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


                       SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549-1004
--------------------------------------------------------------------------------


                                    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 December 31, 1996

                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                       Commission File Number 000 - 19462
                                 ARTISOFT, INC.
                                 --------------
             (Exact name of registrant as specified in its charter)

         Delaware                                                86-0446453
--------------------------------------------------------------------------------
State or other jurisdiction of                                 (IRS employer
       incorporation)                                          identification
                                                                   number



                           2202 North Forbes Boulevard
                              Tucson, Arizona 85745
                                 (520) 670-7100
                           -------------------------
               (Address, including zip code, and telephone number,
                      including area code, of registrant's
                          principal executive offices)

      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 the
filing requirements for at least the past 90 days.

                                    Yes  x   No
                                        ---    ---

       Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (February 14, 1997).

                 Common stock, $.01 par value: 14,549,113 shares



================================================================================
<PAGE>
                         Artisoft Inc. and Subsidiaries
                                      INDEX


                                                                       Page
                                                                       ----
PART I.    FINANCIAL INFORMATION

       Item 1.  Financial Statements

                  Consolidated Balance Sheets-
                     December 31, 1996 and June 30, 1996                 3

                  Consolidated Statements of Operations-
                     Three Months and Six Months Ended
                     December 31, 1996 and 1995                          4

                  Consolidated Statements of Cash Flows-
                     Six Months Ended December 31, 1996
                     and 1995                                            5

                  Notes to Consolidated Financial Statements            6-8

       Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations         9-14


PART II.   OTHER INFORMATION

       Item 1.  Legal Proceedings                                        15

       Item 2. Changes in Securities                                     15

       Item 3. Defaults Upon Senior Securities                           15

       Item 4. Submission of Matters to a Vote by Security Holders       15

       Item 5. Other Information                                         16

       Item 6. Exhibits and Reports on Form 8-K                          16



SIGNATURES                                                               17



EXHIBITS

       11       Computation of Net Loss Per Share                        18

       27       Financial Data Schedule                                  19
                                       2
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                 December 31,   June 30,
ASSETS                                                              1996          1996
                                                                    -----         ----
                                                                  (unaudited)
Current assets:
<S>                                                                 <C>         <C>     
     Cash and cash equivalents                                      $ 17,315    $ 15,325
     Receivables:
          Trade accounts, net                                         11,942      16,768
          Income taxes                                                  --         1,635
          Notes and other                                              1,073       1,405
     Inventories                                                       2,772       2,998
     Prepaid expenses                                                  2,486         906
     Deferred income taxes                                             3,104       4,426
                                                                    --------    --------
         Total current assets                                         38,692      43,463
                                                                    --------    --------


Property and equipment                                                14,583      13,690
     Less accumulated depreciation and amortization                   (6,967)     (6,166)
                                                                    --------    --------
         Net property and equipment                                    7,616       7,524
                                                                    --------    --------

Deferred income taxes                                                  3,822       3,141
Other assets                                                           3,286       3,584
                                                                    --------    --------
                                                                    $ 53,416    $ 57,712
                                                                    ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                               $  3,122    $  3,333
     Accrued liabilities                                               2,327       2,640
     Income taxes payable                                                336         577
     Current portion of capital lease obligations                        755          85
                                                                    --------    --------
         Total current liabilities                                     6,540       6,635
                                                                    --------    --------

Long-term capital lease and other obligations,
     net of current portion                                            1,119          96

Commitments and Contingencies                                           --          --

Shareholders' equity:
     Common stock, $.01 par value.  Authorized 50,000,000 shares;
          issued  27,836,613 shares at December 31,
          1996 and 27,807,890 at June 30, 1996                           278         278
     Additional paid-in capital                                       96,186      96,075
     Retained earnings                                                18,973      24,308
     Less treasury stock, at cost, 13,287,500 shares                 (69,680)    (69,680)
                                                                    --------    --------
         Total shareholders' equity                                   45,757      50,981
                                                                    --------    --------
                                                                    $ 53,416    $ 57,712
                                                                    ========    ========
</TABLE>
           See accompanying notes to consolidated financial statements
                                       3
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF OPERATIONS

          Three Months and Six Months Ended December 31, 1996 and 1995
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                        Three Months Ended       Six Months Ended
                                            December 31,           December 31,_
                                       --------------------    --------------------

                                         1996        1995        1996         1995
                                         ----        ----        ----         ----
                                           (unaudited)             (unaudited)

<S>                                    <C>         <C>         <C>         <C>     
Net sales                              $  9,505    $ 14,325    $ 20,625    $ 29,305
Cost of sales                             3,116       5,039       7,046      10,587
                                       --------    --------    --------    --------
         Gross profit                     6,389       9,286      13,579      18,718
                                       --------    --------    --------    --------

Operating expenses:
     Sales and Marketing                  5,633       6,655      12,638      13,067
     Product development                  2,266       1,340       4,656       2,593
     General and administrative           1,430       1,255       2,868       2,612
     Purchased in-process technology
        and related costs                  --        14,450        --        14,450
     Restructuring cost                    --          --         1,805        --
                                       --------    --------    --------    --------
         Total operating expenses         9,329      23,700      21,967      32,722
                                       --------    --------    --------    --------

         Loss from operations            (2,940)    (14,414)     (8,388)    (14,004)

Other income, net                           178         495         370         834
                                       --------    --------    --------    --------

          Loss before income taxes       (2,762)    (13,919)     (8,018)    (13,170)

Income tax benefit                         (812)       (685)     (2,683)       (400)
                                       --------    --------    --------    --------

          Net Loss                     $ (1,950)   $(13,234)   $ (5,335)   $(12,770)
                                       ========    ========    ========    ========

Net Loss per common  and
     equivalent share                  $   (.13)   $   (.91)       (.37)       (.86)
                                       ========    ========    ========    ========


Shares used in per share calculation     14,536      14,464      14,530      14,865
                                       ========    ========    ========    ========
</TABLE>
           See accompanying notes to consolidated financial statements
                                       4
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                    Six Months Ended
                                                                                      December 31,
                                                                                   --------------------
                                                                                     1996       1995
                                                                                   --------    --------
<S>                                                                                <C>         <C>      
Cash flows from operating activities:                                                  (unaudited)
     Net loss                                                                      $ (5,335)   $(12,770)
     Adjustments  to  reconcile  net  loss to net  cash  provided  by  operating
        activities:
            Purchased in-process technology                                            --        10,200
            Depreciation and amortization                                             1,380       1,162
            (Gain) Loss  from disposition of property and equipment                      (5)         37
            Deferred income taxes                                                       640        (527)
            Change in accounts receivable and inventory allowances                   (1,103)        730
            Tax benefit of disqualifying dispositions                                    22          70
            Changes in assets and liabilities,
              Trade accounts receivable                                               5,031       1,542
              Income taxes receivable                                                 1,635       3,500
              Notes and other receivables                                               332       1,258
              Inventories                                                             1,124        (371)
              Prepaid expenses                                                       (1,217)       (226)
              Other assets                                                              (80)        190
              Accounts payable and accrued liabilities                                 (524)     (1,538)
              Income taxes payable                                                     (241)       --
                                                                                   --------    --------

                   Net cash provided by operating activities                          1,659       3,257
                                                                                   --------    --------

Cash flows from investing activities:
     Purchases of investments                                                          --       (35,063)
     Sales of investments                                                              --        56,305
     Proceeds from sale of property and equipment                                        35        --
     Cash paid for businesses acquired                                                 --        (1,646)
     Purchases of property and equipment                                               (972)     (1,095)
                                                                                   --------    --------

              Net cash provided by (used in) investing activities                      (937)     18,501
                                                                                   --------    --------

Cash flows from financing activities:
     Proceeds from exercises of stock options                                            47         671
     Proceeds from sale-leaseback of equipment                                        1,368        --
     Principal payments on capital lease obligations                                   (147)       --
                                                                                   --------    --------

              Net cash provided by financing activities                               1,268         671
                                                                                   --------    --------


Net increase in cash and cash equivalents                                             1,990      22,429
Cash and cash equivalents at beginning of period                                     15,325      16,551
                                                                                   --------    --------
Cash and cash equivalents at end of period                                         $ 17,315    $ 38,980
                                                                                   ========    ========
</TABLE>
          See accompanying notes to consolidated financial statements
                                       5
<PAGE>
                         Artisoft, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1)      Basis of Presentation

         The consolidated financial statements include the accounts of Artisoft,
Inc. and its five wholly-owned subsidiaries: Triton Technologies, Inc., Artisoft
Europe B.V.,  Artisoft "FSC", Ltd. (which has elected to be treated as a foreign
sales corporation),  NodeRunner,  Inc., and Artisoft Japan, K.K. All significant
intercompany balances and transactions have been eliminated in consolidation.

         The accompanying  unaudited consolidated financial statements have been
prepared  by the  Company  in  accordance  with  generally  accepted  accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management,  the accompanying financial statements
include all adjustments (of a normal recurring nature) which are necessary for a
fair  presentation of the financial  results for the interim periods  presented.
Certain  information  and footnote  disclosures  normally  included in financial
statements   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations.  Although the Company believes that the disclosures are adequate to
make the  information  presented  not  misleading,  it is  suggested  that these
financial  statements be read in  conjunction  with the  consolidated  financial
statements and the notes thereto included in the Company's 1996 Annual Report to
Shareholders  and report on Form 10-K.  The  results of  operations  for the six
months ended December 31, 1996 are not necessarily  indicative of the results to
be expected for the full year.

(2)      Restructuring Cost

         During the quarter ended  September 30, 1996,  primarily in response to
lower than expected sales of LANtastic  network  operating system (NOS) products
during the quarter and  attendant  uncertainty  as to future sales levels of NOS
products,  the Company elected to take two principal actions;  first, to realign
the  resources  of the  Company to  accelerate  the  development,  delivery  and
potential  customer  adoption  of  new  computer  telephony  and  communications
products and, second, to reduce the Company's operating break-even point through
a reduction in operating  expenses.  As a result of these  actions,  the Company
recorded a pre-tax  restructuring charge of $1.8 million in the six months ended
December 31, 1996 to cover severance costs associated with a 50 person headcount
reduction and other related costs.

(3)      Acquisitions

         On November 22, 1995, the Company acquired substantially all the assets
and certain liabilities of Synergy Solutions, Inc. (Synergy), a software company
primarily engaged in the development, marketing and sales of modem and telephone
line sharing  software.  The aggregate cost of the acquisition was approximately
$1.5 million.

         On December  21, 1995,  the Company  purchased  all of the  outstanding
common  stock of  Triton  Technologies,  Inc.  ("Triton"),  a  software  company
primarily  engaged in the development,  marketing and sales of PC remote control
software.  The aggregate cost of acquiring the stock of Triton was approximately
$11.8  million.  The purchase  price was paid in cash and notes  payable,  which
notes were paid in full in January 1996.

         The Company incurred direct transaction costs of approximately $350,000
associated  with the  acquisitions. These costs consisted of fees for financial,
legal,  and  accounting  services  and were  included in the  allocation  of the
acquisition costs. The direct costs and purchase prices of the acquisitions were
allocated  to the  assets  acquired  and  liabilities  assumed  based  on  their
respective  fair  value  on  the  date  of  the  acquisitions,  as  follows  (in
thousands):
                                       6
<PAGE>
         Cash                                                  $     251
         Trade receivables                                           810
         Inventories                                                 108
         Property and equipment                                      123
         Purchased software                                        2,011
         Purchased in-process technology                          10,200
         Other                                                       108
                                                                --------
                                                                  13,611
         Less cash acquired                                         (251)
         Less liabilities assumed                                 (1,196)
                                                                ---------
                  Net assets acquired, excluding cash           $ 12,164
                                                                --------

         The acquisitions were accounted for as purchase  business  combinations
and,  accordingly,  the results of  operations  of the acquired  companies  were
combined with those of the Company as of the  respective  dates of  acquisition.
The proforma effects of the business  combinations for the quarter and six-month
period ended  December 31, 1995,  would have been  immaterial  to the  Company's
consolidated results of operations.

         In conjunction with the acquisitions,  the Company recorded a charge to
operations of $10.2 million relating to purchased in-process technology that had
not reached technological feasibility and had indeterminable  alternative future
use. The remaining  $2.0 million of the purchase  price  allocated to technology
was attributable to purchased software products and is being amortized over five
years.  In addition,  as a result of the  acquisitions,  the Company  charged to
operations  other related costs  totaling $4.3 million.  The other related costs
were principally  attributable to costs associated with the product  integration
of  Triton  and  Synergy  technology  with  the  Company's  technology  and  the
elimination  of duplicate  distribution  arrangements  in Europe.  Other related
costs  included  increases in  allowances  for returns,  rotations and inventory
obsolescence  associated with the transition to new  technology;  organizational
costs for  severance  and  outplacement;  and  facility  costs  relating  to the
cancellation of leases in order to support  consolidated  technical  support and
distribution.


(4)      Inventories

         Inventories consist of the following (in thousands):


                                            December 31,          June 30,
                                                1996                1996
                                                ----                ----

                  Raw materials               $ 1,364            $   2,167
                  Work-in-process                 535                  584
                  Finished goods                1,540                1,812
                                              -------            ---------
                                                3,439                4,563
                  Inventory allowances          (667)               (1,565)
                                              -------            ---------
                                              $ 2,772            $   2,998
                                              =======            =========
                                       7
<PAGE>
(5)      Property and Equipment

         Property and Equipment consist of the following (in thousands):

                                                   December 31,    June 30,
                                                        1996         1996
                                                        ----         ----

         Land                                        $     807    $      807
         Buildings and improvements                      1,992         1,991
         Furniture and fixtures                          1,096         1,058
         Computers and other equipment                  10,513         9,741
         Leasehold improvements                            175            93
                                                     ---------    ----------
                                                        14,583        13,690

         Accumulated depreciation and
         amortization                                    6,967         6,166
                                                     ---------    ----------
                                                     $   7,616    $    7,524
                                                     =========    ==========



(6)      Other Assets

         Other assets consist of the following (in thousands):

                                                    December 31,        June 30,
                                                        1996              1996

         Trademarks and patents, net of
                  accumulated amortization            $    253          $   285
         Purchased technology, net of
                  accumulated amortization               2,817            3,172
         Recoverable deposits and other                    216              127
                                                      --------          -------
                                                      $  3,286          $ 3,584
                                                      ========          =======


(7)      Capital Lease Obligations

         In   December   1996  the   Company   entered   into  a  $1.4   million
sales-leaseback of computer equipment and software. The underlying capital lease
has a term of three years,  requires monthly  payments of approximately  $42,000
and includes a 10% purchase option. 
                                       8
<PAGE>
                         Artisoft, Inc. and Subsidiaries

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

Results of Operations


         Net Sales.  The Company's net sales for the quarter ended  December 31,
1996 were $9.5  million,  a decrease of 34% from net sales of $14.3  million for
the  corresponding  quarter of fiscal 1996, and a decrease of 14% from the first
quarter of fiscal  1997 net sales of $11.1  million.  For the  six-month  period
ended December 31, 1996, the Company's net sales were $20.6 million,  a decrease
of 30% from net sales of $29.3  million for the  corresponding  period of fiscal
1996.  The  decreases  in net sales for the quarter and  six-month  period ended
December 31, 1996, as compared to the corresponding periods in fiscal 1996, were
principally  due to an increase in the  provisions  for product  returns and bad
debts,  and a reduction in sales of  LANtastic  network  operating  system (NOS)
products,  partially offset by sales of computer telephony and PC communications
products.  Sales of computer telephony and PC communications  products commenced
upon the  acquisitions  of three  software  companies  during the quarters ended
December 31, 1995 and March 31,  1996.  The decrease in net sales from the first
quarter  of fiscal  1997 was  principally  attributable  to an  increase  in the
Company's  provisions for product  returns and  allowances.  The increase in the
provisions was principally  attributable  to lower than expected  sales,  and an
assessment of the Company's European distribution channel status.

         The Company distributes its products in both the U.S. and international
markets.  U.S.  sales  decreased  27% to $6.6 million (69% of net sales) for the
quarter ended December 31, 1996,  from $8.8 million (62% of net sales),  for the
same quarter a year ago. U.S. sales  decreased 25% to $ 14.3 million (69% of net
sales), for the six-month period ended December 31, 1996 from $19.1 million (65%
of net sales),  for the same period in fiscal  1996.  The  decrease in U.S.  net
sales for both the second quarter of fiscal 1997 and the six-month  period ended
December  31,  1996,  as compared to the  corresponding  periods in fiscal 1996,
primarily  resulted from an increase in the  provisions for product  returns,  a
reduction in sales of LANtastic products in the U.S.  distribution  channels and
actions taken during the six-month period ended December 31, 1996 to reduce U.S.
channel inventories.

         International  sales  decreased 47% to $2.9 million (31% of net sales),
for the quarter ended  December 31, 1996,  from $5.5 million (38% of net sales),
for the same quarter a year ago,  and 15% from the first  quarter of fiscal 1997
sales of $3.4 million. International sales decreased 38% to $6.4 million (31% of
net sales),  for the six-month period ended December 31, 1996 from $10.2 million
(35% of net  sales)  for the  same  period  in  fiscal  1996.  The  decrease  in
international  net sales for both the quarter  and the  six-month  period  ended
December  31,  1996,  as compared to the  corresponding  periods in fiscal 1996,
primarily  resulted  from a  reduction  in sales of  LANtastic  NOS  products in
Europe, partially offset by sales of new products. The decrease in international
net sales from the quarter ended  September 30, 1996, is primarily the result of
increased allowances for product returns and rotations in Europe necessitated by
continued market softness in the European  distribution  channel and the release
of the European  language  versions of LANtastic 7.0 early in the quarter.  To a
lesser extent, net sales in Europe were also negatively  impacted by an increase
in the allowance for bad debts.

         Gross  Profit.  The  Company's  gross  profit was $6.4 million and $9.3
million for the quarters ended December 31, 1996 and 1995, respectively (67% and
65% of net  sales,  respectively).  Gross  profit  was $13.6  million  and $18.7
million  for  the  six-month   periods  ended   December  31,  1996,  and  1995,
respectively (66% and 64% of net sales, respectively). The net increase in gross
profit margin for both the quarter and the six-month period ended December 31, 
                                       9
<PAGE>
1996 as compared to the  corresponding  periods in fiscal 1996 was primarily the
result of higher  average  gross  margins in the Company's  product  lines.  The
higher average gross profit margins in the Company's  existing  product lines is
the result of higher margin  software  products  acquired in connection with the
purchase of three software companies during fiscal 1996 and software  components
comprising an increasing percentage of LANtastic NOS product sales. In addition,
an increasing  percentage of U.S.  software  sales as a component of overall net
sales  contributed  to the  improvement  in gross profit  margins.  Gross profit
margins  may  fluctuate  from  quarter to  quarter  due to changes in net sales,
product mix, pricing actions and changes in sales and inventory allowances.

         The sequential increase in gross profit margin from 65% for the quarter
ended  September 30, 1996, to 67% for the quarter ended December 31, 1996 is the
result  of  an  increase in sales  of  the   Company's   higher   margin  remote
communications software products (especially PC OEM sales).



         Sales and Marketing. Sales and marketing expenses were $5.6 million and
$6.7 million for the quarters  ended  December 31, 1996 and 1995,  respectively,
(59% and 46% of net sales,  respectively).  Sales and  marketing  expenses  were
$12.6 million and $13.1 million for the six-month period ended December 31, 1996
and 1995, respectively,  (61% and 45% of net sales, respectively).  The decrease
in aggregate  dollars for sales and  marketing  expenses for the quarter and the
six-month  periods  ended  December 31, 1996,  as compared to the  corresponding
periods in fiscal 1996, are due primarily to the Company's restructuring actions
undertaken  during the quarter ended  September 30, 1996 that reduced  operating
expenses,  offset  by the cost of  activities  related  to the  introduction  of
LANtastic 7.0 to the Company's  existing VAR network.  The increase in sales and
marketing  expenses  as a  percentage  of net  sales  for  the  quarter  and the
six-month  period  ended  December  31, 1996 as  compared  to the  corresponding
periods in fiscal 1996, are due to the decrease in net sales.

         Product Development. Product development expenses were $2.3 million and
$1.3 million for the quarters  ended  December 31, 1996 and 1995,  respectively,
(24% and 9% of net sales, respectively).  Product development expenses were $4.7
million and $2.6 million for the six-month  periods ended  December 31, 1996 and
1995,  respectively,  (23% and 9% of net sales,  respectively).  The increase in
both aggregate dollars for product  development  expenses and as a percentage of
net sales for the  quarter  and  six-month  period  ended  December  31, 1996 as
compared to the corresponding periods in fiscal 1996 is principally attributable
to the addition of product  development  personnel in the Computer Telephony and
Communications  product group,  both in connection with the  acquisitions of the
three  software  companies in fiscal 1996 and  subsequent  thereto to accelerate
development efforts in this segment.

         General and  Administrative.  General and administrative  expenses were
$1.4 million and $1.3 million for the quarters ended December 31, 1996 and 1995,
respectively,   (15%  and  9%  of  net   sales,   respectively).   General   and
administrative  expenses  were $2.9 million and $2.6  million for the  six-month
periods  ended  December  31,  1996  and  1995,   respectively,   (14%  and  9%,
respectively).  The  increase  in  general  and  administrative  expenses  as  a
percentage of net sales for the quarter and the six-month  period ended December
31, 1996 as compared to the  corresponding  periods in fiscal 1996 is solely the
result of the  decrease  in net sales.  The  increase in  aggregate  dollars for
general and  administrative  expenses for the quarter and the  six-month  period
ended  December 31,  1996,  as compared to the  corresponding  periods in fiscal
1996, is principally attributable to the addition of administrative personnel in
the acquired software companies referenced above, partially offset by reductions
in existing  administrative  personnel  costs in the quarter ended  December 31,
1996 associated with the realignment of Company resources completed in the first
quarter of fiscal 1997.

         Restructuring  Cost.  During the  quarter  ended  September  30,  1996,
primarily  in  response  to  lower  than  expected  sales of  LANtastic  network
operating system (NOS) products and attendant uncertainty as to future
                                       10
<PAGE>
sales levels of NOS products, the Company elected to take two principal actions;
first,  to realign the resources of the Company to accelerate  the  development,
delivery and  customer  adoption of new computer  telephony  and  communications
products and, second, to significantly reduce the Company's operating break-even
point through a reduction in operating  expenses.  The effect of the realignment
was to increase the Company's investment in product  development,  marketing and
channel  development in the high growth  computer  telephony and  communications
segments  of the  business  and  thereby  bring  more focus to the  delivery  of
products in these areas, as well as to support  continuing  differentiation  for
LANtastic in the future.  As a result of these actions,  the Company  recorded a
pre-tax  restructuring  charge of $1.8 million in the six months ended  December
31,  1996  to  cover  severance  costs  associated  with a 50  person  headcount
reduction and other related costs.

         Purchased  In-Process  Technology  And Related  Costs.  On November 22,
1995, the Company acquired  substantially all the assets and certain liabilities
of Synergy  Solutions,  Inc.  ("Synergy")  a software  company  primarily in the
business of  developing,  marketing  and  selling  modem and  telephone  sharing
software. The aggregate cost of acquiring all the assets and certain liabilities
of Synergy was approximately  $1.5 million.  The purchase price was paid in cash
from the Company's  existing cash  balances.  On December 21, 1995,  the Company
completed the acquisition of the outstanding stock of Triton Technologies,  Inc.
("Triton")  a software  company  that  develops  and  markets PC remote  control
software.  The aggregate cost of acquiring the stock of Triton was approximately
$11.8  million.  The  purchase  price was paid in cash and notes  payable  as of
December  31,  1995 and the  majority  of the  note  payable  was paid  from the
Company's  existing cash balances in January 1996. The Company  incurred  direct
transaction costs of approximately  $350,000 associated with these acquisitions.
These costs consisted of fees for financial,  legal and accounting  services and
were included in the allocation of the acquisition  costs.  The direct costs and
purchase price of the  acquisitions  have been allocated to the assets  acquired
and liabilities  assumed based on their respective fair value on the date of the
acquisitions.  The acquisitions were accounted for as purchases.  The results of
each of the  acquired  companies  have been  combined  with the  results  of the
Company as of the respective dates of acquisition.

         In  conjunction  with the  purchase of Synergy and Triton,  the Company
recorded  a  charge  to  operations  of  $10.2  million  relating  to  purchased
in-process  technology  that had not  reached  the  working  model stage and has
indeterminable  alternative  future  use.  In  addition,  as  a  result  of  the
acquisitions,  the Company  charged to operations  other related costs  totaling
$4.3  million.  The other related costs are  principally  attributable  to costs
associated  with the product  integration of Triton and Synergy  technology with
the Company's  technology  and the  elimination  of a layer of  distribution  in
Europe.  Other related costs also included  increases in allowances for returns,
rotations and  inventories  associated  with the transition to a new technology;
organizational costs for severance and outplacement; and facility costs relating
to the  cancellation  of leases in order to  consolidate  technical  support and
distribution.  Although the Company  expects that the elimination of duplicative
expenses  as  well as  other  efficiencies  related  to the  integration  of the
businesses  acquired may offset  additional  expenses over time, there can be no
assurance that such benefit will be achieved in the near term, or at all.


         Other  Income,  Net.  For the  quarter  ended  December  31, 1996 other
income, net, decreased to $178,000 from $495,000 in the corresponding quarter of
fiscal 1996.  For the six-month  period ended  December 31, 1996,  other income,
net,  decreased to $370,000 from $834,000 in the corresponding  period of fiscal
1996. The decrease in other income, net, for the quarter ended December 31, 1996
and the six months ended December 31, 1996 resulted principally from a reduction
in investment income. Investment and cash balances decreased from $39 million at
December 31, 1995 to $17.3 million at December 31, 1996  principally  due to the
acquisition of three software companies in fiscal 1996.

         The Company's  effective income tax rate for the quarter ended December
31, 1996, was (29.3%) compared to an effective rate of (5%) in the corresponding
quarter of fiscal 1996.  The increase in the  effective  income tax rate for the
quarter ended December 31, 1996, as compared the corresponding quarter in fiscal
1996 is principally the result of the  non-deductibility of purchased in-process
technology  recognized  in  connection  with the  purchase of Triton  during the
quarter ended  December 31, 1995 and to a lesser extent  adjustments  to the tax
benefit recognized for state net operating loss carryforwards.

Liquidity and Capital Resources

         The Company had cash and cash  equivalents of $17.3 million at December
31,  1996,  compared to $15.3  million at June 30,  1996 and working  capital of
$32.1  million at December  31,  1996 and $36.8  million at June 30,  1996.  The
increase in cash and cash  equivalents was principally the result of the receipt
of an aggregate federal income tax refund
                                       11
<PAGE>
of approximately  $4.9 million and from cash received from a  sale-leaseback  of
computer and related equipment of approximately $1.4 million partially offset by
severance  payments  associated  with the Company's  organizational  realignment
effected  at the end of the  quarter  ended  September  30,  1996  (See  caption
entitled  Restructuring  Cost above).  Days sales  outstanding in trade accounts
receivable  at December 31, 1996  increased to 113 days from 97 days at June 30,
1996 due  principally  to the quarter  over quarter  decrease in net sales.  The
Company  believes  that its  allowances  for returns and  doubtful  accounts are
adequate.

         The Company funds its working capital  requirements  primarily  through
cash flows  from  operations  and  existing  cash  balances.  While the  Company
anticipates  that existing cash balances and cash flows from  operations will be
adequate to meet the  Company's  current and expected cash  requirements  for at
least the next year,  additional  investments  by the  Company  to  acquire  new
technologies  and products may necessitate that the Company seek additional debt
or equity capital.



Risk Factors

         The PC industry is highly  competitive and is  characterized by rapidly
changing  technology and evolving  industry  standards.  The Company's  products
compete with  products  available  from numerous  companies,  many of which have
substantially  greater  financial,   technological,   production  and  marketing
resources than those of the Company. Competition in the PC industry is likely to
intensify as current  competitors  expand their product lines, more features are
included in operating systems (e.g., Windows 95), and as new companies enter the
markets or segments in which the Company  currently  competes.  The  industry is
also characterized by a high degree of consolidation which favors companies with
greater resources than those of the Company.  There can be no assurance that the
Company's  products  will be able to compete  successfully  with other  products
offered presently or in the future by other vendors.

         The  Company is exposed to the risk of product  returns  and  rotations
from its distributors and volume  purchasers,  which are recorded by the Company
as a reduction in sales. Although the Company attempts to monitor and manage the
volume of its sales to distributors and volume  purchasers,  overstocking by its
distributors and volume purchasers or changes in inventory policies or practices
by distributors and volume  purchasers may require the Company to accept returns
above historical  levels. In addition,  the risk of product returns may increase
if the  demand  for new  products  introduced  by the  Company is lower than the
Company  anticipates at the time of introduction.  Although the Company believes
that it  provides  an  adequate  allowance  for sales  returns,  there can be no
assurance that actual sales returns will not exceed the Company's allowance. Any
product  returns in excess of  recorded  allowances  could  result in a material
adverse  effect on net sales and operating  results.  As the Company  introduces
more new products,  the  predictability and timing of sales to end users and the
management  of returns to the  Company of unsold  products by  distributors  and
volume purchasers becomes more complex and could result in material fluctuations
in quarterly sales and operating results.

         The Company is also exposed to its  distributors  for price  protection
for  list  price  reductions  by  the  Company  on its  products  held  in  such
distributors'  inventories.  The Company  provides its  distributors  with price
protection in the event that the Company reduces the list price of its products.
Distributors  and volume  purchasers  are  usually  offered  some credit for the
impact of a list price  reduction  on the expected  revenue  from the  Company's
products in the  distributors'  inventories at the time of the price  reduction.
Although the Company  believes  that it has provided an adequate  allowance  for
price protection, there can be no assurance that the impact of actual list price
reductions  by the Company will not exceed the  Company's  allowance.  Any price
protection in excess of recorded  allowances  could result in a material adverse
effect on sales and operating  results.  As the Company introduces new products,
the  predictability  and timing of sales to end-users and returns to the Company
of unsold products by distributors  and volume  purchasers  becomes more complex
and could  result in material  fluctuations  in  quarterly  sales and  operating
results.

         Substantially  all of the  Company's  revenue  in each  fiscal  quarter
results from orders  booked in that  quarter.  A  significant  percentage of the
Company's   bookings  and  sales  to  major   customers  on  a  quarterly  basis
historically  has  occurred  during  the  last  month  of the  quarter  and  are
concentrated in the latter half of that month.  Orders placed by 
                                       12
<PAGE>
major customers are typically based upon customers'  forecasted sales levels for
Company  products  and  inventory  levels  of  Company  products  desired  to be
maintained by those major customers at the time of the orders. Moreover,  orders
may also be based  upon  financial  practices  by major  customers  designed  to
increase  the  return  on  investment  or  yield on the  sales of the  Company's
products to VARs or  end-users.  Major  distribution  customers  receive  market
development  funds from the Company for  purchasing  Company  products  and from
time-to-time  may also receive  negotiated  cash rebates or extended  terms,  in
accordance  with  industry  practice,  depending  upon  competitive  conditions.
Changes in purchasing  patterns by one or more of the Company's major customers,
changes in customer  policies  pertaining to desired inventory levels of Company
products, negotiations of market development funds and rebates, or otherwise, or
in the  Company's  ability to  anticipate in advance the product mix of customer
orders, or to ship large quantities of products near the end of a quarter, could
result in  material  fluctuations  in  quarterly  operating  results.  Expedited
outsourcing of production and component parts to meet unanticipated demand could
also adversely affect gross margins.

         The Company  believes  that there is a trend  among major  distribution
customers  and volume  purchasers to reduce their  inventory  levels of computer
products, including the Company's products. This trend could have a significant,
adverse effect on the Company's  operating  results during the period or periods
that customers initiate such inventory  reductions or at such times as customers
elect to further reduce their inventory levels of the Company's products.

         Microsoft,  a significant  competitor of the Company, today offers, and
is expected in the future to offer, Windows- and NT-based products which include
features  competitive  with certain  features  found in products  offered by the
Company.  Because of the  dominance  and market  visibility  of Microsoft in the
personal computer software market, the presence of the Microsoft products in the
market may affect the sales of the Company's  products and,  depending  upon the
degree of such effect,  could have a significant adverse effect on the Company's
operating  results.  In addition,  as a result of its  dominant  position in the
market for personal computer operating systems,  the Microsoft  operating system
and other  products  are  frequently  installed at no  additional  charge on new
personal  computers and thereby  placed  directly into the hands of the end-user
customer.  Such  distribution  provides a  favorable  market  advantage  for the
features of its products,  to the potential  detriment of the Company's  product
sales.  Novell,  also a  significant  competitor  of the  Company,  has recently
announced  a February  1997  release of a new version of its  IntraNetWare  NOS,
aimed at small  businesses,  the Company's  principal  NOS market.  The product,
IntranetWare for Small Business,  is targeted toward small businesses with 25 or
fewer users and priced lower than previous  NetWare  versions,  including a user
based licensing  model similar to LANtastic's,  whereby a user can add new users
to  the  network  in  smaller  increments.   Novell  has  substantially  greater
financial,  technological,  production and marketing resources than those of the
Company,  and  introduction  of its new  products  could  adversely  affect  the
Company's competitive positioning, and its financial results.

         During the quarter ended December 31, 1996,  the Company  announced and
released two new Internet software  products,  XtraMail and i.Share 2.0, both of
which are  targeted  at  Microsoft,  Novell,  and  Artisoft  network  customers.
XtraMail is an e-mail  server  software  product  that runs on  Microsoft  NT or
Windows 95 servers and enables businesses to send and receive interoffice e-mail
via their local area networks at the same time they transparently pass e-mail to
and  from the  Internet.  i.Share  2.0 is an  Internet  access-sharing  software
product for networked PCs and enables  multiple users to share a single Internet
connection simultaneously.  While industry sources consistently report growth in
the  adoption of the Internet in all sizes of  businesses,  the industry is also
experiencing  similar  growth in the  number  of  well-known  companies  and new
entrants  with similar  products  into the  Internet  and  intranet  application
market. While the Company believes its products are comparable and competitively
priced  relative  to  current  and  anticipated  new  products,  there can be no
assurance of the success of these products.

         During the  six-month  period  ended  December  31,  1996,  the Company
experienced  significantly  lower than  expected net sales of its  LANtastic NOS
products.  The principal  cause of the lower than expected net sales were higher
than anticipated  returns and rotations from the European  distribution  channel
along with seasonal  market  softness in Europe and in the U.S. during the first
fiscal  quarter of 1997. In addition,  the Company did not  experience the sales
improvement in Europe that historically  occurs in the December quarter compared
to the September  quarter.  There can be no assurance that LANtastic  sales will
substantially  improve or that European  distribution channels will not continue
to experience returns and rotations in excess of historical norms.

         Due to  the  foregoing,  and  other  factors  affecting  the  Company's
operating results,  past financial  performance should not be considered to be a
reliable  indicator  of  future  performance,   and  investors  should  not  use
historical trends to anticipate results or trends in future periods.
                                       13
<PAGE>
"Safe Harbor"  Statement under the Private  Securities  Litigation Reform Act of
1995

         This Form 10-Q may  contain  forward-looking  statements  that  involve
risks  and  uncertainties,   including,  but  not  limited  to,  the  impact  of
competitive  products and pricing,  product demand and market  acceptance risks,
the  presence  of  competitors  with  greater   financial   resources,   product
development and  commercialization  risks, costs associated with the integration
and  administration of acquired  operations,  capacity and supply constraints or
difficulties,  the results of financing  efforts and other risks  detailed  from
time to time in the Company's Securities and Exchange Commission filings.
                                       14
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                           PART II. OTHER INFORMATION


Item 1.     LEGAL PROCEEDINGS


             The Company is subject to lawsuits and other claims  arising in the
ordinary  course of its  operations.  In the  opinion  of  management,  based on
consultation  with legal  counsel,  the effects of such  matters will not have a
materially adverse effect on the Company's financial position.

Item 2.     CHANGES IN SECURITIES
                 None

Item 3.     DEFAULTS UPON SENIOR SECURITIES
                 None

Item 4.     SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS

                 (a)    The Company's Annual  Shareholders'  Meeting was held on
                        October 22, 1996.

                 (b)    At the  Annual  Shareholders'  Meeting,  proposals  were
                        considered  for, (i) the election of Kathryn A. Braun as
                        a Class II director to serve until the annual meeting of
                        shareholders'  in  1999,  (ii) the  election  of Gary E.
                        Liebl as a Class II  director  to serve until the annual
                        meeting  of   shareholders'   in  1999,  and  (iii)  the
                        ratification  of the  selection of KPMG Peat Marwick LLP
                        as the auditors of the Company for the 1997 fiscal year.

                        The director-nominees  were elected and the ratification
                        of KPMG Peat  Marwick LLP was  approved  with the voting
                        results as follows:


<TABLE>
<CAPTION>
Proposal                      Votes For            Votes Against         Votes Withheld        Abstained         Not-Voted
--------                     ---------------------------------------------------------------------------------------------
<S>                          <C>                     <C>                    <C>                <C>                 <C>
                                                                                                                      
Election of Kathryn
A. Braun as a Class
II Director                  13,236,106                 -                   382,013               -                  -

Election of Gary
E. Liebl as a Class
II Director                  13,230,506                 -                   386,066               -                  -

Ratification of
selection of KPMG
Peat Marwick as
auditors of the
Company for fiscal
year 1997                    13,523,109              57,013                   -                37,997                -
</TABLE>
                                       15
<PAGE>
Item 5.     OTHER INFORMATION
                 None

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits
              No. 11 - Computation of Net Income Per Share

              No. 27 - Financial  Data Schedule for Form 10-Q dated February 14,
                       1997

(c)   Reports on Form 8-K
              The  Company  filed a report on Form 8-K,  dated  November 8, 1996
              announcing  the  resignation  of Joel J. Kocher as  President  and
              Chief Operating Officer effective November 8, 1996.
                                       16
<PAGE>
                                   SIGNATURES

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

                                ARTISOFT, INC.







Date:  February 14, 1997        By    /s/ William C. Keiper
                                  ------------------------------------
                                      William C. Keiper
                                      Chairman and Chief Executive Officer






                                By    /s/ Gary R. Acord
                                  ------------------------------------
                                      Gary R. Acord
                                      Vice President and Chief Financial Officer
                                      (Principal Financial Officer)
                                       17