman thereof. The person or persons authorized to call special meetings may fix any place either within or without the State of Washington as the place for holding any special Board or committee meeting called by them.

3.8 Meetings by Communication Equipment

Members of the Board or any committee designated by the Board may participate in a meeting of such Board or committee by, or conduct the meeting through the use of, any means of communication by which all Directors participating in the meeting can hear each other during the meeting. Participation by such means shall constitute presence in person at a meeting.

3.9 Notice of Special Meetings

Notice of a special Board or committee meeting stating the place, day and hour of the meeting shall be given to a Director in writing or orally. Neither the business to be transacted at, nor the purpose of, any special meeting need be specified in the notice of such meeting.

3.9.1    Personal Delivery

If notice is given by personal delivery, the notice shall be effective if delivered to a Director at least two days before the meeting.

3.9.2    Delivery by Mail

If notice is delivered by mail, the notice shall be deemed effective if deposited in the official government mail at least five days before the meeting, properly addressed to a Director at his or her address shown on the records of the corporation, with postage thereon prepaid.

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3.9.3    Delivery by Private Carrier

If notice is given by private carrier, the notice shall be deemed effective when dispatched to a Director at his or her address shown on the records of the corporation at least three days before the meeting.

3.9.4    Facsimile Notice

If notice is delivered by wire or wireless equipment which transmits a facsimile of the notice, the notice shall be deemed effective when dispatched at least two days before the meeting to a Director at his or her telephone number or other number appearing on the records of the corporation.

3.9.5    Delivery by Telegraph

If notice is delivered by telegraph, the notice shall be deemed effective if the content thereof is delivered to the telegraph company for delivery to a Director at his or her address shown on the records of the corporation at least three days before the meeting.

3.9.6    Oral Notice

If notice is delivered orally, by telephone or in person, the notice shall be deemed effective if personally given to the Director at least two days before the meeting.

3.10 Waiver of Notice

3.10.1    In Writing

Whenever any notice is required to be given to any Director under the provisions of these Bylaws, the Restated Articles of Incorporation or the Washington Business Corporation Act, a waiver thereof in writing, signed by the person or persons entitled to such notice and delivered to the corporation, whether before or after the date and time of the meeting shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board or any committee designated by the Board need be specified in the waiver of notice of such meeting.

3.10.2    By Attendance

A Director’s attendance at or participation in a Board or committee meeting shall constitute a waiver of notice of such meeting, unless the Director at the beginning of the meeting, or promptly upon his or her arrival, objects to holding the meeting or transacting business thereat and does not thereafter vote for or assent to action taken at the meeting.

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3.11 Quorum

A majority of the number of Directors fixed by or in the manner provided in these Bylaws shall constitute a quorum for the transaction of business at any Board meeting but, if less than a majority are present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice.

3.12 Manner of Acting

If a quorum is present when the vote is taken, the act of the majority of the Directors present at a Board meeting shall be the act of the Board, unless the vote of a greater number is required by these Bylaws, the Restated Articles of Incorporation or the Washington Business Corporation Act.

3.13 Presumption of Assent

A Director of the corporation who is present at a Board or committee meeting at which any action is taken shall be deemed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting, or promptly upon the Director’s arrival, to holding the meeting or transacting any business thereat, (b) the Director’s dissent or abstention from the action taken is entered in the minutes of the meeting, or (c) the Director delivers written notice of the Director’s dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation within a reasonable time after adjournment of the meeting. The right of dissent or abstention is not available to a Director who votes in favor of the action taken.

3.14 Action by Board or Committees Without a Meeting

Any action which could be taken at a meeting of the Board or of any committee created by the Board may be taken without a meeting if one or more written consents setting forth the action so taken are signed by each of the Directors or by each committee member either before or after the action is taken and delivered to the corporation. Action taken by written consent of Directors without a meeting is effective when the last Director signs the consent, unless the consent specifies a later effective date. Any such written consent shall be inserted in the minute book as if it were the minutes of a Board or a committee meeting.

3.15 Resignation

Any Director may resign at any time by delivering written notice to the Chairman of the Board, the President, the Secretary or the Board. Any such resignation is effective upon delivery thereof unless the notice of resignation specifies a later effective date and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

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3.16 Removal

Any Director or the entire Board may be removed only for cause by the holders of not less than two-thirds of the shares entitled to elect the Director or Directors whose removal is sought. Such action may only be taken at a special meeting of the shareholders called expressly for that purpose, provided that notice of the proposed removal, which shall include a statement of the charges alleged against the Director, shall have been duly given to the shareholders together with or as a part of the notice of the meeting.

Where a question of the removal of a Director for cause is to be presented for shareholder consideration, an opportunity must be provided to such Director to present his or her defense to the shareholders by a statement which must accompany or precede the notice of the special meeting of shareholders or, if provided to shareholders prior to the notice of the special meeting, the initial solicitation of proxies seeking authority to vote for the removal of such Director for cause. If not provided, then such proxies may not be voted for removal. The Director involved shall be served with notice of the meeting at which such action is proposed to be taken together with a statement of the specific charges and shall be given an opportunity to be present and to be heard at the meeting at which his or her removal is considered.

The vacancy created by the removal of a Director under this Section 3.16 shall be filled only by a vote of the holders of two-thirds of the shares entitled to elect the Director removed. Such vote may be taken at the same meeting at which the removal of such Director was accomplished, or at such later meeting, annual or special, as the shareholders may decide.

3.17 Vacancies

Subject to the provisions of Section 3.16 hereof and unless the Restated Articles of Incorporation provide otherwise, any vacancy occurring on the Board may be filled by the shareholders, the Board or, if the Directors in office constitute fewer than a quorum, by the affirmative vote of a majority of the remaining Directors. Any vacant office held by a Director elected by the holders of one or more classes or series of shares entitled to vote and be counted collectively thereon shall be filled only by the vote of the holders of such class or series of shares. A Director elected to fill a vacancy shall serve only until the next election of Directors by the shareholders.

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3.18 Executive and Other Committees

3.18.1    Creation of Committees

The Board, by resolution adopted by the greater of (i) a majority of the Directors then in office and (ii) the number of Directors required to take action in accordance with these Bylaws, may create standing or temporary committees, including an Executive Committee, and appoint members thereto from its own number and invest such committees with such powers as it may see fit, subject to such conditions as may be prescribed by the Board, these Bylaws and applicable law. Each committee must have two or more members, who shall serve at the pleasure of the Board.

3.18.2    Authority of Committees

Each committee shall have and may exercise all of the authority of the Board to the extent provided in the resolution of the Board creating the committee and any subsequent resolutions pertaining thereto and adopted in like manner, except that no such committee shall have the authority to: (a) authorize or approve a distribution except according to a general formula or method prescribed by the Board, (b) approve or propose to shareholders actions or proposals required by the Washington Business Corporation Act to be approved by shareholders, (c) fill vacancies on the Board or any committee thereof, (d) adopt, amend or repeal Bylaws, (e) amend the Restated Articles of Incorporation pursuant to RCW 23B.10.020, (f) approve a plan of merger not requiring shareholder approval, or (g) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board may authorize a committee or a senior executive officer of the corporation to do so within limits specifically prescribed by the Board.

3.18.3    Audit Committee

In addition to any committees appointed pursuant to this Section 3.18, there shall be an Audit Committee consisting of at least three Directors, each of whom shall meet the independence requirements established by the Board, the Nasdaq Stock Market and any other regulations applicable to the corporation from time to time. The duties and responsibilities of the Audit Committee, in addition to such responsibilities as may from time to time be assigned to it by the Board, shall be set forth in a written charter of the Audit Committee approved by the Board. The Audit Committee shall meet at such times and places as the members deem advisable, and shall make such recommendations to the Board as they consider appropriate.

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3.18.4    Compensation Committee

The Board may, in its discretion, designate a Compensation Committee consisting of not less than two (2) Directors as it may from time to time determine. The duties and responsibilities of the Compensation Committee, in addition to such responsibilities as may from time to time be assigned to it by the Board, shall be set forth in a written charter of the Compensation Committee approved by the Board.

3.18.5    Nominating and/or Governance Committee

The Board may, in its discretion, designate a Nominating and/or Governance Committee (a “Governance Committee”) consisting of not less than two (2) Directors as it may from time to time determine. The duties and responsibilities of the Governance Committee, in addition to such responsibilities as may from time to time be assigned to it by the Board, shall be set forth in a written charter of the Governance Committee approved by the Board.

3.18.6    Quorum and Manner of Acting

A majority of the number of Directors comprising any committee of the Board, as established and fixed by resolution of the Board, shall constitute a quorum for the transaction of business at any meeting of such committee but, if less than a majority are present at a meeting, a majority of such Directors present may adjourn the meeting from time to time without further notice. Except as may be otherwise provided in the Washington Business Corporation Act, if a quorum is present when the vote is taken the act of a majority of the members present shall be the act of the committee.

3.18.7    Minutes of Meetings

All committees shall keep regular minutes of their meetings and shall cause them to be recorded in books kept for that purpose.

3.18.8    Resignation

Any member of any committee may resign at any time by delivering written notice thereto the Chairman of the Board, the President, the Secretary or the Board. Any such resignation is effective upon delivery thereof, unless the notice of resignation specifies a later effective date, and the acceptance of such resignation shall not be necessary to make it effective.

3.18.9    Removal

The Board may remove any member of any committee elected or appointed by it but only by the affirmative vote of the greater of a majority of the Directors then in office and the number of Directors required to take action in accordance with these Bylaws.

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3.19    Compensation

By Board resolution, Directors and committee members may be paid their expenses, if any, of attendance at each Board or committee meeting, or a fixed sum for attendance at each Board or committee meeting, or a stated salary as Director or a committee member, or a combination of the foregoing. No such payment shall preclude any Director or committee member from serving the corporation in any other capacity and receiving compensation therefor.

SECTION 4. OFFICERS

4.1 Appointment and Terms

The officers of the corporation shall be those officers appointed from time to time by the Board or by any other officer empowered to do so. The Board shall have sole power and authority to appoint executive officers. As used herein, the term “executive officer” shall mean the President, any Vice President in charge of a principal business unit, division or function or any other officer who performs a policy-making function. The Board or the President may appoint such other officers and assistant officers to hold office for such period, have such authority and perform such duties as may be prescribed. The Board may delegate to any other officer the power to appoint any subordinate officers and to prescribe their respective terms of office, authority and duties. Any two or more offices may be held by the same person. Unless an officer dies, resigns or is removed from office, he or she shall hold office until his or her successor is appointed.

4.2 Resignation

Any officer may resign at any time by delivering written notice thereof to the corporation. Any such resignation is effective upon delivery thereof, unless the notice of resignation specifies a later effective date, and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Notwithstanding any other provision of these Bylaws, each officer at any time serving as a Director agrees as a matter of contract with the corporation that if at any time he or she resigns as an officer of the corporation, such resignation as an officer shall also constitute his or her resignation from the Board and that such resignation from the Board shall be effective concurrent with his or her resignation as an officer.

4.3 Removal

Any officer may be removed by the Board at any time, with or without cause. An officer or assistant officer, if appointed by another officer, may be removed by any officer authorized to appoint officers or assistant officers.

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4.4 Contract Rights of Officers

The appointment of an officer does not itself create contract rights.

4.5 President

If appointed, the President shall be the chief executive officer of the corporation unless some other officer is so designated by the Board, shall preside over meetings of the Board and shareholders in the absence of a Chairman of the Board, and, subject to the Board’s control, shall supervise and control all of the assets, business and affairs of the corporation. In general, the President shall perform all duties incident to the office of President and such other duties as are prescribed by the Board from time to time. If no Secretary has been appointed, the President shall have responsibility for the preparation of minutes of meetings of the Board and shareholders and for authentication of the records of the corporation.

4.6 Vice President

In the event of the death of the President or his or her inability to act, the Vice President (or if there is more than one Vice President, the Vice President who was designated by the Board as the successor to the President, or if no Vice President is so designated, the Vice President first elected to such office) shall perform the duties of the President, except as may be limited by resolution of the Board, with all the powers of and subject to all the restrictions upon the President. Vice Presidents shall perform such other duties as from time to time may be assigned to them by the President or by or at the direction of the Board.

4.7 Secretary

If appointed, the Secretary shall be responsible for preparation of minutes of the meetings of the Board and shareholders, maintenance of the corporation records and stock registers, and authentication of the corporation’s records and shall in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the President or by or at the direction of the Board. In the absence of the Secretary, an Assistant Secretary may perform the duties of the Secretary.

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4.8 Treasurer

If appointed, the Treasurer shall have charge and custody of and be responsible for all funds and securities of the corporation, receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in banks, trust companies or other depositories selected in accordance with the provisions of these Bylaws, and in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the President or by or at the direction of the Board. In the absence of the Treasurer, an Assistant Treasurer may perform the duties of the Treasurer. If required by the Board, the Treasurer or any Assistant Treasurer shall give a bond for the faithful discharge of his or her duties in such amount and with such surety or sureties as the Board shall determine.

4.9 Salaries

The salaries of the officers shall be fixed from time to time by the Board or by any person or persons to whom the Board has delegated such authority. No officer shall be prevented from receiving such salary by reason of the fact that he or she is also a Director of the corporation.

SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS

5.1 Contracts

The Board may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances.

5.2 Loans to the Corporation

No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board. Such authority may be general or confined to specific instances.

5.3 Checks, Drafts, Etc.

All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, or agent or agents, of the corporation and in such manner as is from time to time determined by resolution of the Board.

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5.4 Deposits

All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board may select.

SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER

6.1 Issuance of Shares

No shares of the corporation shall be issued unless authorized by the Board or by a committee designated by the Board to the extent such committee is empowered to do so.

6.2 Certificates for Shares

Certificates representing shares of the corporation shall be signed, either manually or in facsimile, by the Chairman of the Board, the President or any Vice President and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary and shall include on their face written notice of any restrictions which may be imposed on the transferability of such shares. All certificates shall be consecutively numbered or otherwise identified.

6.3 Stock Records

The stock transfer books shall be kept at the principal office of the corporation or at the offices of the corporation’s transfer agent or registrar. The name and address of each person to whom certificates for shares are issued, together with the class and number of shares represented by each such certificate and the date of issue thereof, shall be entered on the stock transfer books of the corporation. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.

6.4 Restriction on Transfer

Except to the extent that the corporation has obtained an opinion of counsel acceptable to the corporation that transfer restrictions are not required under applicable securities laws, or has otherwise satisfied itself that such transfer restrictions are not required, all certificates representing shares of the corporation shall bear a legend on the face of the certificate, or on the reverse of the certificate if a reference to the legend is contained on the face, which reads substantially as follows:

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE 17

“The securities evidenced by this certificate have not been registered under the Securities Act of 1933, as amended, or any applicable state law, and no interest therein may be sold, distributed, assigned, offered, pledged or otherwise transferred unless (a) there is an effective registration statement under such Act and applicable state securities laws covering any such transaction involving said securities or (b) this corporation receives an opinion of legal counsel for the holder of these securities (concurred in by legal counsel for this corporation) stating that such transaction is exempt from registration or this corporation otherwise satisfies itself that such transaction is exempt from registration. Neither the offering of the securities nor any offering materials have been reviewed by any administrator under the Securities Act of 1933, as amended, or any applicable state law.”

6.5 Transfer of Shares

The transfer of shares of the corporation shall be made only on the stock transfer books of the corporation pursuant to authorization or document of transfer made by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney-in-fact authorized by power of attorney duly executed and filed with the Secretary of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificates for a like number of shares shall have been surrendered and canceled.

6.6 Lost or Destroyed Certificates

In the case of a lost, destroyed or mutilated certificate, a new certificate may be issued therefor upon such terms and indemnity to the corporation as the Board may prescribe.

SECTION 7. BOOKS AND RECORDS

The corporation shall:

(a) Keep as permanent records minutes of all meetings of its shareholders and the Board, a record of all actions taken by the shareholders or the Board without a meeting, and a record of all actions taken by a committee of the Board exercising the authority of the Board on behalf of the corporation;

(b) Maintain appropriate accounting records;

(c) Maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each; provided, however, such record may be maintained by an agent of the corporation;

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE 18

(d) Maintain its records in written form or in another form capable of conversion into written form within a reasonable time; and

(e) Keep a copy of the following records at its principal office:

(i) the Restated Articles of Incorporation and all amendments thereto as currently in effect;

(ii) the Bylaws and all amendments thereto as currently in effect;

(iii) the minutes of all meetings of shareholders and records of all action taken by shareholders without a meeting, for the past three years;

(iv) the financial statements described in Section 23B.16.200(1) of the Washington Business Corporation Act, for the past three years;

(v) all written communications to shareholders generally within the past three years;

(vi) a list of the names and business addresses of the current Directors and officers; and

(vii) the most recent annual report delivered to the Washington Secretary of State.

SECTION 8. ACCOUNTING YEAR

The accounting year of the corporation shall be the twelve months ending December 31 each year, provided that if a different accounting year is at any time selected by the Board for purposes of federal income taxes, or any other purpose, the accounting year shall be the year so selected.

SECTION 9. SEAL

The Board may provide for a corporate seal which shall consist of the name of the corporation, the state of its incorporation and the year of its incorporation.

SECTION 10. INDEMNIFICATION

10.1 Right to Indemnification

Each person who was, is or is threatened to be made a named party to or is otherwise involved (including, without limitation, as a witness) in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (hereinafter a “proceeding”), by reason of the fact that he or she is or was a Director or officer of the corporation or, that being or having been such a Director or

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officer or an employee of the corporation, he or she is or was serving at the request of the corporation as a Director, officer, partner, trustee, employee or agent of another corporation or of a partnership, joint venture, trust, employee benefit plan or other enterprise (hereinafter an “indemnitee”), whether the basis of a proceeding is alleged action in an official capacity as such a Director, officer, partner, trustee, employee or agent or in any other capacity while serving as such a Director, officer, partner, trustee, employee or agent, shall be indemnified and held harmless by the corporation against all expenses; liability and loss (including counsel fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) actually and reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be a Director, officer, partner, trustee, employee or agent and shall inure to the benefit of the indemnitee’s heirs, executors and administrators. Except as provided in Section 10.2 hereof with respect to proceedings seeking to enforce rights to indemnification, the corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if a proceeding (or part thereof) was authorized or ratified by the Board. The right to indemnification conferred in this Section 10 shall be a contract right.

10.2 Restrictions on Indemnification

No indemnification shall be provided to any such indemnitee for acts or omissions of the indemnitee finally adjudged to be intentional misconduct or a knowing violation of law, for conduct of the indemnitee finally adjudged to be in violation of Section 23B.08.310 of the Washington Business Corporation Act, for any transaction with respect to which it was finally adjudged that such indemnitee personally received a benefit in money, property or services to which the indemnitee was not legally entitled or if the corporation is otherwise prohibited by applicable law from paying such indemnification, except that if Section 23B.08.560 or any successor provision of the Washington Business Corporation Act is hereafter amended, the restrictions on indemnification set forth in this Section 10.2 shall be as set forth in such amended statutory provision.

10.3 Advancement of Expenses

The right to indemnification conferred in this Section 10 shall include the right to be paid by the corporation the expenses incurred in defending any proceeding in advance of its final disposition (hereinafter an “advancement of expenses”). An advancement of expenses shall be made upon delivery to the corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Section 10.3.

10.4 Right of Indemnitee to Bring Suit

If a claim under Section 10.1 or 10.3 hereof this Section is not paid in full by the corporation within 60 days after a written claim has been received by the corporation, except

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in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim. If successful in whole or in part, in any such suit or in a suit brought by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. The indemnitee shall be presumed to be entitled to indemnification under this Section upon submission of a written claim (and, in an action brought to enforce a claim for an advancement of expenses, where the required undertaking has been tendered to the corporation) and thereafter the corporation shall have the burden of proof to overcome the presumption that the indemnitee is so entitled.

10.5 Procedures Exclusive

Pursuant to Section 23B.08.560(2) or any successor provision of the Washington Business Corporation Act, the procedures for indemnification and advancement of expenses set forth in this Section 10 are in lieu of the procedures required by Section 23B.08.550 or any successor provision of the Washington Business Corporation Act.

10.6 Nonexclusivity of Rights

The right to indemnification and the advancement of expenses conferred in this Section 10 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Restated Articles of Incorporation or Bylaws of the corporation, general or specific action of the Board, contract or otherwise.

10.7 Insurance, Contracts and Funding

The corporation may maintain insurance, at its expense, to protect itself and any Director, officer, partner, trustee, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Washington Business Corporation Act. The corporation may enter into contracts with any Director, officer, partner, trustee, employee or agent of the corporation in furtherance of the provisions of this Section 10 and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Section 10.

10.8 Indemnification of Employees and Agents of the Corporation

The corporation may, by action of the Board, grant rights to indemnification and advancement of expenses to employees and agents or any class or group of employees and agents of the corporation (i) with the same scope and effect as the provisions of this Section 10 with respect to the indemnification and advancement of expenses of Directors and officers of the corporation; (ii) pursuant to rights granted pursuant to, or provided by, the Washington Business Corporation Act; or (iii) as are otherwise consistent with law.

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE 21

10.9 Persons Serving Other Entities

Any person who, while a Director, officer or employee of the corporation, is or was serving as a Director or officer of another foreign or domestic corporation of which a majority of the shares entitled to vote in the election of its Directors is held by the corporation shall be deemed to be so serving at the request of the corporation and entitled to indemnification and advancement of expenses under Sections 10.1 and 10.3 hereof.

SECTION 11. AMENDMENTS

The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of this corporation subject to approval by a majority of the Continuing Directors as defined in the Restated Articles of Incorporation; provided, however, the Board of Directors may not repeal or amend any bylaw that the shareholders have expressly provided may not be amended or repealed by the Board of Directors. The shareholders shall also have the power to adopt, amend or repeal the Bylaws of this corporation by the affirmative vote of the holders of not less than two-thirds of the outstanding shares and, to the extent, if any, provided by resolution adopted by the Board of Directors authorizing the issuance of a class or series of Common Stock or Preferred Stock, by the affirmative vote of the holders of not less than two-thirds of the outstanding shares of such class or series, voting as a separate voting group.

CAPTARIS AMENDED AND RESTATED BYLAWS PAGE 22

EX-10.1

Exhibit 10.1

CAPTARIS, INC.

2008 MANAGEMENT INCENTIVE PLAN

The 2008 Incentive Plan (the “Plan”) is an annual cash bonus plan in which the executive officers and certain other employees of Captaris, Inc. (the “Company”) are eligible to participate. The Plan provides cash bonuses based on the achievement of annual goals related to the Company’s performance during fiscal year 2008.

The Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) administers the Plan. The Compensation Committee, in its sole discretion, establishes the performance goal or goals for each participant and the formulae used to determine the actual bonus (if any) payable to each participant under the Plan. The total amount of funds available under the Plan and the cash target awards for the Company’s executive officers are established by the Compensation Committee. The other employees who participate in the Plan and the cash target awards for other participants are established by the Company’s management.

The 2008 Incentive Plan has two components:

• An objective component based on company financial performance, which accounts for 70% of the possible cash bonus payout at target, and

• A subjective component based on performance against several agreed upon strategic initiatives, which accounts for 30% of the possible cash bonus payout at target.

First Component

The first component of the Plan links payout to achievement of performance goals related to revenue (50%) and earnings before interest, taxes, depreciation and amortization (EBITDA) (50%). EBITDA is operating income plus depreciation and amortization. Depending on the level of achievement for each goal, participants in the aggregate may receive between 0% and 200% of the target amount for revenue and 0% and 250% of target amount for EBITDA.

The revenue and EBITDA components have minimum threshold amounts and both minimum cumulative threshold targets must be met for the participants to qualify to earn a payment.

Second Component

The second component of the Plan links payout to achievement of performance goals related to strategic initiatives. Depending on the level of achievement for these goals, the participants in the aggregate may receive between 0% and 200% of the target amount for this component of the Plan. All funds available under the Plan for the second component will be awarded based on a year end assessment of the achievement of the goals.

Administration

In all cases, payout will be made only if the participant is continuously employed through December 31, 2008, subject to the Compensation Committee’s sole discretion to determine whether any portion of the bonus will be paid in the event of a participant’s termination of service prior to that date.

The Compensation Committee, in its sole discretion, may (a) eliminate, increase or reduce the bonus payable to any participant above or below that which otherwise would be payable under the payout formula, including the reduction or elimination of payouts based on the achievement of quarterly performance goals if the annual performance goals are not met, and (b) modify or terminate the Plan at any time.

Payment of bonuses, if any, under the Plan shall be made as soon as practicable after December 31, 2008, but shall be paid no later than March 15, 2009. Each bonus shall be paid in cash in a single lump sum, subject to payroll taxes and tax withholding.

Each bonus that may become payable under the Plan shall be paid solely from the general assets of the Company. Nothing in the Plan should be construed to create a trust or to establish or evidence any participant’s claim of any right to payment of a bonus other than as an unsecured general creditor with respect to any payment to which a participant may be entitled.

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EX-10.2

Exhibit 10.2

CAPTARIS, INC.

SECOND AMENDMENT TO CHANGE OF CONTROL AGREEMENT

This Second Amendment to Change of Control Agreement (this “Amendment”) is entered into as of March 25, 2008 by and between Captaris, Inc., a Washington corporation (“Captaris”), and David P. Anastasi (“Executive”).

RECITALS

A. Captaris and Executive entered into a Change in Control Agreement, dated as of March 15, 2005, which was subsequently amended by an Amendment to Change of Control Agreement, dated as of March 23, 2007 (as amended, the “CIC Agreement”).

B. Captaris and Executive desire to further amend the terms of the CIC Agreement to clarify the manner in which Section 3.2 (Bonus) of the CIC Agreement was intended by the Compensation Committee and Board of Directors of Captaris to operate.

AGREEMENT

NOW, THEREFORE, the parties hereby agree as follows:

1. Amendment.

Section 3.2 of the CIC Agreement is hereby amended in its entirety to read as follows:

“3.2 Bonus

In addition to Annual Base Salary, the Executive shall receive, for each fiscal year beginning or ending during the Post-Change in Control Period, an annual bonus in cash at least equal to the Executive’s target bonus amount for the fiscal year in which the Change in Control Date occurs; provided, however, that for the fiscal year in which the Change in Control Date occurs, the Executive shall receive a bonus in cash at least equal to the annualized bonus amount that Executive is on pace for as of the Change in Control Date (the “Annual Bonus”). Each such Annual Bonus shall be paid no later than 90 days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. Notwithstanding the foregoing, in the event the fiscal year end is different prior to the Post-Change in Control Period than it is after the Post-Change in Control Period, then the Annual Bonus paid to the Executive for the fiscal year in which the Change in Control Date occurs shall be paid no later than 90 days after the new fiscal year end and shall be proportionately adjusted to reflect additional days or less days in the new fiscal year as a result of the difference in fiscal years.”

2. Full Force and Effect.

Except as otherwise amended hereby, the terms and provisions of the CIC Agreement remain unchanged.

3. Counterparts.

This Amendment may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the date first set forth above.

EXECUTIVE
/s/ David P. Anastasi
David P. Anastasi
CAPTARIS, INC.
By:	/s/ Pat Swanick
Name:	Pat Swanick
Title:	Chairman, Compensation Committee

EX-10.3

Exhibit 10.3

CAPTARIS, INC.

SECOND AMENDMENT TO CHANGE OF CONTROL AGREEMENT

This Second Amendment to Change of Control Agreement (this “Amendment”) is entered into as of March 25, 2008 by and between Captaris, Inc., a Washington corporation (“Captaris”), and Peter Papano (“Executive”).

RECITALS

A. Captaris and Executive entered into a Change in Control Agreement, dated as of March 15, 2005, which was subsequently amended by an Amendment to Change of Control Agreement, dated as of March 23, 2007 (as amended, the “CIC Agreement”).

B. Captaris and Executive desire to further amend the terms of the CIC Agreement to clarify the manner in which Section 3.2 (Bonus) of the CIC Agreement was intended by the Compensation Committee and Board of Directors of Captaris to operate.

AGREEMENT

NOW, THEREFORE, the parties hereby agree as follows:

1. Amendment.

Section 3.2 of the CIC Agreement is hereby amended in its entirety to read as follows:

“3.2 Bonus

In addition to Annual Base Salary, the Executive shall receive, for each fiscal year beginning or ending during the Post-Change in Control Period, an annual bonus in cash at least equal to the greater of (a) Executive’s target bonus amount for the fiscal year in which the Change in Control Date occurs, or (b) the annualized bonus amount that Executive is on pace for as of the Change in Control Date (the “Annual Bonus”). Each such Annual Bonus shall be paid no later than 90 days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. Notwithstanding the foregoing, in the event the fiscal year end is different prior to the Post-Change in Control Period than it is after the Post-Change in Control Period, then the Annual Bonus paid to the Executive for the fiscal year in which the Change in Control Date occurs shall be paid no later than 90 days after the new fiscal year end and shall be proportionately adjusted to reflect additional days or less days in the new fiscal year as a result of the difference in fiscal years.”

2. Full Force and Effect.

Except as otherwise amended hereby, the terms and provisions of the CIC Agreement remain unchanged.

3. Counterparts.

This Amendment may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the date first set forth above.

EXECUTIVE
/s/ Peter Papano
Peter Papano
CAPTARIS, INC.
By:	/s/ David P. Anastasi
Name:	David P. Anastasi
Title:	President & CEO

EX-10.4

Exhibit 10.4

CHANGE IN CONTROL AGREEMENT

This Change in Control Agreement (this “Agreement”), dated as of March 17, 2008, is between Captaris, Inc., a Washington corporation (the “Company”), and Paul Yantus (the “Executive”).

The Compensation Committee of the Board of Directors of the Company (the “Committee”) has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined in Appendix A to this Agreement, which is incorporated herein by this reference) of the Company. The Committee believes it is imperative to diminish the inevitable distraction of the Executive arising from the personal uncertainties and risks created by a pending or threatened Change in Control, to encourage the Executive’s full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control, and to provide the Executive with reasonable compensation and benefits arrangements upon a Change in Control.

In order to accomplish these objectives, the Committee has caused the Company to enter into this Agreement.

1.    EMPLOYMENT

1.1 Certain Definitions

(a) “Change in Control Date” shall mean the first date during the Term of Agreement (as defined in Section 1.1(b)) on which a Change in Control occurs.

(b) “Term of Agreement” shall mean an initial period commencing on the date hereof and ending 18 months after the date hereof; provided, however, that commencing on the date that is 12 months after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), the Term of Agreement shall be automatically extended so as to terminate 18 months from such Renewal Date, unless prior to the Renewal Date the Company shall give notice to the Executive that the Term of Agreement shall not be so extended.

1.2 Post-Change in Control Period

The Company hereby agrees to continue the Executive in its employ or in the employ of its affiliated companies, and the Executive hereby agrees to remain in the employ of the Company or its affiliated companies, in accordance with the terms and provisions of this Agreement, for the period commencing on the Change in Control Date and ending 12 months after such date (the “Post-Change in Control Period”).

1.3 Position and Duties

During the Post-Change in Control Period, the Executive’s position, authority, duties and responsibilities shall be reasonably commensurate with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Change in Control Date.

1.4 Location

During the Post-Change in Control Period, the Executive’s services shall be performed at any office located no more than 50 miles from the office where Executive was performing services as of the Change in Control Date.

1.5 Employment at Will

The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company or its affiliated companies is “at will” and, prior to the Change in Control Date, may be terminated by either the Executive or the Company or its affiliated companies for any reason and at any time. Moreover, if prior to the Change in Control Date, the Executive’s employment with the Company or its affiliated companies terminates for any reason, then the Executive shall have no further rights under this Agreement.

1.6 Board of Directors

If the Executive is or becomes a member of the Board of Directors of the Company (the “Board”), his or her continuation as such shall be subject to the will of the Company’s shareholders and the Board, as provided in the Company’s bylaws and articles of incorporation. Therefore, removal of the Executive from, or nonelection of the Executive to, the Board by the Company’s shareholders or the Board, as provided in the Company’s bylaws and articles of incorporation, shall in no event be deemed a breach of this Agreement by the Company.

2.    ATTENTION AND EFFORT

During the Post-Change in Control Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive will devote all of his or her productive time, ability, attention and effort to the business and affairs of the Company and the discharge of the responsibilities assigned to him/her hereunder, and will use his or her best efforts to perform such responsibilities faithfully and efficiently. It shall not be a violation of this Agreement for the

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Executive to (a) serve on corporate, civic or charitable boards or committees, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (c) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities in accordance with this Agreement. It is expressly understood and agreed that to the extent any such activities have been conducted by the Executive prior to the Post-Change in Control Period, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) during the Post-Change in Control Period shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

3.    COMPENSATION

During the Post-Change in Control Period, the Company agrees to pay or cause to be paid to the Executive, and the Executive agrees to accept in exchange for the services rendered hereunder by him/her, the following compensation:

3.1 Salary

The Executive shall receive an annual base salary (the “Annual Base Salary”), at least equal to the annual salary established by the Board or the Committee for the fiscal year in which the Change in Control Date occurs. The Annual Base Salary shall be paid in substantially equal installments and at the same intervals as the salaries of other officers of the Company are paid. During the Post-Change in Control Period, the Board or the Committee shall review the Annual Base Salary at least annually and shall determine any increases in future years.

3.2 Bonus

In addition to Annual Base Salary, the Executive shall receive, for each fiscal year beginning or ending during the Post-Change in Control Period, an annual bonus in cash at least equal to the Executive’s target bonus amount for the fiscal year in which the Change in Control Date occurs; provided, however, that for the fiscal year in which the Change in Control Date occurs, the amount received by the Executive shall be at least equal to the annualized bonus amount that Executive is on pace for as of the Change in Control Date, if such amount is higher than the target bonus amount for such year (the “Annual Bonus”). Each such Annual Bonus shall be paid no later than 90 days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. Notwithstanding the foregoing, in the event the fiscal year end is different prior to the Post-Change in Control Period than it is after the Post-Change in Control Period, then the Annual Bonus paid to the Executive for the fiscal year in which the Change in Control Date occurs shall be paid no later than 90 days after the new fiscal year end and shall be proportionately adjusted to reflect additional days or less days in the new fiscal year as a result of the difference in fiscal years.

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4.    BENEFITS

4.1 Incentive, Retirement and Welfare Benefit Plans; Vacation

During the Post-Change in Control Period, the Executive shall be entitled to participate, subject to and in accordance with applicable eligibility requirements, in such fringe benefit programs as shall be provided to other executives of the Company and its affiliated companies from time to time during the Post-Change in Control Period by action of the Board (or any person or committee appointed by the Board to determine fringe benefit programs and other emoluments), including, without limitation, paid vacations; any incentive, savings and retirement plan, practice, policy or program; and all welfare benefit plans, practices, policies and programs (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs).

4.2 Expenses

During the Post-Change in Control Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by him/her in accordance with the policies, practices and procedures of the Company and its affiliated companies in effect for the executives of the Company and its affiliated companies during the Post-Change in Control Period.

5.    TERMINATION

Employment of the Executive during the Post-Change in Control Period may be terminated as follows:

5.1 By the Company or the Executive

Upon giving Notice of Termination (as defined below), the Company may terminate the employment of the Executive with or without Cause, and the Executive may terminate his or her employment for Good Reason or for any reason, at any time during the Post-Change in Control Period. “Cause” and “Good Reason” are as defined in Appendix A to this Agreement.

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5.2 Automatic Termination

This Agreement and the Executive’s employment during the Post-Change in Control Period shall terminate automatically upon the death or Total Disability of the Executive. The term “Total Disability” as used herein shall mean the Executive’s inability (with or without such accommodation as may be required by law and which places no undue burden on the Company), as determined by a physician selected by the Company and acceptable to the Executive, to perform the duties set forth hereunder for a period or periods aggregating 120 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond the Executive’s control, unless the Executive is granted a leave of absence by the Board.

5.3 Notice of Termination

Any termination by the Company or by the Executive during the Post-Change in Control Period shall be communicated by Notice of Termination to the other party given in accordance with Section 10 hereof. The term “Notice of Termination” shall mean a written notice which (a) indicates the specific termination provision in this Agreement relied upon and (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

5.4 Date of Termination

During the Post-Change in Control Period, the term “Date of Termination” shall mean (a) if the Executive’s employment is terminated by reason of death, at the end of the calendar month in which the Executive’s death occurs, (b) if the Executive’s employment is terminated by reason of Total Disability, immediately upon a determination by the Company of the Executive’s Total Disability, and (c) in all other cases, ten days after the date of mailing or personal delivery of the Notice of Termination. The Executive’s employment and performance of services will continue during such ten-day period; provided, however, that the Company may, upon notice to the Executive and without reducing the Executive’s compensation during such period, excuse the Executive from any or all of his or her duties during such period.

6.    TERMINATION PAYMENTS

In the event of termination of the Executive’s employment during the Post-Change in Control Period, all compensation and benefits set forth in this Agreement shall terminate except as specifically provided in this Section 6.

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6.1 Termination by the Company for Other Than Cause or by the Executive for Good Reason

If the Company terminates the Executive’s employment other than for Cause or the Executive terminates his or her employment for Good Reason prior to the end of the Post-Change in Control Period, the Executive shall be entitled to:

(a) receive payment of the following accrued obligations (the “Accrued Obligations”):

(i) the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid;

(ii) the product of (x) the Annual Bonus payable with respect to the fiscal year in which the Date of Termination occurs and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365; and

(iii) any compensation previously deferred by the Executive (together with accrued interest or earnings thereon, if any) and any accrued vacation pay, in each case to the extent not theretofore paid;

(b) reimbursement of Executive’s COBRA expenses for Executive and his family for a period of 12 months, or until such time as Executive obtains new health insurance coverage, whichever occurs first.;

(c)(i) base salary continuation, payable in the course of the Company’s regularly scheduled payroll and subject to normal withholdings, for a period of time equal to 12 months and (ii) an amount, paid as a lump sum, equal to one times the target Annual Bonus payable for the fiscal year in which the Date of Termination occurs;

(d) immediate vesting of all equity awards granted by the Company to the Executive outstanding as of the Change in Control Date; and

(e) an extension of the post-termination exercise period of all stock options granted by the Company to the Executive outstanding as of the Change in Control Date, so that such options shall be exercisable for a period of one year from the Date of Termination.

6.2 Termination for Cause or Other Than for Good Reason

If the Executive’s employment shall be terminated by the Company for Cause or by the Executive for other than Good Reason during the Post-Change in Control Period, this Agreement shall terminate without further obligation to the Executive other than the obligation to pay to the Executive his or her Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid.

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6.3 Expiration of Term

In the case of a termination of the Executive’s employment as a result of the expiration of the term of this Agreement, the Executive shall not be entitled to receive any payments hereunder, other than the Accrued Obligations.

6.4 Termination Because of Death or Total Disability

If the Executive’s employment is terminated by reason of the Executive’s death or Total Disability during the Post-Change in Control Period, this Agreement shall terminate automatically without further obligations to the Executive or his or her legal representatives under this Agreement, other than for payment of Accrued Obligations (which shall be paid to the Executive’s estate or beneficiary, as applicable in the case of the Executive’s death).

6.5 Excess Parachute Payments

Notwithstanding any other provision of this Agreement, if either the Company or the Executive receives confirmation from the Company’s independent tax counsel or its certified public accounting firm (the “Tax Advisor”) that any portion of any payment by the Company or a related entity to the Executive, or any benefit received by the Executive, under this Agreement or otherwise (each a “Payment”) would be considered to be an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, (the “Code”) or any successor statute then in effect, then the Payments (under this Agreement or otherwise) shall be reduced (the “Reduction”) to the highest amount that, in the opinion of the Tax Advisor, may be paid to the Executive by the Company without having any portion of any Payment treated as an “excess parachute payment;” provided that the Company may elect, in its sole and absolute discretion, not to apply the Reduction if, in the opinion of the Tax Advisor, the after-tax value to the Executive of the total Payments prior to the Reduction is greater than the after-tax value to the Executive if the total Payments are determined taking into account the Reduction. For purposes of determining the after-tax value of the Payments, (i) the Executive shall be deemed to pay income taxes at the highest rate of federal income tax and the highest rate or rates of state and local income taxes in the state and locality of the Executive’s domicile for income tax purposes for the taxable year in which the total Payments will be made, provided that the state and local income tax rate shall be determined assuming that such taxes are fully deductible for federal income tax purposes, and (ii) the Executive shall be deemed to pay employment taxes at the applicable rate under Section 3101(b) of the Code. The Reduction shall be applied to the Payments in any manner determined by the Company in its reasonable discretion.

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6.6 Payment Schedule

Unless otherwise provided herein, all payments under this Section 6 shall be made to the Executive at the same intervals as such payments were made to him/her immediately prior to termination.

6.7 Application of Other Payments

In the event the Executive has received any payments under any other agreement or any Company plan, policy or program where the payment is made as a result of or in connection with the termination or severance of the Executive, then any amounts to which the Executive is entitled hereunder will be reduced by the amount of any such payments.

7.    REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS

In order to induce the Company to enter into this Agreement, the Executive represents and warrants to the Company as follows:

7.1 Health

The Executive is in good health and knows of no physical or mental disability which, with or without any accommodation which may be required by law and which places no undue burden on the Company, would prevent him/her from fulfilling his or her obligations hereunder. The Executive agrees, if the Company requests, to submit to periodic medical examinations by a physician or physicians designated by, paid for and arranged by the Company. The Executive agrees that the examination’s medical report shall be provided to the Company.

7.2 No Violation of Other Agreements

The Executive represents that neither the execution nor the performance of this Agreement by the Executive will violate or conflict in any way with any other agreement by which the Executive may be bound.

8.    CIIN AGREEMENT

The Executive will not, at any time during the term of employment by the Company, or at any time thereafter, directly, indirectly or otherwise, be in breach of the Confidential Information, Inventions and Non-Competition Agreement (the “CIIN Agreement”) between the Executive and the Company. Any breach of the CIIN Agreement by the Executive shall constitute a breach of this Agreement.

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The Executive understands that the Company will be relying on this Agreement and the CIIN Agreement in continuing the Executive’s employment, paying him/her compensation, granting him/her any promotions or raises, or entrusting him/her with any information which helps the Company compete with others.

The terms and provisions of the CIIN Agreement that are intended to survive termination of the CIIN Agreement shall be unaffected by and shall survive the termination of this Agreement and the termination of the Executive’s employment with the Company

9.    NOTICE AND CURE OF BREACH

Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than any action that constitutes “Cause” under this Agreement, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least ten days’ prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the ten-day period.

10.    FORM OF NOTICE

Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof:

If to the Executive:	Mr. Paul Yantus
	________________________
	________________________
If to the Company:	Captaris, Inc.
	301 – 116th Avenue SE
	Bellevue, Washington 98004
	Attn: Chief Financial Officer

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or such other address as shall be provided in accordance with the terms hereof. Except as set forth in Section 5.4 hereof, if notice is mailed, such notice shall be effective upon mailing.

11.    ASSIGNMENT

This Agreement is personal to the Executive and shall not be assignable by the Executive. The Company may assign its rights hereunder to (a) any corporation resulting from any merger, consolidation or other reorganization to which the Company is a party or (b) any corporation, partnership, association or other person to which the Company may transfer all or substantially all of the assets and business of the Company existing at such time. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns.

The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean Captaris, Inc. and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

12.    WAIVERS

No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, tides, interests or remedies hereunder, and no course of dealing or performance with respect hereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies.

13.    AMENDMENTS IN WRITING

No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive.

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14.    SECTION 409A OF THE CODE

Notwithstanding any other provision of this Agreement, the Company and the Executive intend that any payments, benefits or other provisions applicable to this Agreement comply with the payout and other limitations and restrictions imposed under Section 409A of the Code (“Section 409A”), as clarified or modified by guidance from the U.S Department of Treasury or the Internal Revenue Service – in each case if and to the extent Section 409A is otherwise applicable to this Agreement and such compliance is necessary to avoid the penalties otherwise imposed under Section 409A. In this connection, the Company and the Executive agree that the payments, benefits and other provisions applicable to this Agreement, and the terms of any deferral and other rights regarding this Agreement, shall be deemed modified if and to the extent necessary to comply with the payout and other limitations and restrictions imposed under Section 409A, as clarified or supplemented by guidance from the U.S. Department of Treasury or the Internal Revenue Service – in each case if and to the extent Section 409A is otherwise applicable to this Agreement and such compliance is necessary to avoid the penalties otherwise imposed under Section 409A.

15.    APPLICABLE LAW AND VENUE

This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the State of Washington, without regard to any rules governing conflicts of laws. Executive irrevocably consents to the jurisdiction and venue of the state and federal courts located in King County, Washington, and agrees not to bring any action, or seek to remove or transfer any action, relating to this Agreement in or to any other court, other than a state or federal court located in King County, Washington.

16.    ARBITRATION

Except in connection with enforcing Section 8 hereof, for which legal and equitable remedies may be sought in a court of law, any dispute arising under this Agreement shall be subject to arbitration. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “AAA Rules”) then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules. The arbitration shall be conducted in King County, Washington, under the jurisdiction of the Seattle office of the American Arbitration Association. The arbitrator shall have authority only to interpret and apply the provisions of this Agreement, and shall have

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no authority to add to, subtract from or otherwise modify the terms of this Agreement. Any demand for arbitration must be made within sixty (60) days of the event(s) giving rise to the claim that this Agreement has been breached. The arbitrator’s decision shall be final and binding, and each party agrees to be bound to by the arbitrator’s award, subject only to an appeal therefrom in accordance with the laws of the State of Washington. Either party may obtain judgment upon the arbitrator’s award in the Superior Court of King, County, Washington.

17.    SEVERABILITY

If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law.

18.    ENTIRE AGREEMENT

This Agreement on and as of the date hereof constitutes the entire agreement between the Company and the Executive with respect to Executive’s duties and benefits upon and after a Change in Control and any other subject matters addressed herein. All prior or contemporaneous oral or written communications, understandings or agreements between the Company and the Executive with respect to such subject matters, are hereby superseded and nullified in their entireties. Any and all future oral or written communications, understandings or agreements between the Company and the Executive with respect to such subject matter shall not alter, amend, expand or otherwise change the duties and benefits provided herein, unless in compliance with the requirements of Paragraph 13 herein.

19.    WITHHOLDING

The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

20.    COUNTERPARTS

This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same Instrument.

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IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the date set forth above.

EXECUTIVE

/s/ Paul Yantus

Name: Paul Yantus

CAPTARIS, INC.

/s/ David Anastasi

Name: David Anastasi

Title: President & CEO

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APPENDIX A

TO

CHANGE IN CONTROL AGREEMENT

For purposes of the Change in Control Agreement, the following capitalized terms shall have the following meanings:

“Cause” shall mean cause given by the Executive to the Company and shall include the occurrence of one or more of the following events:

(a) Executive’s willful material misconduct or dishonesty in the performance of, or the willful failure to perform, any material duty under this Agreement;

(b) Executive’s willful injury of the Company, or Executive’s breach of fiduciary duty to the Company involving personal profit;

(c) Conviction of Executive of the violation of a state or federal criminal law involving the commission of a crime against the Company or any felony;

(c) Habitual or repeated misuse by Executive of alcohol or controlled substances that materially impairs Executive’s ability to perform his duties under this Agreement;

(d) Any material and willful violation by Executive of any provisions of the CIIN Agreement; or

(e) Any past or present act of Executive involving moral turpitude adversely affecting the business, goodwill or reputation of the Company, or materially and adversely affecting Executive’s ability to effectively represent the Company with the public.

“Change in Control” shall mean:

(a) consummation of an acquisition by any Entity of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (1) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”), excluding, however, the following: (i) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege where the security being

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so converted was not acquired directly from the Company by the party exercising the conversion privilege, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Related Company, or (iv) a Related Party Transaction;

(b) a change in the composition of the Board during any two-year period such that the individuals who, as of the beginning of such two-year period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that for purposes of this definition, any individual who becomes a member of the Board subsequent to the beginning of the two-year period, whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; and provided further, however, that any such individual whose initial assumption of office occurs as a result of or in connection with an actual or threatened solicitation of proxies or consents by or on behalf of an Entity other than the Board shall not be considered a member of the Incumbent Board;

(c) consummation of a merger or consolidation of the Company with or into any other company or other entity, excluding, in each case, a Related Party Transaction;

(d) consummation of a statutory share exchange pursuant to which the Company’s outstanding shares are acquired or a sale in one transaction or a series of transactions undertaken with a common purpose of at least 50% of the Company’s outstanding voting securities, excluding, in each case, a Related Party Transaction; or

(e) consummation of a sale, lease, exchange or other transfer in one transaction or a series of related transactions undertaken with a common purpose of all or substantially all of the Company’s assets, excluding, in each case, a Related Party Transaction.

Where a series of transactions undertaken with a common purpose is deemed to be a Change in Control, the date of such Change in Control shall be the date on which the last of such transactions is consummated.

“Entity” shall mean any individual, entity or group (within the meaning of Section 13(d)(3) of the Exchange Act).

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

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“Good Reason” shall mean the occurrence of any of the following events, without the consent of the Executive:

(a) A demotion or other material reduction in the nature or status of the Executive’s responsibilities as contemplated by Section 1.3, excluding for this purpose an isolated and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; provided that a change in the person or office to which the Executive reports, without a corresponding reduction in duties, status and responsibilities, resulting primarily from organizational changes incident to a merger or acquisition, shall not constitute “Good Reason”;

(b) Any failure by the Company to comply with any of the provisions of Section 3 hereof, other than an isolated and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(c) The Company’s requiring the Executive to be based at any office or location other than that described in Section 1.4 hereof; or

(d) Any failure by the Company to comply with and satisfy Section 11 hereof, provided that the Company’s successor has received at least ten days’ prior written notice from the Company or the Executive of the requirements of Section 11 hereof.

“Parent Company” shall mean a company or other entity which as a result of a Change in Control owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries.

“Related Company” shall mean any entity that is directly or indirectly controlled by, in control of or under common control with the Company.

“Related Party Transaction” shall mean a Change in Control pursuant to which:

(a) the Entities who are the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Change in Control will beneficially own, directly or indirectly, at least 50% of the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Successor Company in substantially the same proportions as their ownership, immediately prior to such Change in Control, of the Outstanding Company Common Stock and Outstanding Company Voting Securities;

(b) no Entity (other than the Company, any employee benefit plan (or related trust) of the Company or a Related Company, the Successor Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (a) above is satisfied in connection with the applicable

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Change in Control, such Parent Company) will beneficially own, directly or indirectly, 40% or more of, respectively, the outstanding shares of common stock of the Successor Company or the combined voting power of the outstanding voting securities of the Successor Company entitled to vote generally in the election of directors unless such ownership resulted solely from ownership of securities of the Company prior to the Change in Control; and

(c) individuals who were members of the Incumbent Board will immediately after the consummation of the Change in Control constitute at least a majority of the members of the board of directors of the Successor Company (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (a) above is satisfied in connection with the applicable Change in Control, of the Parent Company).

“Successor Company” shall mean the surviving company, the successor company or Parent Company, as applicable, in connection with a Change in Control.

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EX-10.5

Exhibit 10.5

CHANGE IN CONTROL AGREEMENT

This Change in Control Agreement (this “Agreement”), dated as of March 17, 2008, is between Captaris, Inc., a Washington corporation (the “Company”), and Doug Anderson (the “Executive”).

The Compensation Committee of the Board of Directors of the Company (the “Committee”) has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined in Appendix A to this Agreement, which is incorporated herein by this reference) of the Company. The Committee believes it is imperative to diminish the inevitable distraction of the Executive arising from the personal uncertainties and risks created by a pending or threatened Change in Control, to encourage the Executive’s full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control, and to provide the Executive with reasonable compensation and benefits arrangements upon a Change in Control.

In order to accomplish these objectives, the Committee has caused the Company to enter into this Agreement.

1.    EMPLOYMENT

1.1 Certain Definitions

(a) “Change in Control Date” shall mean the first date during the Term of Agreement (as defined in Section 1.1(b)) on which a Change in Control occurs.

(b) “Term of Agreement” shall mean an initial period commencing on the date hereof and ending 18 months after the date hereof; provided, however, that commencing on the date that is 12 months after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), the Term of Agreement shall be automatically extended so as to terminate 18 months from such Renewal Date, unless prior to the Renewal Date the Company shall give notice to the Executive that the Term of Agreement shall not be so extended.

1.2 Post-Change in Control Period

The Company hereby agrees to continue the Executive in its employ or in the employ of its affiliated companies, and the Executive hereby agrees to remain in the employ of the Company or its affiliated companies, in accordance with the terms and provisions of this Agreement, for the period commencing on the Change in Control Date and ending 12 months after such date (the “Post-Change in Control Period”).

1.3 Position and Duties

During the Post-Change in Control Period, the Executive’s position, authority, duties and responsibilities shall be reasonably commensurate with the most significant of those held, exercised and assigned at any time during the 90-day period immediately preceding the Change in Control Date.

1.4 Location

During the Post-Change in Control Period, the Executive’s services shall be performed at any office located no more than 50 miles from the office where Executive was performing services as of the Change in Control Date.

1.5 Employment at Will

The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company or its affiliated companies is “at will” and, prior to the Change in Control Date, may be terminated by either the Executive or the Company or its affiliated companies for any reason and at any time. Moreover, if prior to the Change in Control Date, the Executive’s employment with the Company or its affiliated companies terminates for any reason, then the Executive shall have no further rights under this Agreement.

1.6 Board of Directors

If the Executive is or becomes a member of the Board of Directors of the Company (the “Board”), his or her continuation as such shall be subject to the will of the Company’s shareholders and the Board, as provided in the Company’s bylaws and articles of incorporation. Therefore, removal of the Executive from, or nonelection of the Executive to, the Board by the Company’s shareholders or the Board, as provided in the Company’s bylaws and articles of incorporation, shall in no event be deemed a breach of this Agreement by the Company.

2.    ATTENTION AND EFFORT

During the Post-Change in Control Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive will devote all of his or her productive time, ability, attention and effort to the business and affairs of the Company and the discharge of the responsibilities assigned to him/her hereunder, and will use his or her best efforts to perform such responsibilities faithfully and efficiently. It shall not be a violation of this Agreement for the

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Executive to (a) serve on corporate, civic or charitable boards or committees, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (c) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities in accordance with this Agreement. It is expressly understood and agreed that to the extent any such activities have been conducted by the Executive prior to the Post-Change in Control Period, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) during the Post-Change in Control Period shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

3.    COMPENSATION

During the Post-Change in Control Period, the Company agrees to pay or cause to be paid to the Executive, and the Executive agrees to accept in exchange for the services rendered hereunder by him/her, the following compensation:

3.1 Salary

The Executive shall receive an annual base salary (the “Annual Base Salary”), at least equal to the annual salary established by the Board or the Committee for the fiscal year in which the Change in Control Date occurs. The Annual Base Salary shall be paid in substantially equal installments and at the same intervals as the salaries of other officers of the Company are paid. During the Post-Change in Control Period, the Board or the Committee shall review the Annual Base Salary at least annually and shall determine any increases in future years.

3.2 Bonus

In addition to Annual Base Salary, the Executive shall receive, for each fiscal year beginning or ending during the Post-Change in Control Period, an annual bonus in cash at least equal to the Executive’s target bonus amount for the fiscal year in which the Change in Control Date occurs; provided, however, that for the fiscal year in which the Change in Control Date occurs, the amount received by the Executive shall be at least equal to the annualized bonus amount that Executive is on pace for as of the Change in Control Date, if such amount is higher than the target bonus amount for such year (the “Annual Bonus”). Each such Annual Bonus shall be paid no later than 90 days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. Notwithstanding the foregoing, in the event the fiscal year end is different prior to the Post-Change in Control Period than it is after the Post-Change in Control Period, then the Annual Bonus paid to the Executive for the fiscal year in which the Change in Control Date occurs shall be paid no later than 90 days after the new fiscal year end and shall be proportionately adjusted to reflect additional days or less days in the new fiscal year as a result of the difference in fiscal years.

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4.    BENEFITS

4.1 Incentive, Retirement and Welfare Benefit Plans; Vacation

During the Post-Change in Control Period, the Executive shall be entitled to participate, subject to and in accordance with applicable eligibility requirements, in such fringe benefit programs as shall be provided to other executives of the Company and its affiliated companies from time to time during the Post-Change in Control Period by action of the Board (or any person or committee appointed by the Board to determine fringe benefit programs and other emoluments), including, without limitation, paid vacations; any incentive, savings and retirement plan, practice, policy or program; and all welfare benefit plans, practices, policies and programs (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs).

4.2 Expenses

During the Post-Change in Control Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by him/her in accordance with the policies, practices and procedures of the Company and its affiliated companies in effect for the executives of the Company and its affiliated companies during the Post-Change in Control Period.

5.    TERMINATION

Employment of the Executive during the Post-Change in Control Period may be terminated as follows:

5.1 By the Company or the Executive

Upon giving Notice of Termination (as defined below), the Company may terminate the employment of the Executive with or without Cause, and the Executive may terminate his or her employment for Good Reason or for any reason, at any time during the Post-Change in Control Period. “Cause” and “Good Reason” are as defined in Appendix A to this Agreement.

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5.2 Automatic Termination

This Agreement and the Executive’s employment during the Post-Change in Control Period shall terminate automatically upon the death or Total Disability of the Executive. The term “Total Disability” as used herein shall mean the Executive’s inability (with or without such accommodation as may be required by law and which places no undue burden on the Company), as determined by a physician selected by the Company and acceptable to the Executive, to perform the duties set forth hereunder for a period or periods aggregating 120 calendar days in any 12-month period as a result of physical or mental illness, loss of legal capacity or any other cause beyond the Executive’s control, unless the Executive is granted a leave of absence by the Board.

5.3 Notice of Termination

Any termination by the Company or by the Executive during the Post-Change in Control Period shall be communicated by Notice of Termination to the other party given in accordance with Section 10 hereof. The term “Notice of Termination” shall mean a written notice which (a) indicates the specific termination provision in this Agreement relied upon and (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

5.4 Date of Termination

During the Post-Change in Control Period, the term “Date of Termination” shall mean (a) if the Executive’s employment is terminated by reason of death, at the end of the calendar month in which the Executive’s death occurs, (b) if the Executive’s employment is terminated by reason of Total Disability, immediately upon a determination by the Company of the Executive’s Total Disability, and (c) in all other cases, ten days after the date of mailing or personal delivery of the Notice of Termination. The Executive’s employment and performance of services will continue during such ten-day period; provided, however, that the Company may, upon notice to the Executive and without reducing the Executive’s compensation during such period, excuse the Executive from any or all of his or her duties during such period.

6.    TERMINATION PAYMENTS

In the event of termination of the Executive’s employment during the Post-Change in Control Period, all compensation and benefits set forth in this Agreement shall terminate except as specifically provided in this Section 6.

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6.1 Termination by the Company for Other Than Cause or by the Executive for Good Reason

If the Company terminates the Executive’s employment other than for Cause or the Executive terminates his or her employment for Good Reason prior to the end of the Post-Change in Control Period, the Executive shall be entitled to:

(a) receive payment of the following accrued obligations (the “Accrued Obligations”):

(i) the Executive’s Annual Base Salary through the Date of Termination to the extent not theretofore paid;

(ii) the product of (x) the Monthly Commission payable with respect to the fiscal year in which the Date of Termination occurs and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365; and

(iii) any compensation previously deferred by the Executive (together with accrued interest or earnings thereon, if any) and any accrued vacation pay, in each case to the extent not theretofore paid;

(b) reimbursement of Executive’s COBRA expenses for Executive and his family for a period of 12 months, or until such time as Executive obtains new health insurance coverage, whichever occurs first.;

(c)(i) base salary continuation, payable in the course of the Company’s regularly scheduled payroll and subject to normal withholdings, for a period of time equal to 12 months and (ii) an amount, paid as a lump sum, equal to one times the target Annual Bonus payable for the fiscal year in which the Date of Termination occurs;

(d) immediate vesting of all equity awards granted by the Company to the Executive outstanding as of the Change in Control Date; and

(e) an extension of the post-termination exercise period of all stock options granted by the Company to the Executive outstanding as of the Change in Control Date, so that such options shall be exercisable for a period of one year from the Date of Termination.

6.2 Termination for Cause or Other Than for Good Reason

If the Executive’s employment shall be terminated by the Company for Cause or by the Executive for other than Good Reason during the Post-Change in Control Period, this Agreement shall terminate without further obligation to the Executive other than the obligation to pay to the Executive his or her Annual Base Salary through the Date of Termination plus the amount of any compensation previously deferred by the Executive, in each case to the extent theretofore unpaid.

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6.3 Expiration of Term

In the case of a termination of the Executive’s employment as a result of the expiration of the term of this Agreement, the Executive shall not be entitled to receive any payments hereunder, other than the Accrued Obligations.

6.4 Termination Because of Death or Total Disability

If the Executive’s employment is terminated by reason of the Executive’s death or Total Disability during the Post-Change in Control Period, this Agreement shall terminate automatically without further obligations to the Executive or his or her legal representatives under this Agreement, other than for payment of Accrued Obligations (which shall be paid to the Executive’s estate or beneficiary, as applicable in the case of the Executive’s death).

6.5 Excess Parachute Payments

Notwithstanding any other provision of this Agreement, if either the Company or the Executive receives confirmation from the Company’s independent tax counsel or its certified public accounting firm (the “Tax Advisor”) that any portion of any payment by the Company or a related entity to the Executive, or any benefit received by the Executive, under this Agreement or otherwise (each a “Payment”) would be considered to be an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, (the “Code”) or any successor statute then in effect, then the Payments (under this Agreement or otherwise) shall be reduced (the “Reduction”) to the highest amount that, in the opinion of the Tax Advisor, may be paid to the Executive by the Company without having any portion of any Payment treated as an “excess parachute payment;” provided that the Company may elect, in its sole and absolute discretion, not to apply the Reduction if, in the opinion of the Tax Advisor, the after-tax value to the Executive of the total Payments prior to the Reduction is greater than the after-tax value to the Executive if the total Payments are determined taking into account the Reduction. For purposes of determining the after-tax value of the Payments, (i) the Executive shall be deemed to pay income taxes at the highest rate of federal income tax and the highest rate or rates of state and local income taxes in the state and locality of the Executive’s domicile for income tax purposes for the taxable year in which the total Payments will be made, provided that the state and local income tax rate shall be determined assuming that such taxes are fully deductible for federal income tax purposes, and (ii) the Executive shall be deemed to pay employment taxes at the applicable rate under Section 3101(b) of the Code. The Reduction shall be applied to the Payments in any manner determined by the Company in its reasonable discretion.

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6.6 Payment Schedule

Unless otherwise provided herein, all payments under this Section 6 shall be made to the Executive at the same intervals as such payments were made to him/her immediately prior to termination.

6.7 Application of Other Payments

In the event the Executive has received any payments under any other agreement or any Company plan, policy or program where the payment is made as a result of or in connection with the termination or severance of the Executive, then any amounts to which the Executive is entitled hereunder will be reduced by the amount of any such payments.

7.    REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS

In order to induce the Company to enter into this Agreement, the Executive represents and warrants to the Company as follows:

7.1 Health

The Executive is in good health and knows of no physical or mental disability which, with or without any accommodation which may be required by law and which places no undue burden on the Company, would prevent him/her from fulfilling his or her obligations hereunder. The Executive agrees, if the Company requests, to submit to periodic medical examinations by a physician or physicians designated by, paid for and arranged by the Company. The Executive agrees that the examination’s medical report shall be provided to the Company.

7.2 No Violation of Other Agreements

The Executive represents that neither the execution nor the performance of this Agreement by the Executive will violate or conflict in any way with any other agreement by which the Executive may be bound.

8.    CIIN AGREEMENT

The Executive will not, at any time during the term of employment by the Company, or at any time thereafter, directly, indirectly or otherwise, be in breach of the Confidential Information, Inventions and Non-Competition Agreement (the “CIIN Agreement”) between the Executive and the Company. Any breach of the CIIN Agreement by the Executive shall constitute a breach of this Agreement.

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The Executive understands that the Company will be relying on this Agreement and the CIIN Agreement in continuing the Executive’s employment, paying him/her compensation, granting him/her any promotions or raises, or entrusting him/her with any information which helps the Company compete with others.

The terms and provisions of the CIIN Agreement that are intended to survive termination of the CIIN Agreement shall be unaffected by and shall survive the termination of this Agreement and the termination of the Executive’s employment with the Company

9.    NOTICE AND CURE OF BREACH

Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than any action that constitutes “Cause” under this Agreement, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least ten days’ prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the ten-day period.

10.    FORM OF NOTICE

Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof:

If to the Executive:	Mr. Doug Anderson
	_____________________________
	_____________________________
If to the Company:	Captaris, Inc.
	301 – 116th Avenue SE
	Bellevue, Washington 98004
	Attn: Chief Financial Officer

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or such other address as shall be provided in accordance with the terms hereof. Except as set forth in Section 5.4 hereof, if notice is mailed, such notice shall be effective upon mailing.

11.    ASSIGNMENT

This Agreement is personal to the Executive and shall not be assignable by the Executive. The Company may assign its rights hereunder to (a) any corporation resulting from any merger, consolidation or other reorganization to which the Company is a party or (b) any corporation, partnership, association or other person to which the Company may transfer all or substantially all of the assets and business of the Company existing at such time. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns.

The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean Captaris, Inc. and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

12.    WAIVERS

No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, tides, interests or remedies hereunder, and no course of dealing or performance with respect hereto, shall constitute a waiver thereof. The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance. All rights and remedies shall be cumulative and not exclusive of any other rights or remedies.

13.    AMENDMENTS IN WRITING

No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given. No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive.

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14.    SECTION 409A OF THE CODE

Notwithstanding any other provision of this Agreement, the Company and the Executive intend that any payments, benefits or other provisions applicable to this Agreement comply with the payout and other limitations and restrictions imposed under Section 409A of the Code (“Section 409A”), as clarified or modified by guidance from the U.S Department of Treasury or the Internal Revenue Service – in each case if and to the extent Section 409A is otherwise applicable to this Agreement and such compliance is necessary to avoid the penalties otherwise imposed under Section 409A. In this connection, the Company and the Executive agree that the payments, benefits and other provisions applicable to this Agreement, and the terms of any deferral and other rights regarding this Agreement, shall be deemed modified if and to the extent necessary to comply with the payout and other limitations and restrictions imposed under Section 409A, as clarified or supplemented by guidance from the U.S. Department of Treasury or the Internal Revenue Service – in each case if and to the extent Section 409A is otherwise applicable to this Agreement and such compliance is necessary to avoid the penalties otherwise imposed under Section 409A.

15.    APPLICABLE LAW AND VENUE

This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the State of Washington, without regard to any rules governing conflicts of laws. Executive irrevocably consents to the jurisdiction and venue of the state and federal courts located in King County, Washington, and agrees not to bring any action, or seek to remove or transfer any action, relating to this Agreement in or to any other court, other than a state or federal court located in King County, Washington.

16.    ARBITRATION

Except in connection with enforcing Section 8 hereof, for which legal and equitable remedies may be sought in a court of law, any dispute arising under this Agreement shall be subject to arbitration. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “AAA Rules”) then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules. The arbitration shall be conducted in King County, Washington, under the jurisdiction of the Seattle office of the American Arbitration Association. The arbitrator shall have authority only to interpret and apply the provisions of this Agreement, and shall have

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no authority to add to, subtract from or otherwise modify the terms of this Agreement. Any demand for arbitration must be made within sixty (60) days of the event(s) giving rise to the claim that this Agreement has been breached. The arbitrator’s decision shall be final and binding, and each party agrees to be bound to by the arbitrator’s award, subject only to an appeal therefrom in accordance with the laws of the State of Washington. Either party may obtain judgment upon the arbitrator’s award in the Superior Court of King, County, Washington.

17.    SEVERABILITY

If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law.

18.    ENTIRE AGREEMENT

This Agreement on and as of the date hereof constitutes the entire agreement between the Company and the Executive with respect to Executive’s duties and benefits upon and after a Change in Control and any other subject matters addressed herein. All prior or contemporaneous oral or written communications, understandings or agreements between the Company and the Executive with respect to such subject matters, are hereby superseded and nullified in their entireties. Any and all future oral or written communications, understandings or agreements between the Company and the Executive with respect to such subject matter shall not alter, amend, expand or otherwise change the duties and benefits provided herein, unless in compliance with the requirements of Paragraph 13 herein.

19.    WITHHOLDING

The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

20.    COUNTERPARTS

This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same Instrument.

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IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the date set forth above.

EXECUTIVE

/s/ Doug Anderson

Name: Doug Anderson

CAPTARIS, INC.

/s/ David Anastasi

Name: David Anastasi

Title: President & CEO

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APPENDIX A

TO

CHANGE IN CONTROL AGREEMENT

For purposes of the Change in Control Agreement, the following capitalized terms shall have the following meanings:

“Cause” shall mean cause given by the Executive to the Company and shall include the occurrence of one or more of the following events:

(a) Executive’s willful material misconduct or dishonesty in the performance of, or the willful failure to perform, any material duty under this Agreement;

(b) Executive’s willful injury of the Company, or Executive’s breach of fiduciary duty to the Company involving personal profit;

(c) Conviction of Executive of the violation of a state or federal criminal law involving the commission of a crime against the Company or any felony;

(c) Habitual or repeated misuse by Executive of alcohol or controlled substances that materially impairs Executive’s ability to perform his duties under this Agreement;

(d) Any material and willful violation by Executive of any provisions of the CIIN Agreement; or

(e) Any past or present act of Executive involving moral turpitude adversely affecting the business, goodwill or reputation of the Company, or materially and adversely affecting Executive’s ability to effectively represent the Company with the public.

“Change in Control” shall mean:

(a) consummation of an acquisition by any Entity of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (1) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”), excluding, however, the following: (i) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege where the security being

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so converted was not acquired directly from the Company by the party exercising the conversion privilege, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Related Company, or (iv) a Related Party Transaction;

(b) a change in the composition of the Board during any two-year period such that the individuals who, as of the beginning of such two-year period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that for purposes of this definition, any individual who becomes a member of the Board subsequent to the beginning of the two-year period, whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; and provided further, however, that any such individual whose initial assumption of office occurs as a result of or in connection with an actual or threatened solicitation of proxies or consents by or on behalf of an Entity other than the Board shall not be considered a member of the Incumbent Board;

(c) consummation of a merger or consolidation of the Company with or into any other company or other entity, excluding, in each case, a Related Party Transaction;

(d) consummation of a statutory share exchange pursuant to which the Company’s outstanding shares are acquired or a sale in one transaction or a series of transactions undertaken with a common purpose of at least 50% of the Company’s outstanding voting securities, excluding, in each case, a Related Party Transaction; or

(e) consummation of a sale, lease, exchange or other transfer in one transaction or a series of related transactions undertaken with a common purpose of all or substantially all of the Company’s assets, excluding, in each case, a Related Party Transaction.

Where a series of transactions undertaken with a common purpose is deemed to be a Change in Control, the date of such Change in Control shall be the date on which the last of such transactions is consummated.

“Entity” shall mean any individual, entity or group (within the meaning of Section 13(d)(3) of the Exchange Act).

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

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“Good Reason” shall mean the occurrence of any of the following events, without the consent of the Executive:

(a) A demotion or other material reduction in the nature or status of the Executive’s responsibilities as contemplated by Section 1.3, excluding for this purpose an isolated and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; provided that a change in the person or office to which the Executive reports, without a corresponding reduction in duties, status and responsibilities, resulting primarily from organizational changes incident to a merger or acquisition, shall not constitute “Good Reason”;

(b) Any failure by the Company to comply with any of the provisions of Section 3 hereof, other than an isolated and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(c) The Company’s requiring the Executive to be based at any office or location other than that described in Section 1.4 hereof; or

(d) Any failure by the Company to comply with and satisfy Section 11 hereof, provided that the Company’s successor has received at least ten days’ prior written notice from the Company or the Executive of the requirements of Section 11 hereof.

“Parent Company” shall mean a company or other entity which as a result of a Change in Control owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries.

“Related Company” shall mean any entity that is directly or indirectly controlled by, in control of or under common control with the Company.

“Related Party Transaction” shall mean a Change in Control pursuant to which:

(a) the Entities who are the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Change in Control will beneficially own, directly or indirectly, at least 50% of the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Successor Company in substantially the same proportions as their ownership, immediately prior to such Change in Control, of the Outstanding Company Common Stock and Outstanding Company Voting Securities;

(b) no Entity (other than the Company, any employee benefit plan (or related trust) of the Company or a Related Company, the Successor Company or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (a) above is satisfied in connection with the applicable

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Change in Control, such Parent Company) will beneficially own, directly or indirectly, 40% or more of, respectively, the outstanding shares of common stock of the Successor Company or the combined voting power of the outstanding voting securities of the Successor Company entitled to vote generally in the election of directors unless such ownership resulted solely from ownership of securities of the Company prior to the Change in Control; and

(c) individuals who were members of the Incumbent Board will immediately after the consummation of the Change in Control constitute at least a majority of the members of the board of directors of the Successor Company (or, if reference was made to equity ownership of any Parent Company for purposes of determining whether clause (a) above is satisfied in connection with the applicable Change in Control, of the Parent Company).

“Successor Company” shall mean the surviving company, the successor company or Parent Company, as applicable, in connection with a Change in Control.

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EX-10.6

Exhibit 10.6

CAPTARIS, INC. EXECUTIVE SEVERANCE PAY PLAN

Effective March 15, 2005

(as amended on April 13, 2006, March 23, 2007 and March 13, 2008)

TABLE OF CONTENTS

1.	Introduction	1
2.	Eligibility	1
3.	Benefits	3
4.	How the Plan is Administered	6
5.	Amendment or Termination of the Plan	7
6.	Miscellaneous	7
7.	No Contract of Employment	8
8.	Claim Procedure	8

Captaris, Inc. Executive Severance Pay Plan - i - Table of Contents

1.    Introduction

Captaris, Inc. (the “Company”) has established the Captaris, Inc. Executive Severance Pay Plan, as set forth herein and as may be amended from time to time (the “Plan”), to provide severance pay and other benefits to certain employees whose employment is terminated involuntarily by the Company without Cause or who terminate their employment with the Company for Good Reason on or after March 15, 2005.

2.    Eligibility

Eligible Employees

The following Company employees are covered by this Plan: (1)    The Chief Executive Officer; (2)    The Chief Financial Officer; (3)    The Chief Legal Officer; and (4)    Any other employees notified in writing by the Company’s Compensation Committee (the “Compensation Committee”) that they are covered by this plan; provided that such employees must be members of a select group of management or highly compensated employees (as determined by the Compensation Committee in its sole and absolute discretion). The employees who are covered by this Plan are referred to as “Eligible Employees.” No other employees can become entitled to benefits under this Plan

Conditions to Receive Benefits

An Eligible Employee will be entitled to benefits under this Plan if all of the following conditions are satisfied: (1)    The Eligible Employee’s employment is terminated involuntarily by the Company after March 15, 2005 without Cause, or the Eligible Employee terminates from employment with the Company after March 15, 2005 for Good Reason;

Captaris, Inc. Executive Severance Pay Plan Page 1

(2)    The Eligible Employee executes a release of claims acceptable to the Company (the “Release”) within the time period specified by the Company (but not prior to termination of employment) and does not revoke that Release during the revocation period specified therein (the “Revocation Period”) (such execution and revocation periods not to extend beyond the maximum periods required by applicable law for such release to be fully effective); and

If the Eligible Employee is a party to a Change in Control Agreement with the Company, then the Eligible Employee will be subject to an additional condition. Any such Eligible Employee will only be entitled to benefits under this Plan if all of the preceding conditions are satisfied and the Eligible Employee’s employment terminates prior to a Change in Control, as defined in the Change in Control Agreement between the Eligible Employee and the Company. If there is no Change in Control Agreement between the Eligible Employee and the Company, then this condition does not apply.

Termination for Cause

For purposes of this Plan, “Cause” means any of the following:

(1)    The Eligible Employee’s willful misconduct or dishonesty in the performance of, or the Eligible Employee’s willful failure to perform, any of the Eligible Employee’s material duties or obligations to the Company ;

(2)    The Eligible Employee’s willful injury of the Company, or the Eligible Employee’s breach of fiduciary duty to the Company involving personal profit;

(3)    Conviction of the Eligible Employee of the violation of a state or federal criminal law involving the commission of a crime against the Company or any felony;

(4)    Habitual or repeated misuse by the Eligible Employee of alcohol or controlled substances that materially impairs the Eligible Employee’s ability to perform any of his or her duties or obligations to the Company;

(5)    Any material or willful violation by the Eligible Employee of any provisions of the Employment Agreement or Employee Intellectual Property Agreement (if any) between the Eligible Employee and the Company; or

Captaris, Inc. Executive Severance Pay Plan Page 2

(6)    Any past or present act by the Eligible Employee involving moral turpitude adversely affecting the business, goodwill or reputation of the Company, or materially and adversely affecting the Eligible Employee’s ability to effectively represent the Company with the public.

Termination for Good Reason

For purposes of this Plan, “Good Reason” means the occurrence of any of the following, without the Eligible Employee’s consent:

(1)    A demotion or other material reduction in the nature or status of the Eligible Employee’s authority, duties or responsibilities with respect to the Company, excluding for this purpose an isolated and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Eligible Employee; provided that a change in the person or office to which the Eligible Employee reports, without a corresponding reduction in title, authority, duties and responsibilities will not constitute Good Reason;

(2)    A reduction of at least 5% in the Eligible Employee’s then current base salary or target annual bonus, which reduction is not related to behavior or performance by the Executive that (i) would constitute “Cause” (as defined above), or (ii) is otherwise below reasonable expectations; provided, however, that this paragraph (2) will not apply in any case in which substantially all of the Eligible Employees are subject to substantially similar reductions; or

(3)    The Company requiring the Eligible Employee to be based at any office or location that is more than 50 miles from the office or location at which the Eligible Employee is based as of the later of January 1, 2005 or the Eligible Employee’s date of hire.

3.    Benefits

Amount of Severance Pay Subject to the other provisions of the Plan, if an Eligible Employee becomes entitled to severance benefits under the Plan, the amount of severance pay to which the Eligible Employee will be entitled will include the Base Salary Component and the Bonus Component, as described below.

Captaris, Inc. Executive Severance Pay Plan Page 3

	Base Salary Component The Base Salary Component will consist of base salary continuation, payable in the course of the Company’s regularly scheduled payroll and subject to normal withholdings, for a period of time equal to 12 months; provided, that any portion of the Base Salary Component that would not, under the foregoing schedule, be paid to the Eligible Employee by March 15 of the calendar year following the year of termination shall be paid in a lump sum to the Eligible Employee on such March 15 (or if such date is not a business day, then on the last business day immediately preceding such March 15).
	Bonus Component The Bonus Component is a lump sum payment payable on the date the Eligible Employee becomes entitled to severance benefits under the Plan calculated as the sum of: (1)    The product of (a) the Eligible Employee’s target annual bonus payable for the fiscal year in which the Eligible Employee’s employment terminates, and (b) a fraction, the numerator of which is the number of days in the current fiscal year through the date on which the Eligible Employee’s employment terminates, and the denominator of which is 365; and (2)    An amount equal to the Eligible Employee’s target annual bonus payable for the fiscal year in which the Eligible Employee’s employment terminates.
Payment of Severance Following Death	If the Eligible Employee dies before the severance pay to which he or she had become entitled under the Plan has been distributed, such severance pay will be paid to the Eligible Employee’s estate.
Other Benefits	COBRA Premium Payment If an Eligible Employee becomes entitled to severance pay under the preceding provisions of this Plan, then the Company will pay any COBRA premiums which would otherwise be payable by such Eligible Employee for COBRA continuation coverage under the Company’s group health plans (i.e., medical, dental and vision plans); provided that the Company’s obligation under this paragraph will cease at such time as the Eligible Employee obtains new health insurance coverage or, if earlier, upon the expiration of 12 months.

Captaris, Inc. Executive Severance Pay Plan Page 4

	Life and Disability Insurance If an Eligible Employee becomes entitled to severance pay under the preceding provisions of this Plan, then the Company will use commercially reasonable efforts to continue the Eligible Employee’s coverage under the Company’s life, short-term and long-term disability insurance plans until such time as the Eligible Employee obtains new life, short-term disability or long-term disability coverage, as applicable, or, if earlier, upon the expiration of 12 months.
	If the particular benefit to be continued under the immediately preceding paragraph is insured, then the Company’s obligation to continue such benefit is conditioned on the relevant insurance carrier agreeing to such continuation. The Company will use commercially reasonable efforts to cause the relevant insurance carrier to agree to such continuation.
	If an Eligible Employee becomes entitled to severance pay under the preceding provisions of this Plan, and the Company is unable to continue coverage under the Company’s life, short-term and long-term disability insurance plans or if Company otherwise elects not to continue coverage under those plans, then Company will pay the Eligible Employee a lump sum equal to 18 months of the monthly premium (whether paid by the Eligible Employee or the Company) for coverage under the Company’s life, short and long-term disability insurance plans. The Company will make this payment in a lump sum at the time the Eligible Employee becomes entitled to benefits under the Plan.
Withholding	Amounts will be withheld from an Eligible Employee’s severance pay and other benefits under this Plan, as required by law or as authorized by the employee, for any applicable taxes, including income taxes and social security taxes. In addition, the Company may reduce the amount of an Eligible Employee’s severance pay and other benefits by any amounts owed to the Company by the Eligible Employee.

Captaris, Inc. Executive Severance Pay Plan Page 5

Failure to Execute Release If an Eligible Employee whose employment terminates under circumstances that would otherwise entitle him or her to severance benefits under this Plan fails to execute a Release or revokes such Release within his or her Revocation Period, then such employee will not be entitled to any of the benefits described above.

4.    How the Plan is Administered

Plan Administration	The Plan is administered by the Plan Administrator. The Compensation Committee is the Plan Administrator. The principal duty of the Plan Administrator is to see that the Plan is carried out, in accordance with its terms, for the exclusive benefit of the Eligible Employees.
Power and Authority	The Compensation Committee has all power and authority necessary or convenient to administer the Plan, including the exclusive authority and discretion to: •        construe and interpret the terms and provisions of the Plan and to decide all questions of eligibility for benefits under the Plan. •        to prescribe procedures to be followed and the forms to be used by employees pursuant to the Plan. •        to request and receive from all Eligible Employees such information as the Plan Administrator determines is necessary for the proper administration of the Plan.
	The Company bears all costs of administering the Plan.

Captaris, Inc. Executive Severance Pay Plan Page 6

5.    Amendment or Termination of the Plan; Section 409A of the Code

The Company, by action of the Compensation Committee, may amend or terminate the Plan at any time and may also terminate the applicability of this Plan to any Eligible Employee by notifying the Eligible Employee in writing of such termination; provided, however, that no amendment or termination of the Plan or termination of the applicability of this Plan to any Eligible Employee shall affect the payment or provision of any severance benefits to which an Eligible Employee has become entitled prior to such amendment or termination or within one year after the Plan is amended or terminated or the Eligible Employee receives written notification that the Plan is no longer applicable to the Eligible Employee.

Notwithstanding the foregoing, the Company intends that the provisions of the Plan, and any payments or other benefits under the Plan, comply with the payout and other limitations and restrictions imposed under Section 409A (“Section 409A”) of the Internal Revenue Code of 1986 (the “Code”), as clarified or modified by guidance from the U.S Department of Treasury or the Internal Revenue Service – in each case, if and to the extent Section 409A is otherwise applicable to this Plan and such compliance is necessary to avoid the penalties otherwise imposed under Section 409A. In this connection, the provisions of the Plan, and any payments or other benefits under the Plan, and the terms of any deferral and other rights regarding the Plan, will, unless otherwise determined by the Compensation Committee, be deemed modified if and to the extent necessary to comply with the payout and other limitations and restrictions imposed under Section 409A, as clarified or supplemented by guidance from the U.S. Department of Treasury or the Internal Revenue Service – in each case, if and to the extent Section 409A is otherwise applicable to the Plan and such compliance is necessary to avoid the penalties otherwise imposed under Section 409A.

6.    Miscellaneous

How the Plan is Funded	The Company pays severance pay from its general assets.
PBGC	Benefits provided by the Plan are not insured by the Federal Pension Benefit Guaranty Corporation (PBGC) under Title IV of ERISA, because the insurance provisions under ERISA are not applicable to the Plan.

Captaris, Inc. Executive Severance Pay Plan Page 7

7.    No Contract of Employment

The Plan is not intended to be, and may not be construed as constituting, a contract or other arrangement between any Eligible Employee and the Company to the effect that any Eligible Employee will be employed for any specific period of time.

8.    Claim Procedure

Review of Claims	If an Eligible Employee or, in the case of an Eligible Employee’s death, the Eligible Employee’s estate (either, the “Claimant”) believes that he, she or it is entitled to a benefit under the Plan or to a greater benefit under the Plan than the amount he, she or it has received, then the Claimant (or his, her or its or authorized representative) may file a claim with the Chair of the Compensation Committee (the “Initial Claim Reviewer”). The claim must be in writing and must contain the following information:
	1.      The reason for making the claim; 2.      The facts supporting the claim; 3.      The amount claimed; and 4.      The Claimant’s name and address.
Decision on Claim	The Initial Claim Reviewer will decide and answer any claim in writing, generally within 90 days of receiving it, stating whether the claim has been granted or denied. The Initial Claim Reviewer can extend this 90-day period for another 90 days if it determines that special circumstances require additional time to process the claim. The Initial Claim Reviewer will notify the Claimant or his, her or its authorized representative in writing of any such extension within 90 days of receiving the claim. The notice will included the reason(s) why the extension is necessary and the date by which the Initial Claim Reviewer expects to render its decision on the claim.
	If the claim is partially or completely denied, the denial will include:
	1.      The specific reason or reasons for the denial;
	2.      Reference to the specific Plan provisions on which the denial is based;
	3.      A description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary; and

Captaris, Inc. Executive Severance Pay Plan Page 8

	4.      A description of the Plan’s claim appeal procedure and the time limits applicable to such procedure, including a statement of the Claimant’s right to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), following an adverse decision on appeal.
	If a Claimant submits a claim in accordance with the procedure described above and does not hear from the Initial Claim Reviewer within 90 days, the Claimant should consider the claim denied.
Appealing a Claim Denial	If the claim is partially or completely denied, the Claimant has the right to ask for a review of the denial. To appeal the claim denial, the Claimant (or his, her or its legal representative) must file a written request for appeal with the Plan Administrator (i.e., the Compensation Committee) within 90 days after receiving the claim denial. This written request for appeal should contain:
	1.      A statement of the grounds on which the appeal is based;
	2.      Reference to the specific Plan provisions that support the claim;
	3.      The reason(s) or argument(s) why the Claimant feels the claim should be granted and the evidence supporting each reason or argument; and
	4.      Any other comments, documents, records or information relating to the claim that the Claimant wishes to submit.
	The Claimant (or his, her or its legal representative) will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim. Whether a document, record or other information is relevant to the claim will be determined in accordance with applicable regulations of the U.S. Department of Labor.

Captaris, Inc. Executive Severance Pay Plan Page 9

Decision on Appeal	The Plan Administrator will decide and answer the appeal in writing, generally within 60 days after receiving the Claimant’s request for appeal. The Plan Administrator can extend this 60-day period for another 60 days if it determines that special circumstances require additional time to process the claim. The Plan Administrator will notify the Claimant (or his, her or its legal representative) in writing of any such extension within 60 days of receiving the appeal. The notice will include the reason(s) why the extension is necessary and the date by which the Plan Administrator expects to render its decision on the claim. In reaching its decision, the Plan Administrator will take into account all of the comments, documents, records and other information that the Claimant submitted, without regard to whether such information was submitted or considered by the Initial Claim Reviewer in its initial denial of the claim.
	If the claim is partially or completely denied on appeal, the written notice will include the following:
	1.      The specific reason or reasons for the denial; 2.      Reference to the specific Plan provisions on which the denial is based; 3.      A statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim; and 4.      A statement of the Claimant’s right to bring an action under Section 502(a) of ERISA.
	If a Claimant files an appeal in accordance with the procedure described above and does not hear from the Plan Administrator within 60 days, the Claimant should consider the appeal denied.

Captaris, Inc. Executive Severance Pay Plan Page 10

Filing Suit A Claimant must comply with the claim and appeal procedures described above before seeking any other legal recourse (including filing a law suit) regarding claims for benefits. If a Claimant wishes to file a court action after exhausting the foregoing procedures, the Claimant must file such action in a court of competent jurisdiction within 180 days after the date on which the Claimant receives the Plan Administrator’s written denial of the Claimant’s appeal. Court actions may not be commenced after this 180-day period. Any judicial review of the Plan Administrator’s decision on the claim will be limited to whether, in the particular instance, the Plan Administrator abused its discretion. In no event will such judicial review be on a de novo basis, because the Plan Administrator has discretionary authority to determine eligibility for (and the amount of) benefits under the Plan and to construe and interpret the terms and provisions of the Plan.

Captaris, Inc. Executive Severance Pay Plan Page 11

EX-10.7

Exhibit 10.7

Commission Plan

Anderson, Doug

Fiscal Year 2008

Quota and Compensation Targets

EFFECTIVE:	January 1, 2008 – December 31, 2008
ASSOCIATE NAME:	Anderson, Doug
TITLE:	SVP, Global Field Operations

Overview

Under this plan, Mr. Anderson is eligible to receive a monthly cash payment based on all revenue recognized from worldwide sales of certain products and services (defined below as Eligible Revenue). The amount of the cash payment is calculated as set forth below. There is no threshold and no maximum under this plan.

Definitions

Eligible Revenue: Worldwide revenue from the sale of all products and services sold by the Company or any of its subsidiaries other than Captaris Document Technologies GmbH. Eligible Revenue does not include revenue from existing Captaris Document Technologies products even if sold through the Company or one of its subsidiaries unless the existing Captaris Document Technologies product is bundled with another Company product and sold through traditional Company distribution channels.

Annual Quota: $111,908,134.

Target Incentive: $75,000. This is the amount of bonus payable to the participant in the event the Company generates the Annual Quota amount of Eligible Revenue.

Commission Rate: .067019%. This percentage is calculated by dividing Annual Quota into Target Incentive.

Commission Payments: You will be eligible to earn a monthly amount determined by multiplying the Commission Rate by the amount of Eligible Revenue recognized by the Company in that month. This amount will be paid at the end of the subsequent month. In the event and at such time as the cumulative amount of Eligible Revenue recognized by the Company in fiscal year 2008 exceeds the Annual Quota, the Commission Rate will increase for the incremental amounts of Eligible Revenue recognized in the manner provided in the Quota Achievement Accelerator Grid below. The “% of Attainment” column is measured as the percentage of the Annual Quota. The Accelerator Factor represents the number that is multiplied by the Commission Rate which is then multiplied by the Eligible Revenue in the % of Attainment band to which the Acclerator Factor applies.

Quota Achievement Accelerator Grid

% of Attainment	Accelerator Factor
0 – 100%	1.00
100.01% to 105.00%	1.50
105.01% to 110.00%	2.00
110.01% to 125.00%	2.50
125.01% +	3.00

Page 1 of 2

In the event commission payments are made based on recognition of Eligible Revenue that is subsequently reversed, the Company will deduct any such payments from subsequent salary, bonus, commission or other compensation payments made to the participant.

Plan Acknowledgment Form - FY 2008 Sales Commission Plan

By signing below, I acknowledge that:

(a) I have read this Sales Commission Plan and clarified all of my questions about it;

(b) I authorize the recovery of overpayments of sales commission paid to me through payroll deductions as allowable by state/provincial law;

(c) The CEO will have the final determination for any issue, interpretation, or dispute regarding this plan;

(d) I understand that failure to sign and return this document will disqualify me from receiving incentive commission from Captaris, Inc.

Employee Signature	/s/ Doug Anderson	Date: March 19, 2008
Employee Name	Anderson, Doug
Manager’s Signature	/s/ David Anastasi	Date: March 19, 2008
Manager Name	Anastasi, David

Page 2 of 2

EX-10.8

Exhibit 10.8

CAPTARIS, INC.

SUMMARY OF NONEMPLOYEE DIRECTOR COMPENSATION

(As of March 2008)

Cash Compensation. Nonemployee directors receive the following cash compensation:

	Amount ($)
Annual Retainer (paid quarterly)	36,000
Annual Committee Membership Retainers (paid quarterly)
Audit Committee	10,000
Compensation Committee	7,000
Governance Committee	4,000
Annual Board and Committee Chair Retainers (paid quarterly)
Board of Directors	47,000
Audit Committee	18,000
Compensation Committee	14,000
Governance Committee	13,000

Cash compensation is paid quarterly at the beginning of each quarter. For new directors or for changes to existing directors’ committee chair or membership status, amounts will be prorated based on the number of days in the quarter.

In March 2008, the Board of Directors decided to evaluate strategic alternatives to further enhance shareholder value. To oversee and expedite this process, the Board of Directors established a Special Committee comprised of the following independent, non-employee directors: Bruce L. Crockett (Chairman), Daniel R. Lyle, Thomas M. Murnane, and Patrick J. Swanick. The members of the Special Committee receive the following one-time retainer and per meeting fees, and are subject to the following maximum amount of compensation over the life of the committee (including the one-time retainer and per meeting fees).

Member	One-Time Retainer		Per Meeting Fee		Maximum Amount of Compensation
Chairman	$	25,000	$	1,250	$	50,000
All other members of Special Committee	$	20,000	$	1,000	$	40,000

Nonemployee directors may elect to defer 25%, 50%, 75% or 100% of their cash compensation into the Company’s Deferred Compensation Plan for Nonemployee Directors (the “Deferred Compensation Plan”). Deferred amounts will be treated as if they were invested in the Company’s common stock (no actual purchase of Company common stock will be made) at the closing price of such stock on the date the amounts would have been paid to the nonemployee director had they not been deferred. Upon a nonemployee director’s termination of service, deferred amounts will be distributed in shares of the Company’s common stock (with cash for any fractional share).

Nonemployee directors can make deferral elections to take effect on the later of the effective date of the Deferred Compensation Plan or the date such elections are filed with the Company. To do so, nonemployee directors must file their deferral elections with the Company no later than 30 days after the effective date of the Deferred Compensation Plan. Any such deferral election will apply only to cash compensation earned (and paid) after the later of the effective date of the Deferred Compensation Plan or the date the deferral election is filed with the Company. Nonemployee directors who do not file an initial deferral election within 30 days after the effective date of the Deferred Compensation Plan can begin to defer cash compensation as of the first day of any subsequent calendar year by filing a completed deferral election with the Company prior to the beginning of that year. A nonemployee director’s deferral election (whether an initial or subsequent election) will remain in effect from year to year until the nonemployee director changes it. Any such change will become effective as of the first day of the calendar year beginning after the new deferral election is filed with the Company. Deferral election changes cannot become effective mid-year.

Equity Compensation. Nonemployee directors receive the following equity awards:

• Initial and annual stock option grants with a $20,000 value (based on the 123R valuation methodology used by the Company), which vest in full one year after the date of grant; and

• Initial and annual Restricted Deferred Stock Unit Awards (“DSU Awards”) with a $25,000 value, which vest in full one year after the date of grant.

Initial grants are issued to the nonemployee directors when they join the Board of Directors. Annual grants are issued to the nonemployee directors on the date of the annual shareholder meeting unless the nonemployee director received an initial grant within six (6) months prior to the annual shareholder meeting.

The DSU Awards provide for restricted stock units that are automatically deferred under the Deferred Compensation Plan. On the date of grant, the $25,000 value of a DSU Award is converted into a number of stock units (with one stock unit equal to one share of the Company’s common stock) based on the fair market value of the Company’s common stock on that date. Upon a nonemployee director’s termination of service, vested stock units will be distributed in shares of the Company’s common stock (with cash for any fractional share), with one share of Company common stock being issued for each stock unit credited to the nonemployee director’s Deferred Compensation Plan account. Any stock units that are not vested at the time of termination will be forfeited.

Form 4 Reporting. With respect to DSU Awards, nonemployee directors must file a Form 4 within two business days after a DSU Award is granted. With respect to shares issuable in connection with cash deferrals, nonemployee directors must file a Form 4 within two business days of the date on which the cash compensation would have been paid to the nonemployee director had it not been deferred. Shares resulting from any dividend reinvestment will require a separate Form 4.

EX-31.1

EXHIBIT 31.1

Sarbanes-Oxley Section 302(a) Certification

I, David P. Anastasi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Captaris, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ David P. Anastasi

President and Chief Executive Officer

Date: May 9, 2008

EX-31.2

EXHIBIT 31.2

Sarbanes-Oxley Section 302(a) Certification

I, Peter Papano, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Captaris, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Peter Papano

Chief Financial Officer and Treasurer

Date: May 9, 2008

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Captaris, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, David P. Anastasi, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ DAVID P. ANASTASI

David P. Anastasi

President and Chief Executive Officer

May 9, 2008

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Captaris, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), I, Peter Papano, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ PETER PAPANO

Peter Papano

Chief Financial Officer and Treasurer

May 9, 2008