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                       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 September 30, 2001

                                       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)


                               5 Cambridge Center
                               Cambridge, MA 02142
                                 (617) 354-0600
               (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 (November 14, 2001).

                 Common stock, $.01 par value: 15,737,668 shares

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<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
                                      INDEX



                                                                            PAGE
                                                                            ----
PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements

             Condensed Consolidated Balance Sheets-
               September 30, 2001 (Unaudited) and June 30, 2001                3

             Unaudited Condensed Consolidated Statements of Operations-
               Three Months Ended September 30, 2001 and 2000                  4

             Unaudited Condensed Consolidated Statements of Cash Flows-
               Three Months Ended September 30, 2001 and 2000                  5

             Notes to Unaudited Condensed Consolidated Financial
               Statements                                                   6-10

     Item 2. Management's Discussion and Analysis of Financial
               Condition and Results of Operations                         11-20

     Item 7(a). Quantitative and Qualitative Disclosures about Market
                  Risk                                                        20

PART II. OTHER INFORMATION

     Item 1. Legal Proceedings                                                21

     Item 2. Changes in Securities                                         21-23

     Item 3. Defaults Upon Senior Securities                                  23

     Item 4. Submission of Matters to a Vote by Security Holders              23

     Item 5. Other Information                                                23

     Item 6. Exhibits and Reports on Form 8-K                              23-24

SIGNATURES                                                                    24

                                       2
<PAGE>
                        ARTISOFT, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,     JUNE 30,
                                                                           2001           2001
                                                                         ---------      ---------
                                                                        (UNAUDITED)
<S>                                                                    <C>            <C>
                                     ASSETS
Current Assets:
  Cash and cash equivalents                                            $   7,606      $   5,801
  Receivables:
    Trade accounts, net of allowances of $498 and $1,130                     229            488
    at September 30, 2001 and 2000, respectively
    Other receivables                                                          8             27
  Inventories                                                                495            674
  Prepaid expenses                                                           242            500
                                                                       ---------      ---------
         Total current assets                                              8,580          7,490
                                                                       ---------      ---------
  Property and equipment                                                   3,330          3,331
    Less accumulated depreciation and amortization                        (2,144)        (1,943)
                                                                       ---------      ---------
         Net property and equipment                                        1,186          1,388
                                                                       ---------      ---------

  Other assets                                                               241            187
                                                                       ---------      ---------

                                                                       $  10,007      $   9,065
                                                                       =========      =========
                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                     $     265      $     682
  Accrued liabilities                                                      1,768          1,424
  Deferred revenue                                                           194            168
                                                                       ---------      ---------
       Total current liabilities                                           2,227          2,274
                                                                       ---------      ---------

Commitments and contingencies                                                 --             --

Shareholders' equity:
  Preferred stock, $1.00 par value. Authorized 11,433,600 shares;
    issued 1,560,000 Series B shares at September 30, 2001                 1,560             --
  Common stock, $.01 par value. Authorized 50,000,000 shares;
    issued 29,058,168 shares at September 30, 2001
    and 29,051,168 at June 30, 2001                                          291            291
  Additional paid-in capital                                             104,459        102,318
  Accumulated deficit                                                    (28,746)       (26,034)
  Less treasury stock, at cost, 13,320,500 shares at September 30,
    2001 and June 30, 2001                                               (69,784)       (69,784)
                                                                       ---------      ---------
       Net shareholders' equity                                            7,780          6,791
                                                                       ---------      ---------
                                                                       $  10,007      $   9,065
                                                                       =========      =========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

                                       3
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
                                                                            SEPTEMBER 30,
                                                                       ----------------------
                                                                         2001          2000
                                                                       --------      --------
<S>                                                                    <C>           <C>
Net revenue:
  Product                                                              $  1,398      $  1,659
  Services                                                                   20           562
                                                                       --------      --------
       Total net revenue                                                  1,418         2,221

Cost of sales:
  Product                                                                   221           499
  Services                                                                   12           426
                                                                       --------      --------
       Total cost of sales                                                  233           925

Gross profit:
  Product                                                                 1,177         1,160
  Services                                                                    8           136
                                                                       --------      --------
       Total gross profit                                                 1,185         1,296

Operating expenses:
  Sales and marketing                                                     1,570         2,433
  Product development                                                     1,141           836
  General and administrative                                              1,244         1,264
                                                                       --------      --------
       Total operating expenses                                           3,955         4,533
                                                                       --------      --------

Loss from operations                                                     (2,770)       (3,237)

Other income, net                                                            58           189
                                                                       --------      --------

       Net loss                                                          (2,712)       (3,048)
                                                                       --------      --------

Dividend to Series B preferred stock                                     (2,379)           --

Loss applicable to common stock                                        $ (5,091)     $ (3,048)
                                                                       ========      ========
Net loss applicable to common stock-Basic and Diluted                  $  (0.32)     $  (0.20)
                                                                       ========      ========

Weighted average common shares outstanding-Basic and Diluted             15,731        15,591
                                                                       ========      ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.

                                       4
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED
                                                                          SEPTEMBER 30,
                                                                    -----------------------
                                                                     2001            2000
                                                                    -------         -------
                                                                          (unaudited)
<S>                                                                 <C>             <C>
Cash flows from operating activities:
  Net loss                                                          $(2,712)        $(3,048)
  Adjustments to reconcile net loss to net
   cash used in operating activities:
     Depreciation and amortization                                      204             192
     Non-cash changes in accounts receivable and
      inventory allowances:
     Additions                                                           --              --
     Reductions                                                          --             (50)

Changes in assets and liabilities:
  Receivables:
    Trade accounts                                                      259             544
    Other receivables                                                    19              21
  Inventories                                                           179            (403)
  Prepaid expenses                                                      258            (259)
  Accounts payable                                                     (417)             30
  Accrued liabilities                                                   344             120
  Deferred revenue                                                       26              46
  Net assets from discontinued operations                                --           1,864
  Other assets                                                          (54)            (61)
                                                                    -------         -------
       Net cash used in operating activities                         (1,894)         (1,004)
                                                                    -------         -------
Cash flows from investing activities:
  Proceeds from sale of investment securities                            --           1,011
  Purchases of property and equipment                                    (2)           (411)
                                                                    -------         -------
       Net cash provided by (used in) investing activities               (2)            600
                                                                    -------         -------
Cash flows from financing activities:
  Proceeds from issuance of preferred stock (net of expense)          3,680              --
  Proceeds from the exercise of stock options                            21             769
                                                                    -------         -------
       Net cash provided by financing activities                      3,701             769
                                                                    -------         -------

Net increase in cash and cash equivalents                             1,805             365

Cash and cash equivalents at beginning of period                      5,801           5,120
                                                                    -------         -------

Cash and cash equivalents at end of period                          $ 7,606         $ 5,485
                                                                    =======         =======
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements.

                                       5
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        (in thousands, except percentages, shares and per share amounts)

(1) BASIS OF PRESENTATION

     Artisoft,  Inc.,  ("Artisoft",  the "Company" or the Registrant") develops,
markets  and  sells  computer  telephony  software   application   products  and
associated services.

     The  Company's  principal  executive  offices  are  located at 5  Cambridge
Center, Cambridge,  Massachusetts 02142. The telephone number at that address is
(617) 354-0600. The Company was incorporated in November 1982 and reincorporated
by merger in Delaware in July 1991.

     The condensed  consolidated  financial  statements  include the accounts of
Artisoft,  Inc.,  and  its  three  wholly-owned  subsidiaries.  All  significant
intercompany balances and transactions have been eliminated in consolidation.

     The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company 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.  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 2001 Form 10-K. The results of operations for
the three months ended September 30, 2001 are not necessarily  indicative of the
results to be expected for the full year or any other future periods.

(2) RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141,  BUSINESS  COMBINATIONS  ("SFAS  141")  and SFAS  142,  GOODWILL  AND OTHER
INTANGIBLE  ASSETS ("SFAS 142").  SFAS 141 requires that the purchase  method of
accounting be used for all business combinations  initiated after June 30, 2001.
SFAS 141 also  specifies  the  criteria  that  intangible  assets  acquired in a
purchase  method  business  combination  must meet to be recognized and reported
apart from goodwill.  SFAS 142 requires that goodwill and intangible assets with
indefinite  useful lives will no longer be amortized,  but instead be tested for
impairment,  at least  annually,  in accordance with the provisions of SFAS 142.
SFAS 142 will also require that intangible  assets with definite useful lives be
amortized  over  their  respective  estimated  useful  lives to their  estimated
residual  values,  and  reviewed for  impairment  in  accordance  with SFAS 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED  ASSETS AND LONG-LIVED  ASSETS TO BE
DISPOSED OF.

     The provisions of SFAS 141 are effective immediately, except with regard to
business  combinations  initiated  prior  to June  30,  2001.  SFAS  142 will be
effective as of July 1, 2002. Goodwill and other intangible assets determined to
have an  indefinite  useful  life that are  acquired  in a business  combination
completed  after July 1, 2001 will not be  amortized,  but will  continue  to be
evaluated for impairment in accordance with appropriate  pre-SFAS 142 accounting
literature.   Goodwill  and  other   intangible   assets  acquired  in  business
combinations  completed  before July 1, 2001 will continue to be amortized prior
to the  adoption of SFAS 142.  The Company  adopted SFAS 141 on July 1, 2000 and
there was no impact on the  results of  operation  or  financial  position.  The
Company  does not believe  there will be a material  effect from the adoption of
SFAS 142.

                                       6
<PAGE>
     The FASB also recently  issued SFAS 143,  ACCOUNTING  FOR ASSET  RETIREMENT
OBLIGATIONS ("SFAS 143)" which addresses financial  accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 requires an enterprise to record the
fair value of an asset  retirement  obligation  as a liability  in the period in
which it incurs a legal obligation  associated with the retirement of a tangible
long-lived  asset. SFAS 143 also requires the enterprise to record the contra to
the initial  obligation  as an increase  to the  carrying  amount of the related
long-lived  asset and to depreciate that cost over the remaining  useful life of
the asset.  The  liability  is changed at the end of each  period to reflect the
passage of time  changes in the  estimated  future  cash  flows  underlying  the
initial fair value measurement. SFAS 143 is effective for fiscal years beginning
after June 15,  2002.  The  Company is  currently  examining  the impact of this
pronouncement on the results of operation and financial position of the Company,
but currently believes the impact will not be material.

     In October 2001,  FASB issued SFAS 144,  ACCOUNTING  FOR THE  IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS ("SFAS 144), which addresses financial  accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement  No.121,  ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED  ASSETS AND
FOR  LONG-LIVED  ASSETS  TO BE  DISPOSED  OF.  SFAS  144  retains  many  of  the
fundamental  provisions  of  that  Statement.   SFAS  144  also  supersedes  the
accounting and reporting  provisions of Accounting  Principle  Board Opinion 30,
REPORTING  THE  RESULTS OF  OPERATIONS--REPORTING  THE  EFFECTS OF DISPOSAL OF A
SEGMENT OF A BUSINESS,  AND  EXTRAORDINARY,  UNUSUAL AND INFREQUENTLY  OCCURRING
EVENTS AND TRANSACTIONS ("ABP 30"), for the disposal of a segment of a business.
However, it retains the requirement in APB 30 to report separately  discontinued
operations  and extends  that  reporting to a component of an entity that either
has been disposed of (by sale,  abandonment,  or in a distribution to owners) or
is classified as held for sale. SFAS 144 is effective for fiscal years beginning
after  December 15, 2001 and interim  periods  within those  fiscal  years.  The
Company is currently  examining the impact of this  pronouncement on the results
of operation and financial  position of the Company,  but currently believes the
impact will not be material.

(3) REVENUE RECOGNITION

     The  Company  follows  the  provisions  of  SOP  97-2,   SOFTWARE   REVENUE
RECOGNITION as amended by SOP 98-9,  Modification  of SOP 97-2 SOFTWARE  REVENUE
RECOGNITION,  with  Respect  to Certain  Transactions.  Generally,  the  Company
recognizes  revenue when it is realized or  realizable  and earned.  The Company
considers revenue realized or realizable and earned when persuasive  evidence of
an  arrangement  exists,  the product has been shipped or the services have been
provided  to the  customer,  the  sales  price  is  fixed  or  determinable  and
collectibility is reasonably assured.  The Company reduces revenue for estimated
customer  returns,  rotations and sales rebates.  Revenue from software  license
agreements  that  have  significant  customizations  and  modifications  of  the
software  product is deferred and recognized in a manner that  approximates  the
percentage  of  completion  method.  In addition to the  aforementioned  general
policy,  the following are the specific  revenue  recognition  policies for each
major category of revenue.

     SERVICES. Revenue from time and material service contracts is recognized as
the  services are  provided.  Revenue  from fixed  price,  long-term  service or
development  contracts  is  recognized  over  the  contract  term  based  on the
percentage of the cost of services that are provided  during the period compared
with the  total  estimated  cost of  services  to be  provided  over the  entire
contract.  Losses on fixed price  contracts are recognized  during the period in
which the loss first becomes apparent.

     PRODUCTS-SOFTWARE,  NOT-FOR-RESALE KITS (NFR'S) AND HARDWARE.  Revenue from
delivered  elements of one-time  charge  licensed  software is recognized at the
inception  of  the  license  term,  provided  the  Company  has  vendor-specific
objective  evidence of the fair value of each  undelivered  element.  Revenue is
deferred  for  undelivered  elements.  Revenue is also  deferred  for the entire
arrangement if  vendor-specific  evidence  objective evidence does not exist for
each undelivered contract element. Examples of undelivered elements in which the

                                       7
<PAGE>
timing of delivery is uncertain include contractual elements that give customers
rights to any future upgrades at no additional charge or future maintenance that
is provided  within the overall  price.  The  revenue  that is deferred  for any
contract element is recognized when all of the revenue recognition criteria have
been  met for  that  element.  Revenue  for  annual  software  subscriptions  is
recognized ratably over the length of the software subscription.

     In December 1999, the Company executed a strategic  partnership with Intel.
Under the terms of the agreement, the Company was required to provide Intel with
a software-based phone switch,  voice mail and auto attendant  applications that
are compatible with Intel's softswitch  framework and CT Media platform.  In May
2001, Artisoft announced the release of these  applications,  called TeleVantage
CTM Suite.  TeleVantage CTM Suite is being loaded on certain  configurations  of
the  Intel  Converged   Communications   Platform,   an  open   standards-based,
application  ready  platform  that  will  support  a broad  range of  compatible
telephone  and business  applications,  peripherals,  and services from multiple
vendors on a single system.  The Company  delivered this product to Intel in May
2001, and Intel began shipping the  applications in August 2001. The Company has
recognized  revenues associated with this fixed price arrangement of $20,000 and
$347,000 for the quarters ended September 30, 2001 and 2000,  respectively.  The
Company  completed  the  recognition  of this revenue  during the quarter  ended
September  30, 2001.  Although  TeleVantage  CTM Suite began  shipping in August
2001, the Company expects that significant  revenues from the CTM Suite will not
occur until calendar year 2002.

     In January 2000,  the Company  executed a strategic  partnership  agreement
with Toshiba America Information Systems (Toshiba) intended to allow the Company
and  Toshiba to deliver an  integrated  communications  server and  software-PBX
solution for small and  midsized  businesses.  TeleVantage  4.0  represents  the
results of a 1-1/2 year  joint-engineering  project  with  Toshiba to  integrate
TeleVantage  with  Toshiba  digital  handsets.  Through  an  Original  Equipment
Manufacturer "OEM" arrangement with Artisoft,  Toshiba is marketing  TeleVantage
4.0 under the Strata CS brand, which is being distributed and supported thorough
Toshiba's established dealer channel. Under the terms of the agreement,  Toshiba
will purchase  licenses of TeleVantage  for customized  versions of the software
product to be integrated  with its digital  handsets and  communications  server
product  offerings.  The  costs  associated  with this  customization  have been
incurred and reported as an element of cost of sales as part of this development
agreement.  For the  quarters  ended  September  30, 2001 and 2000,  the Company
recognized net service revenue of $0 and $215,000,  respectively.  However,  the
Company did recognize  $82,000 in Toshiba  product revenue for the quarter ended
September 30, 2001.

(4) COMPUTATION OF NET LOSS PER SHARE

     Net loss per  share-basic  and diluted are based upon the weighted  average
number of common shares  outstanding.  Common equivalent  shares,  consisting of
outstanding stock options, convertible preferred shares and warrants to purchase
common stock are included in the diluted per share calculations where the effect
of their inclusion would be dilutive.

     A reconciliation  of basic and diluted weighted average common shares is as
follows (in thousands):

                                                   SEPTEMBER 30,   SEPTEMBER 30,
                                                      2001             2000
                                                     ------           ------
Weighted average shares-basic                        15,731           15,591

Net effect of dilutive potential common shares
  outstanding based on the Treasury stock method
  using average market price                             --               --


Weighted average common shares diluted               15,731           15,591


Antidilutive potential common shares issuable that have been excluded from the
computation above relating to stock options, convertible preferred shares and
warrants are 3,199 and 590.

                                       8
<PAGE>
(5)  SERIES B PREFERRED STOCK

     On August 8, 2001, the Company entered into a definitive agreement for a $7
million  private  placement  financing to issue  shares of Series B  Convertible
Preferred  Stock  ("Series B  Preferred").  $3.9  million of the  financing,  or
1,560,000  shares of Series B  Preferred,  was  funded on August 8, 2001 and the
remaining $3.1 million of funding  received  shareholder  approval at the Annual
Meeting of  Shareholders  held on  November  8, 2001 and is expected to close by
December  31,  2001.  Under  the  terms of the  agreement,  the  Company  issued
1,560,000  shares of Series Preferred at a per share price of $2.50 on August 8,
2001.  At the  option  of the  stockholder,  the  Series B  Preferred,  which is
entitled  to  receive  dividends  only  when  and if  declared  by the  Board of
Directors  of the  Company,  can  initially  be  converted  at the option of the
holders into a like number of shares of the Company's  common stock,  subject to
adjustment in certain events. Under certain  circumstances,  the Company has the
right to effect the  automatic  conversion  of the Series B Preferred  to common
stock in the event the closing per share bid price of the common  stock  exceeds
$5.00 per share for 30  consecutive  trading  days.  The holders of the Series B
Preferred,  as a class,  are entitled to elect two  directors of the Company and
have a preference in liquidation above the common shareholders.

     In addition,  on August 8, 2001,  the Company  issued to the holders of the
Series B Preferred, warrants to purchase up to 1,560,000 shares of the Company's
common stock. The warrants expire on September 30, 2006 and are exercisable at a
per share price of $3.75.  The warrants have a call provision that provides that
if the closing per share bid price of the common stock  exceeds  $7.50 per share
for 30  consecutive  trading  days and certain  other  conditions  are met,  the
Company has the right to require the warrant  holders to exercise their warrants
for common  stock.  Both the per share  exercise  price and the number of shares
issuable  upon  exercise of the  warrants are subject to  adjustment  in certain
events.  The fair market  value of the  warrants,  as  calculated  using a Black
Sholes pricing model, was estimated at $3.7 million and was recorded as a credit
to additional  paid-in capital.  The value of the beneficial  conversion feature
embedded in the Preferred  Stock amounted to $2.4 million and was recorded as an
immediate  dividend to the Series B Preferred  Stockholders with a corresponding
credit to additional paid-in-capital. This dividend, which represents a purchase
discount to the  preferred  shareholders  for shares that may be converted  into
common shares,  is included in the loss available to common  stockholders and in
the  earnings/loss  per  share.  The excess of the  aggregate  fair value of the
beneficial  conversion  feature  over the  proceeds  received  amounted  to $1.0
million and has not been  reflected  in the results of  operations  or financial
position of the Company.

     The purchase agreement provides for a second closing for the remaining $3.1
million of the financing and,  subject to certain  conditions,  the Company will
issue an additional 1,240,000 shares of Series B Convertible Preferred Stock and
warrants to purchase an additional  1,240,000  shares of Common Stock, all under
the  respective  terms  described  above.  .The  Company has signed a definitive
agreement  to secure this  additional  financing  and has  received  shareholder
approval.  The Company anticipates closing on this transaction prior to December
31, 2001.

(6) INVENTORIES

     Inventories  at  September  30,  2001  and  June 30,  2001  consist  of the
following:

                                                    SEPTEMBER 30,      JUNE 30,
                                                        2001             2001
                                                       -----            -----
     Raw materials                                     $  19            $  12
             Finished goods                              584              795
                                                       -----            -----
                                                         603              807
     Inventory allowances                               (108)            (133)
                                                       -----            -----
                                                       $ 495            $ 674
                                                       =====            =====

                                       9
<PAGE>
(7) PROPERTY AND EQUIPMENT

     Property and  equipment at September  30, 2001 and June 30, 2001 consist of
the following:

                                                 SEPTEMBER 30,    JUNE 30,
                                                     2001           2001
                                                   -------         -------
     Furniture and fixtures                        $    78         $    78
     Computers and other equipment                   2,920           2,921
     Leasehold improvements                            332             332
                                                   -------         -------
                                                     3,330           3,331
     Accumulated depreciation and
       amortization                                 (2,144)         (1,943)
                                                   -------         -------
                                                   $ 1,186         $ 1,388
                                                   =======         =======

(8) OTHER ASSETS

     Other  assets  at  September  30,  2001 and June 30,  2001  consist  of the
following:

                                                        SEPTEMBER 30,   JUNE 30,
                                                            2001          2001
                                                            ----          ----
     Capitalized software development costs                   58            --
     Recoverable deposits and other                          184           187
                                                            ----          ----
                                                            $242          $187
                                                            ====          ====

(9) ACCRUED LIABILITIES

     Accrued  liabilities at September 30, 2001 and June 30, 2001 consist of the
following:

                                                    SEPTEMBER 30,   JUNE 30,
                                                        2001         2001
                                                       ------        ------
     Compensation and benefits                         $  878        $  699
     Payroll, sales and property taxes                    140            77
     Marketing                                            235           274
     Other taxes payable                                  163           160
     Professional fees                                    328           169
     Other                                                 24            45
                                                       ------        ------
                                                       $1,768        $1,424
                                                       ======        ======

                                       10
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES

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


RESULTS OF OPERATIONS

NET REVENUES

     PRODUCT. Net product revenues decreased 16% to $1.4 million for the quarter
ended  September 30, 2001 from $1.7 million for the quarter ended  September 30,
2000. The decrease in net product  revenues for the quarter ended  September 30,
2001 as compared to the quarter  ended  September  30, 2000 was due primarily to
the  discontinuation of sales of Dialogic hardware and the  discontinuation of a
software royalty stream. The level of TeleVantage sales was relatively unchanged
between the quarter ended September 30, 2000 and 2001, respectively.

     SERVICES.  Net  service  revenue  decreased  96% to $20,000 for the quarter
ended  September 30, 2001 from $.6 million for the quarter  ended  September 30,
2000.  The decrease was primarily the result of the  completion of the Company's
development  obligations  under the Intel  agreement  whereby  the  Company  was
required to provide Intel with a software-based  phone switch that is compatible
with Intel  Corporations's  CT Media Platform.  The Company  recognized  service
revenue  associated  with this  development  project of $.3  million  during the
quarter  ended  September 30, 2000.  Additionally,  the Company  recognized  $.2
million  in  service  revenue  from  its  OEM  agreement  with  Toshiba  America
Information  Systems (Toshiba or Toshiba) during the quarter ended September 30,
2000.  The  Company  recognized  no  service  revenues   associated  with  these
arrangements during the quarter ended September 30, 2001.

     The Company  distributes its products  internationally  and tracks sales by
major  geographic  area.  Non-U.S.  product sales  represented 4% and 17% of net
sales  for  quarters   ended   September   30,  2001  and  2000,   respectively.
International sales decreased 75% to $.1 million for the quarter ended September
30,  2001 from $.4  million  for the  quarter  ended  September  30,  2000.  The
decreases in  international  sales and  international  sales as a percentage  of
total net sales for the  quarter  ended  September  30,  2001 as compared to the
quarter ended September 30, 2000 is primarily the result of TeleVantage software
sales made to a European  distributor  during the quarter  ended  September  30,
2000. These sales did not recur in the quarter ended September 30, 2001.

GROSS PROFIT

     PRODUCT.  The  Company's  gross  profit from net  product  revenue was $1.2
million for the quarters ended September 30, 2001 and 2000 or 84% and 70% of net
product revenue,  respectively. The increase in gross profit percentage from net
product  revenues for the quarter  ended  September  30, 2001 as compared to the
quarter  ended  September  30,  2000 was due to an  increase  in  higher  margin
TeleVantage  software sales and the substantial  decrease in lower margin add-on
Dialogic  hardware sales during the quarter ended September 30, 2001 as compared
to the quarter  ended  September  30,  2000.  Gross  profit may  fluctuate  on a
quarterly and yearly basis because of product mix,  pricing  actions and changes
in sales and inventory allowances.

     SERVICES.  The Company's gross profit from net services revenues was $8,000
and  $.1  million  for  the  quarters   ended   September  30,  2001  and  2000,
respectively,  or 40%  and  24%  of net  services  revenues,  respectively.  The
decrease in aggregate dollars of gross profit from net services revenues for the
quarter ended  September 30, 2001 as compared to the quarter ended September 30,
2000 was  principally  the result of the recognition of $.6 million in Intel and
Toshiba development arrangement revenues. The cost of goods sold associated with
these  development  arrangements  included  development  personnel  compensation
costs.  During the quarter ended  September 30, 2001, the Company  completed its
development  arrangement  with  Intel and  recognized  a  remaining  $20,000  of
revenues and $12,000 in development personnel costs as cost of sales.

                                       11
<PAGE>
SALES AND MARKETING

     Sales and  marketing  expenses  were $1.6  million and $2.4 million for the
quarters ended September 30, 2001 and 2000, respectively,  representing 111% and
110% of net revenue,  respectively. The decrease in sales and marketing expenses
in aggregate dollars for the quarter ended September 30, 2001 as compared to the
quarter ended September 30, 2000 was due principally to a reduction in marketing
and sales  personnel  costs as a result of workforce  reductions  implemented in
April 2000 and September 2001 and a reduction in marketing program expenses. The
increase in sales and marketing  expenses as a percentage of net revenue between
the quarters ended September 30, 2001 and 2000,  respectively,  is the result of
the decrease in net sales.

PRODUCT DEVELOPMENT

     Product  development  expenses  were $1.1  million  and $.8 million for the
quarters ended September 30, 2001 and 2000,  respectively,  representing 80% and
38% of net revenue,  respectively. The increase in aggregate product development
expenses  for the quarter  ended  September  30, 2001 as compared to the quarter
ended  September  30,  2000  is  principally  due  to  $.5  million  in  product
development costs classified to cost of sales during the quarter ended September
30, 2000.  These costs were  associated  with the Intel and Toshiba  development
projects  that  were  completed  in  prior  periods.  The  Company  reduced  its
development  personnel  headcount in September  2001 and these  reductions  will
result in lower product  development  costs in future quarters.  The increase in
development  expenses as a percentage  of total net sales for the quarter  ended
September  30,  2001 as  compared to the  quarter  ended  September  30, 2000 is
principally the result of the overall  decrease in sales.  The Company  believes
the introduction of new versions of TeleVantage to the market in a timely manner
is critical to its future success.

GENERAL AND ADMINISTRATIVE

     General and administrative  expenses were $1.2 million and $1.3 million for
the quarters ended September 30, 2001 and 2000,  respectively,  representing 88%
and 57% of net revenue, respectively. The decrease in general and administrative
expenses  in  aggregate  dollars  for the quarter  ended  September  30, 2001 as
compared to the quarter ended  September 30, 2000 is  principally  the result of
reduced  compensation  and  benefit  costs  for  administrative  personnel.  The
increase in general and  administrative  expenses as a  percentage  of total net
sales for the quarter  ended  September  30, 2001  compared to the quarter ended
September 30, 2000 is principally  attributable  to the overall  decrease in net
sales.

OTHER INCOME (EXPENSE)

     Other  income  (expense),  net,  was $.1  million  and $.2  million for the
quarters ended September 30, 2001 and 2000, respectively.  The decrease in other
income  between  the quarter  ended  September  30,  2001 and the quarter  ended
September  30, 2000 was the result of a lower level of interest  rates  combined
with lower cash and investment balances.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

     The Company had cash and cash  equivalents of $7.6 million at September 30,
2001  compared to $5.8  million at June 30,  2001,  and working  capital of $6.4
million at September  30, 2001  compared to $5.2  million at June 30, 2001.  The
increase  in cash and cash  equivalents  of $1.8  million  was the result of the
gross  receipt  of the $3.9  million in equity  financing  on August 8, 2001 (as
discussed below) less cash used in operations during the quarter ended September
30, 2001.

     The  Company  used $1.9  million in net cash to fund  operating  activities
during the  quarter  ended  September  30,  2001.  Cash  provided  by  financing
activities was $3.7 million during the quarter ended September 30, 2001.

                                       12
<PAGE>
     On August 8, 2001, the Company entered into a definitive agreement for a $7
million  private  placement  financing to issue  shares of Series B  Convertible
Preferred  Stock  ("Series B  Preferred").  $3.9  million of the  financing,  or
1,560,000  shares of Series B  Preferred,  was  funded on August 8, 2001 and the
remaining $3.1 million of funding  received  shareholder  approval at the Annual
Meeting of  Shareholders  held on  November  8, 2001 and is expected to close by
December  31,  2001.  Under  the  terms of the  agreement,  the  Company  issued
1,560,000  shares of Series Preferred at a per share price of $2.50 on August 8,
2001.  At the  option  of the  stockholder,  the  Series B  Preferred,  which is
entitled  to  receive  dividends  only  when  and if  declared  by the  Board of
Directors  of the  Company,  can  initially  be  converted  at the option of the
holders into a like number of shares of the Company's  common stock,  subject to
adjustment in certain events. Under certain  circumstances,  the Company has the
right to effect the  automatic  conversion  of the Series B Preferred  to common
stock in the event the closing per share bid price of the common  stock  exceeds
$5.00 per share for 30  consecutive  trading  days.  The holders of the Series B
Preferred,  as a class,  are entitled to elect two  directors of the Company and
have a preference in liquidation above the common shareholders.

     In addition,  on August 8, 2001,  the Company  issued to the holders of the
Series B Preferred, warrants to purchase up to 1,560,000 shares of the Company's
common stock. The warrants expire on September 30, 2006 and are exercisable at a
per share price of $3.75.  The warrants have a call provision that provides that
if the closing per share bid price of the common stock  exceeds  $7.50 per share
for 30  consecutive  trading  days and certain  other  conditions  are met,  the
Company has the right to require the warrant  holders to exercise their warrants
for common  stock.  Both the per share  exercise  price and the number of shares
issuable  upon  exercise of the  warrants are subject to  adjustment  in certain
events.  The fair market  value of the  warrants,  as  calculated  using a Black
Sholes pricing model, was estimated at $3.7 million and was recorded as a credit
to additional  paid-in capital.  The value of the beneficial  conversion feature
embedded in the Preferred  Stock amounted to $2.4 million and was recorded as an
immediate  dividend to the Series B Preferred  Stockholders with a corresponding
credit to additional paid-in-capital. This dividend, which represents a purchase
discount to the  preferred  shareholders  for shares that may be converted  into
common shares,  is included in the loss available to common  stockholders and in
the  earnings/loss  per  share.  The excess of the  aggregate  fair value of the
beneficial  conversion  feature  over the  proceeds  received  amounted  to $1.0
million and has not been  reflected  in the results of  operations  or financial
position of the Company.

     The purchase agreement provides for a second closing for the remaining $3.1
million of the financing and,  subject to certain  conditions,  the Company will
issue an additional 1,240,000 shares of Series B Convertible Preferred Stock and
warrants to purchase an additional  1,240,000  shares of Common Stock, all under
the  respective  terms  described  above.  .The  Company has signed a definitive
agreement  to secure this  additional  financing  and has  received  shareholder
approval.  The Company anticipates closing on this transaction prior to December
31, 2001.

     Although the Company  believes  that the $3.9 million in proceeds  from its
August 8, 2001 equity  financing  will be sufficient to fund  operations for the
next twelve months,  it is seeking  additional equity financing of $3.1 million.
The  Company  has  signed a  definitive  agreement  to  secure  this  additional
financing and has received shareholder approval. The Company anticipates closing
on this  transaction  prior to December 31, 2001. The terms of the completed and
additional  financing are described under  "Financial  Condition,  Liquidity and
Capital Resources".  In order to better pursue strategic business opportunities,
the Company may seek additional  debt or equity  financing in excess of the $3.1
million  regardless of future  operating  losses incurred or cash and investment
levels.

FUTURE RESULTS

     The  Company  intends to continue  investing  in the sales,  marketing  and
development of its software-based phone system, TeleVantage. The Company expects
operating  expenditures  for the  remainder of fiscal year 2002 to be lower than
operating  expenses  incurred  in fiscal year 2001 due to  headcount  reductions
implemented  in April  2001 and  September  2001.  In  particular,  the  Company
anticipates  reduced  product  development  expenses  primarily as the result of
headcount  reductions  implemented in September 2001 following completion of the
Company's joint development project with Intel and Toshiba.

                                       13
<PAGE>
     The  Company  believes  that future  TeleVantage  revenues  will  gradually
increase and thereby,  in  conjunction  with  reductions in operating  expenses,
reduce  future  operating  losses.  However,  the rate at which  these  revenues
increase and future  operating  losses decrease will be highly  dependent on the
overall  telecom  industry  capital  spending  environment,  the rate of  market
acceptance  of  TeleVantage  4.0  and the  success  of the  Company's  strategic
relationships  with Toshiba and Intel. The Company also anticipates gross margin
percentages to gradually increase as its TeleVantage software revenues grow.

     Specifically, through an OEM development arrangement with Artisoft, Toshiba
is  marketing  TeleVantage  4.0  under  the  Strata  CS  brand,  which  is being
distributed and supported through Toshiba's  established  dealer channel.  Under
the terms of the agreement,  Toshiba will purchase  licenses of TeleVantage  for
customized  versions of the software  product to be integrated  with its digital
handsets and  communications  server product  offerings.  Any significant delay,
cancellation,  or  termination  of this  arrangement  with  Toshiba  will have a
material adverse affect on the Company's future results of operations.  However,
any  such  events  aforementioned  will  be  mitigated  due to  minimum  revenue
guarantees  over the life of the  Company's  OEM  agreement  with Toshiba  which
expires in December 2002.

     In May 2001, Artisoft announced the first release of TeleVantage CTM Suite,
which  delivers on the  Company's  joint  engineering  relationship  with Intel.
TeleVantage CTM Suite is being pre-loaded on certain configurations of the Intel
Converged Communications Platform, an open,  standards-based,  application-ready
platform  that  supports a broad  range of  compatible  telephony  and  business
applications,  peripherals,  and  services  from  multiple  vendors  on a single
system.  The Company  delivered a final  version of this product to Intel in May
2001  and has  completed  its  development  obligations  under  this  agreement.
Although  TeleVantage CTM Suite began shipping in August 2001, due to changes in
Intel release schedules,  only limited revenue was recognized during the quarter
ended September 30, 2001. The Company expects that significant revenues from the
CTM Suite will not occur until  calendar  year 2002.  Any  significant  delay or
cancellation or termination of this  arrangement with Intel will have a material
adverse affect on the Company's future results of operations.

"SAFE HARBOR"  STATEMENT UNDER THE PRIVATE  SECURITIES  LITIGATION REFORM ACT OF
1995

     This  Form  10-Q  contains  forward-looking   statements.   Forward-looking
statements  include  those  regarding  the Company's  goals,  beliefs,  plans or
current  expectations  and  other  statements  regarding  matters  that  are not
historical facts. For example, words such as "project," "believe," "anticipate,"
"plan," "expect,"  "estimate,"  "intend," "should," "would," "will," "could," or
"may," or other words that convey  uncertainty of future events or outcome,  are
intended to identify forward-looking statements.  While the Company may elect to
update  forward-looking  statements in the future, it specifically disclaims any
obligation to do so, even if its  estimates  change,  and these  forward-looking
statements  should not be relied upon as representing  the Company's views as of
any date  subsequent  to the  date of this  Form  10-Q.  There  are a number  of
important  factors  and  uncertainties  that could  cause the  Company's  actual
results  to differ  materially  from  those  describe  in these  forward-looking
statements.  These factors and uncertainties,  include,  but are not limited to,
dependence on a single product,  history of operating losses, highly competitive
market  for  our  product,  rapid  technological   changes,   hardware  supplier
dependencies and availability,  dependence on key personnel, volatility of stock
price and intellectual property infringement claims.

RISK FACTORS

OUR REVENUES ARE DEPENDENT UPON SALES OF A SINGLE PRODUCT.

     Our  revenues  are  derived  from sales of a single  product,  TeleVantage.
TeleVantage   is  a  relatively   new  product  in  the   emerging   market  for
software-based  phone systems and it is difficult to predict when or if sales of
TeleVantage  will increase  substantially  or at all. We face a substantial risk
that our sales will not cover our  operating  expenses and that we will continue

                                       14
<PAGE>
to  incur  operating  losses.  Our  business  will  fail  if we  are  unable  to
substantially  increase our  revenues  from sales of  TeleVantage,  whether as a
result of competition, technological change, price pressures or other factors.

WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FUTURE LOSSES.

     We had  operating  losses for the quarter  ended  September 30, 2001 and in
each of the last six years, and negative cash flow from operating  activities in
five out of the last six fiscal years  including the quarter ended September 30,
2001.  The Company  intends to continue  investing in the sales,  marketing  and
development of its software-based phone system, TeleVantage. The Company expects
operating  expenditures  for the  remainder of fiscal year 2002 to be lower than
operating expenses incurred in the corresponding periods in fiscal year 2001 due
to  headcount  reductions  implemented  in April  2001 and  September  2001.  In
particular,  the Company  anticipates  reduced research and product  development
expenses  primarily  as  the  result  of  headcount  reductions  implemented  in
September 2001 following  completion of the Company's joint development  project
with Intel and Toshiba.

     However,  we still expect to incur significant  future operating losses and
negative  cash flows.  If our  revenues  do not  increase  significantly  or the
reduction in our expenses is not as significant as expected,  we may not achieve
profitability, on a sustained basis or at all, or generate positive cash flow in
the future and as a result our business will fail.

OUR OPERATING RESULTS VARY, MAKING FUTURE OPERATING RESULTS DIFFICULT TO
PREDICT.

     Our operating  results have in the past  fluctuated,  and may in the future
fluctuate,  from  quarter  to  quarter,  as a  result  of a  number  of  factors
including, but not limited to:

**the extent and timing of sales and operating expense increases and decreases;

**changes in pricing policies or price reductions by us or our competitors;

**variations in our sales channels or the mix of product sales;

**the  timing  of  new  product  announcements  and  introductions  by us or our
competitors;

**the availability and cost of supplies;

**the financial stability of major customers;

**market acceptance of new products and product enhancements;

**our ability to develop,  introduce and market new products,  applications  and
product enhancements;

**our ability to control costs;

**possible delays in the shipment of new products;

**our success in expanding our sales and marketing programs;

**deferrals  of  customer  orders  in  anticipation  of  new  products,  product
enhancements or operating systems;

**changes in our strategy;

**personnel changes; and

                                       15
<PAGE>
**general economic factors.

     Our  software  products  are  generally  shipped as orders are received and
accordingly,  we have  historically  operated with little backlog.  As a result,
sales in any quarter are  dependent  primarily  on orders  booked and shipped in
that quarter and are not  predictable  with any degree of  certainty.  Sales may
also be affected by the level of returns beyond those estimated and provided for
at any point in time. In addition, our expense levels are based, in part, on our
expectations as to future  revenues.  If revenue levels are below  expectations,
operating  results  are  likely to be  adversely  affected.  Our net loss may be
disproportionately  affected by a reduction  in revenues  because of fixed costs
related  to  generating  our  revenues.  These or other  factors  may  influence
quarterly  results  in the future  and,  accordingly,  there may be  significant
variations in our quarterly operating results.  Our historical operating results
are not necessarily  indicative of future performance for any particular period.
Due to all of the foregoing factors,  it is possible that in some future quarter
our operating  results may be below the  expectations  of public market analysts
and investors.  In such event,  the price of our common stock could be adversely
affected.

     The Company  delivered a final version of TeleVantage CTM Suite to Intel in
May 2001 and has completed its development  obligations  under the initial phase
of our agreement  with them.  Although  TeleVantage  CTM Suite began shipping in
August 2001, the Company  expects that  significant  revenues from the CTM Suite
will not occur until calendar year 2002. In addition,  the Company's  pricing of
TeleVantage CTM Suite varies based on  configuration.  There can be no guarantee
that sales of Intel's Converged  Communication  Platform will ship in sufficient
volume or produce revenues that meet the Company's expectations. Any significant
delay or, cancellation or termination of this arrangement with Intel will have a
material adverse affect on the Company's future results of operations.

RECENT  TERRORIST  ACTIVITIES  AND  RESULTING  MILITARY AND OTHER  ACTIONS COULD
ADVERSELY AFFECT OUR BUSINESS.

     Terrorist  attacks in New York and Washington,  D.C. in September 2001 have
disrupted commerce throughout the United States and Europe. The continued threat
of terrorism  within the United States and Europe and the potential for military
action and  heightened  security  measures  in response to such threat may cause
significant disruption to commerce throughout the world. To the extent that such
disruptions  result in delays or  cancellations  of customer  orders,  a general
decrease in corporate  spending on information  technology,  or our inability to
effectively market and ship our products, our business and results of operations
could be materially and adversely affected. We are unable to predict whether the
threat  of  terrorism  or the  responses  thereto  will  result in any long term
commercial  disruptions  or if such  activities or responses  will have any long
term material adverse effect on our business, results of operations or financial
condition.

WE MAY HAVE A NEED TO PROCURE  ADDITIONAL THIRD PARTY  FINANCING,  BUT FINANCING
MAY NOT BE AVAILABLE WHEN NEEDED OR UPON TERMS  ACCEPTABLE TO US. IF A FINANCING
IS CONSUMMATED,  CURRENT  STOCKHOLDERS  MAY EXPERIENCE  SUBSTANTIAL  DILUTION OF
THEIR OWNERSHIP IN ARTISOFT.

     In the past, we have funded our continuing  operations and working  capital
requirements  primarily  through  cash  from  operations  and  the  sale  of our
securities. In order to obtain the funds to continue our operations and meet our
working capital requirements, we may require additional equity financing or debt
financing.  On August 8, 2001,  we entered into a definitive  agreement for a $7
million  private  placement  financing  to be conducted  in two  closings.  $3.9
million of the financing closed on August 8, 2001 and the remaining $3.1 million
of financing is scheduled to close on or before  December 31, 2001.  We may also
from time to time seek additional equity financing or debt financing in order to
fund other business initiatives,  including the acquisition of other businesses.
Additional financing may place significant limits on our financial and operating
flexibility,  and any future  financing could result in substantial  dilution to

                                       16
<PAGE>
our  stockholders.  There can be no assurance  that any such  additional  equity
financing  or debt  financing  will be  available  to us when needed or on terms
acceptable to us. If we are not able to successfully  obtain  additional  equity
financing or debt financing,  if needed, the business,  financial  condition and
results of  operations  of Artisoft  will  likely be  materially  and  adversely
affected.

OUR MARKET IS HIGHLY COMPETITIVE, AND WE MAY NOT HAVE THE RESOURCES TO COMPETE
ADEQUATELY.

     The computer  telephony industry is highly competitive and is characterized
by  rapidly  evolving  industry   standards.   We  believe  that  the  principal
competitive factors affecting the markets we serve include:

**vendor and product reputation;

**product architecture, functionality and features;

**scalability, ease of use and performance;

**quality of product and support;

**price;

**Brand name recognition; and

**Effectiveness of sales and marketing efforts.

     We  compete  with  other  phone  system  companies,   many  of  which  have
substantially greater financial, technological,  production, sales and marketing
and other  resources,  as well as greater name  recognition  and larger customer
bases, than does Artisoft. As a result, these competitors may be able to respond
more quickly and effectively  than can Artisoft to new or emerging  technologies
and changes in customer  requirements  or to devote  greater  resources than can
Artisoft to the development,  promotion, sales and support of their products. In
addition,  our  competitors  could develop  products  compatible  with the Intel
SoftSwitch  Framework that could displace  TeleVantage CTM Suite.  Also, any new
product  introductions  by  Artisoft  may be subject  to severe  price and other
competitive  pressures.  Given the greater  financial  resources  of many of our
competitors,  there can be no assurance  that our products will be successful or
even  accepted.  There can be no  assurance  that our  products  will be able to
compete  successfully  with other products offered presently or in the future by
other vendors.

IF SOFTWARE-BASED PHONE SYSTEMS DO NOT ACHIEVE WIDESPREAD ACCEPTANCE, WE MAY NOT
BE ABLE TO CONTINUE OUR OPERATIONS.

     Our  sole   product,   TeleVantage,   competes   in  the   newly   emerging
software-based  phone system  market.  Software-based  phone systems  operate in
conjunction  with and are affected by developments in other related  industries.
These  industries  include highly developed  product  markets,  such as personal
computers,  personal computer operating systems and servers, proprietary private
branch  exchanges  and related  telephone  hardware and software  products,  and
telephone, data and cable transmission systems, as well as new emerging products
and industries, such as Internet communications and Internet Protocol telephony.
These  industries and product  markets are currently  undergoing  rapid changes,
market evolution and  consolidation.  The manner,  in which these industries and
products evolve,  including the engineering- and market-based decisions that are
made regarding the  interconnection of the products and industries,  will affect
the opportunities and prospects for TeleVantage.  TeleVantage  competes directly
with  other   software-based   phone  system   solutions  as  well  as  existing
traditional,  proprietary  hardware solutions offered by companies such as Avaya
Communications,  Nortel Networks Corporation and Siemens Corporation.  There can
be no assurance that the markets will migrate toward software-based phone system
solutions. If software-based phone systems do not achieve widespread acceptance,
sales of  TeleVantage  will not increase  and may decline and our revenues  will
suffer.

                                       17
<PAGE>
WE SELL OUR PRODUCTS THROUGH DISTRIBUTORS AND VALUE-ADDED RESELLERS, WHICH LIMIT
OUR ABILITY TO CONTROL THE TIMING OF OUR SALES,  AND THIS MAKES IT  DIFFICULT TO
PREDICT OUR REVENUE.

     We are exposed to the risk of product  returns  from our  distributors  and
value-added resellers,  which are estimated and recorded by us as a reduction in
sales.  In  addition,  we are exposed to the risk of  fluctuations  in quarterly
sales if  resellers  and  distributors  purchase and hold  excessive  amounts of
inventory at any time or otherwise change there purchasing patterns. Although we
monitor our  reseller  and  distributor  inventories  and current and  projected
levels of sales,  localized  overstocking may occur with TeleVantage  because of
rapidly evolving market conditions. In addition, the risk of product returns may
increase if the demand for  TeleVantage  were to rapidly decline due to regional
economic troubles or increased  competition.  All of these risks are exacerbated
as  TeleVantage is our sole product and the market for  TeleVantage  and similar
products  is newly  emerging.  There can be no  assurance  that  actual  product
returns will not exceed our allowances for these returns.  Any  overstocking  by
resellers  or  distributors  or  any  product  returns  in  excess  of  recorded
allowances  could  adversely  affect our revenues.  To the extent we may, in the
future,  introduce new products,  the  predictability and timing of sales to end
users and the management of returns to us of unsold products by distributors and
volume  purchasers  may  become  more  complex  and  could  result  in  material
fluctuations in quarterly sales and operating results.

OUR MARKET IS SUBJECT TO CHANGING PREFERENCES AND TECHNOLOGICAL CHANGE;  FAILURE
TO KEEP UP WITH THESE CHANGES WOULD RESULT IN OUR LOSING MARKET SHARE.

     The markets for computer  telephony  solutions are  characterized  by rapid
technological  change,  changing customer needs,  frequent product introductions
and evolving industry standards.  The introduction of products incorporating new
technologies  and the  emergence  of new  industry  standards  could  render our
existing products obsolete and unmarketable. Our future success will depend upon
our ability to develop and introduce new computer telephony products  (including
new  releases  and   enhancements)  on  a  timely  basis  that  keep  pace  with
technological  developments  and  emerging  industry  standards  and address the
increasingly  sophisticated  needs of our  customers.  There can be no assurance
that we will be successful in  developing  and marketing new computer  telephony
products that respond to technological  changes or evolving industry  standards,
that we will  not  experience  difficulties  that  could  delay or  prevent  the
successful  development,  introduction  and marketing of these new products,  or
that our new products will adequately  meet the  requirements of the marketplace
and achieve market  acceptance.  If we were unable,  for  technological or other
reasons,  to develop and introduce new computer  telephony  products in a timely
manner in response to changing market conditions or customer  requirements,  our
market share would likely be reduced.

SOFTWARE  ERRORS MAY  SERIOUSLY  HARM OUR  BUSINESS  AND DAMAGE OUR  REPUTATION,
CAUSING LOSS OF CUSTOMERS AND REVENUES.

     Software  products  as complex as those  offered by the Company may contain
undetected  errors.  There can be no  assurance  that,  despite  testing  by the
Company and by current and potential customers,  errors will not be found in new
or existing products,  including  TeleVantage,  after commencement of commercial
shipments,  resulting in loss of or delay in market  acceptance or the recall of
such products.  We provide customer support for most of our products.  We may in
the  future  offer new  products.  If these  products  are  flawed,  or are more
difficult  to use  than  TeleVantage,  customer  support  costs  could  rise and
customer satisfaction levels could fall.

WE RELY ON THIRD-PARTY  TECHNOLOGY AND HARDWARE PRODUCTS;  IF THIS TECHNOLOGY IS
NOT AVAILABLE OR CONTAINS UNDETECTED ERRORS, OUR BUSINESS MAY SUFFER.

     Our  computer  telephony  software  requires  the  availability  of certain
hardware.  Specifically, the TeleVantage software-based phone system operates on
voice processing  boards  manufactured by Intel. To the extent that these boards
become  unavailable  or in short supply we could  experience  delays in shipping
software-based phone systems to our customers, which may have a material adverse

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<PAGE>
affect on our future  operating  results.  In addition,  we are dependent on the
reliability  of this hardware and to the extent the hardware has defects it will
affect the performance of our own  software-based  phone system. If the hardware
becomes  unreliable  or does not perform in a manner that is  acceptable  to our
customers,  sales of TeleVantage  could fall. Such delays or quality problems if
encountered  could also  cause  damage to our  reputation  for  delivering  high
quality, reliable computer telephony solutions.

     TeleVantage  currently  runs  only on  Microsoft  Windows  NT  servers.  In
addition, our products use other Microsoft Corporation  technologies,  including
the Microsoft Data Engine (MSDE).  A decline in market  acceptance for Microsoft
technologies  or the  increased  acceptance of other server  technologies  could
cause us to incur  significant  development  costs  and  could  have a  material
adverse  effect on our ability to market our current  products.  There can be no
assurance that businesses  will adopt  Microsoft  technologies as anticipated or
will not migrate to other competing  technologies that our telephony products do
not currently support.  Additionally,  since the operation of our software-based
phone system solution is dependent upon Microsoft technologies,  there can be no
assurances that, in the event of a price increase by Microsoft,  we will be able
to sell and market our software-based phone system.

     Our TeleVantage CTM Suite software  operates on voice processing  hardware,
computer  hardware,  CT  Media  software,   and  SoftSwitch  Framework  software
manufactured by Intel. To the extent that these technologies  become unavailable
or in short supply we could experience delays in shipping  TeleVantage CTM Suite
to our  customers,  which  may have a  material  adverse  affect  on our  future
operating  results.  In addition,  we are dependent on the  reliability of these
technologies  and to the extent they have defects it will affect the performance
of our own  software.  If the Intel  technologies  become  unreliable  or do not
perform in a manner that is acceptable to our  customers,  sales of  TeleVantage
CTM Suite could fall. Such delays or quality problems if encountered  could also
cause damage to our reputation for delivering  high quality,  reliable  computer
telephony solutions. Additionally, there can be no assurances that, in the event
of a  price  increase  by  Intel,  we  will be  able  to  sell  and  market  our
software-based phone system.

ANY FAILURE BY US TO PROTECT OUR  INTELLECTUAL  PROPERTY COULD HARM OUR BUSINESS
AND COMPETITIVE POSITION.

     Our success is  dependent  upon our  software  code base,  our  programming
methodologies  and other  intellectual  properties.  To protect our  proprietary
technology,  we rely  primarily  on a  combination  of  trade  secret  laws  and
nondisclosure,  confidentiality, and other agreements and procedures, as well as
copyright  and  trademark  laws.  These laws and actions may afford only limited
protection.  There  can be no  assurance  that  the  steps  taken  by us will be
adequate to deter misappropriation of our proprietary information, or to prevent
the successful assertion of an adverse claim to software utilized by us, or that
we will be able to detect  unauthorized  use and take effective steps to enforce
our  intellectual  property rights.  We own United States and foreign  trademark
registrations  for certain of our trademarks.  In selling our products,  we rely
primarily  on  "shrink  wrap"  licenses  that are not signed by  licensees  and,
therefore,  may be  unenforceable  under  the  laws  of some  jurisdictions.  In
addition,  the  laws  of  some  foreign  countries  provide  substantially  less
protection  to our  proprietary  rights  than do the laws of the United  States.
Trademark or patent  challenges in these foreign countries could, if successful,
materially  disrupt or even  terminate our ability to sell our products in those
markets.  There can be no assurance that our means of protecting our proprietary
rights will be adequate or that our competitors will not  independently  develop
similar  technology.  Although we believe  that our services and products do not
infringe on the  intellectual  property rights of others,  claims to that effect
have been and in the future may be asserted  against us. The failure of Artisoft
to protect its  proprietary  property,  or the  infringement  of its proprietary
property  on the  rights of  others,  could harm its  business  and  competitive
position.

WE NEED QUALIFIED PERSONNEL TO MAINTAIN AND EXPAND OUR BUSINESS.

     Our future  performance  depends in significant part upon key technical and
senior management personnel. We are dependent on our ability to identify,  hire,
train,  retain and motivate high quality  personnel,  especially  highly skilled
engineers  involved in the ongoing research and development  required to develop
and enhance our software products and introduce enhanced future products. A high
level of  employee  mobility  and  aggressive  recruiting  of skilled  personnel

                                       19
<PAGE>
characterize our industry.  There can be no assurance that our current employees
will  continue  to work  for us or  that  we  will  be  able to hire  additional
employees  on a timely  basis or at all.  We  expect to grant  additional  stock
options and provide other forms of incentive  compensation to attract and retain
key technical and executive personnel.  These additional incentives will lead to
higher  compensation  costs in the  future and may  adversely  affect our future
results of  operations.  These  difficulties  could lead to higher  compensation
costs and may adversely affect our future results of operations.

POSSIBLE  ACQUISITIONS  OR  DIVESTITURES  BY US INVOLVE  RISKS THAT MAY HARM OUR
BUSINESS.

     From time to time, we may consider  acquisitions of or alliances with other
companies that could complement our existing business, including acquisitions of
complementary  product lines.  Although we may  periodically  discuss  potential
transactions with a number of companies, there can be no assurance that suitable
acquisition,  alliance or purchase  candidates  can be  identified,  or that, if
identified,  acceptable  terms can be agreed  upon or  adequate  and  acceptable
sources will be available to finance these transactions.  Even if an acquisition
or alliance is  consummated,  there can be no assurance  that we will be able to
integrate  successfully  acquired  companies or product  lines into our existing
operations,  which could  increase  our  operating  expenses in the  short-term.
Moreover,   acquisitions  by  Artisoft  could  result  in  potentially  dilutive
issuances  of  equity   securities,   the  incurrence  of  additional  debt  and
amortization of expenses related to goodwill and intangible assets, all of which
could  adversely  affect our  ability to  achieve  profitability.  Acquisitions,
alliances and divestitures  involve numerous risks, such as the diversion of the
attention  of our  management  from other  business  concerns,  the  entrance of
Artisoft  into  markets  in  which  it has  had no or only  limited  experience,
unforeseen  consequences  of exiting from product markets and the potential loss
of key employees of the acquired company.

ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     MARKET  RISK.  During the normal  course of business  Artisoft is routinely
subjected to a variety of market risks,  examples of which include,  but are not
limited to, interest rate movements and  collectibility of accounts  receivable.
Artisoft  currently  assesses  these  risks  and has  established  policies  and
practices to protect  against the adverse  effects of these and other  potential
exposures.  Although  Artisoft does not anticipate any material  losses in these
risk areas,  no assurances can be made that material losses will not be incurred
in these areas in the future.

     INTEREST  RATE  RISK.  Artisoft  may be exposed  to  interest  rate risk on
certain  of its  cash  equivalents.  The  value  of  certain  of  the  Company's
investments  may be  adversely  impacted in a rising  interest  rate  investment
environment. Although Artisoft does not anticipate any material losses from such
a movement in interest  rates,  no assurances  can be made that material  losses
will not be incurred in the future.

                                       20
<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

     (b) On August 8, 2001, the Company  entered into a Purchase  Agreement with
entities  affiliated with Special  Situations Funds and Gruber & McBaine Capital
Management,  LLC under which the Company agreed to issue to such  investors,  in
two  separate  closings,  an  aggregate  of up to  2,800,000  shares of Series B
Convertible  Preferred Stock at a per share purchase price of $2.50 and warrants
to purchase an  aggregate  of up to  2,800,000  shares of Common  Stock at a per
share exercise price of $3.75. On August 8, 2001, at the first closing under the
Purchase Agreement, the Company issued and sold an aggregate of 1,560,000 shares
of  Series  B  Convertible  Preferred  Stock  and  warrants  to  purchase  up to
1,560,0000 shares of Common Stock to entities affiliated with Special Situations
Funds. The Certificate of Designation setting forth the rights,  preferences and
powers of the Series B Convertible Preferred Stock was filed by the Company with
the  Secretary of State of the State of Delaware  and became  effective on dated
August 8, 2001.

     In general,  shares of the Series B Convertible  Preferred Stock vote on an
as-converted  basis  with the  shares of  Common  Stock as the same  class.  The
holders of the Series B Convertible Preferred Stock, voting as a separate class,
also have the right to elect two members of the Company's board of directors. In
addition,  the vote of the  holders  of at least a majority  of the  outstanding
shares of Series B Convertible  Preferred  Stock will  generally be required for
the Company to effect certain transactions,  including,  without limitation, (i)
issuing additional shares of Series B Convertible  Preferred Stock or stock with
rights,  preferences  or  privileges  senior to or on a parity with the Series B
Convertible   Preferred  Stock;  (ii)  amending  the  Company's  certificate  of
incorporation  or by-laws  or  recapitalizing  or  reclassifying  the  Company's
securities  so as to  adversely  affect or diminish the rights,  preferences  or
privileges of the Series B Convertible  Preferred  Stock;  (iii)  increasing the
size of the  Company's  board of directors to greater  than nine  members;  (iv)
effecting  certain  redemptions and repurchases of the Company's  capital stock;
and (v)  effecting  certain  dividend  payments  on any shares of the  Company's
capital stock.

     Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of shares of Series B Convertible  Preferred Stock will
be entitled to be paid out of the Company's  assets  available for  distribution
prior to any  distribution  to the  holders of Common  Stock an amount  equal to
$2.50 per share (as  adjusted  for stock  splits,  stock  dividends  and similar
events).  A  merger,  consolidation,  change  of  control  or  sale  of  all  or
substantially  all of the Company's assets will be deemed to be a liquidation of
the Company.

     The Company may not pay any dividends or  distributions on shares of Common
Stock, other than dividends payable solely in shares of Common Stock, unless the
holders of shares of Series B  Convertible  Preferred  Stock first  receive,  or
simultaneously  receive, a dividend or distribution on each outstanding share of
Series B Convertible  Preferred  Stock equal to the product of (i) the per share
dividend or distribution to be paid for the Common Stock, multiplied by (ii) the
number of shares of Common Stock into which the Series B Preferred Stock is then
convertible.

     The holders of the Series B Convertible  Preferred Stock have the right, at
any time and at their  option,  to convert  each  share of Series B  Convertible
Preferred  Stock into a number of shares of Common Stock  determined by dividing
the then-applicable per share liquidation preference of the Series B Convertible

                                       21
<PAGE>
Preferred Stock by the  then-applicable per share conversion price of the Series
B Convertible  Preferred  Stock.  Initially,  the conversion price is $2.50. The
conversion  price is subject to  adjustment  in the case of any stock  dividend,
stock split, combination,  capital reorganization,  reclassification,  merger or
consolidation by the Company.  With limited exceptions,  the conversion price is
also subject to adjustment in the case of an issuance of shares of Common Stock,
or securities  exercisable for or convertible  into Common Stock, at a per share
price less than the  conversion  price  then in  effect.  In the event that this
occurs, the conversion price will be reduced to equal the per share price of the
issued securities.  In the event that the closing bid price of a share of Common
Stock as  traded  on the  Nasdaq  National  Market  exceeds  $5.00,  subject  to
adjustment,  for thirty consecutive trading days and all of the shares of common
stock issuable upon  conversion of the Series B Convertible  Preferred Stock are
registered pursuant to an effective  registration  statement,  the Company, upon
ten days  written  notice to the holders of the Series B  Convertible  Preferred
Stock,  shall have the right to effect the automatic  conversion of the Series B
Convertible  Preferred Stock, without any action by the holders thereof,  into a
number of shares of Common Stock calculated  pursuant to the terms of the Series
B Convertible Preferred Stock.

(c) On August 8, 2001, the Company issued to Special Situations Funds III, L.P.,
Special  Situations Cayman Fund, L.P.,  Special  Situations Private Equity Fund,
L.P. and Special  Situations  Technology Fund, L.P. 1,560,000 shares of Series B
Convertible  Preferred  Stock and warrants to purchase an aggregate of 1,560,000
shares of Common Stock at a per share  exercise  price of $3.75.  The  aggregate
offering price for the sale of these securities was $3,900,000.  No underwriters
were  involved  in the  foregoing  sale of  securities.  Such  sale  was made in
reliance upon an exemption  from the  registration  provisions of the Securities
Act set forth in  Section  4(2)  thereof,  relative  to sales by an  issuer  not
involving any public offering, and the rules and regulations thereunder.

     The holders of the Series B Convertible  Preferred Stock have the right, at
any time and at their  option,  to convert  each  share of Series B  Convertible
Preferred  Stock into a number of shares of Common Stock  determined by dividing
the then-applicable per share liquidation preference of the Series B Convertible
Preferred Stock by the  then-applicable per share conversion price of the Series
B Convertible  Preferred  Stock.  Initially,  the conversion price is $2.50. The
conversion  price is subject to  adjustment  in the case of any stock  dividend,
stock split, combination,  capital reorganization,  reclassification,  merger or
consolidation by the Company.  With limited exceptions,  the conversion price is
also subject to adjustment in the case of an issuance of shares of Common Stock,
or securities  exercisable for or convertible  into Common Stock, at a per share
price less than the  conversion  price  then in  effect.  In the event that this
occurs, the conversion price will be reduced to equal the per share price of the
issued securities.  In the event that the closing bid price of a share of Common
Stock as  traded  on the  Nasdaq  National  Market  exceeds  $5.00,  subject  to
adjustment,  for thirty consecutive trading days and all of the shares of common
stock issuable upon  conversion of the Series B Convertible  Preferred Stock are
registered  for resale  pursuant to an  effective  registration  statement,  the
Company, upon ten days written notice to the holders of the Series B Convertible
Preferred Stock, shall have the right to effect the automatic  conversion of the
Series B Convertible Preferred Stock, without any action by the holders thereof,
into a number  of  shares  of  Common  Stock  calculated  pursuant  to the terms
outlined above.

     Initially,  the per share  exercise  price of the  warrants  is $3.75.  The
number of shares  issuable upon exercise and the per share exercise price of the
warrants  are subject to  adjustment  in the case of any stock  dividend,  stock
split,  combination,  capital  reorganization,  reclassification  or  merger  or
consolidation.  Subject to limited  exceptions,  the per share exercise price of
the warrants is also subject to  adjustment in the case of an issuance of shares
of Common Stock or securities  exercisable for or convertible into Common Stock,
at a per share price less than the per share exercise price of the warrants then
in effect. In the event of such an issuance, the per share exercise price of the
warrants will be reduced to equal the per share price of such lower issuance. In
addition,  the warrants may be  exercised by means of a "net  exercise"  feature
under which the Company  does not  receive any cash,  but rather,  the number of
shares  issued  upon  exercise  is net of the number of shares  withheld  by the
Company in lieu of payment of the exercise  price.  This net  exercise  right is
generally  limited  to times  when the  Company  is not in  compliance  with its
obligations  relating  to  the  registration  of  the  shares  of  Common  Stock
underlying  the  warrants  for resale under the  Company's  registration  rights
agreement with the warrant holders. The Company may, at its option,  demand that
the Warrants be  exercised,  in the event the closing per share bid price of the
Common  Stock as traded  on the  Nasdaq  National  Market  exceeds  $7.50 for 30
consecutive  trading days and all of the shares of Common Stock  underlying  the
warrants  are  registered  for  resale  pursuant  to an  effective  registration
statement. The warrants will expire on September 30, 2006.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

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

     None

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

3.1      Certificate of Incorporation of the Registrant, as currently in effect
         was filed with the SEC on October 5, 2001 as an exhibit the
         Registrant's Registration Statement on Form S-3 (File No. 333-71014 and
         is herein incorporated by reference.

3.2      By-Laws of the Registrant, as currently in effect.

4.1      Specimen Certificate of the Registrant's Common Stock, $.01 par value,
         was filed with the SEC on August 5, 1991 as an exhibit to the
         Registrant's Registration Statement on Form S-1 (File No. 33-42046) and
         is herein incorporated by reference.

4.2      Rights Agreement dated as of December 23, 1994, between the Registrant
         and Bank One, Arizona, NA, as Rights Agent, was filed with the SEC as
         an exhibit to the Registrant's Current Report on Form 8-K dated
         December 22, 1994 and is herein incorporated by reference.

4.3      Agreement Regarding Appointment of Successor Rights Agent and Related
         Amendments dated as of August 14, 1998, between the Registrant, Bank
         One, Arizona, NA and Harris Trust and Savings Bank was filed with the
         SEC as an exhibit to the Registrant's Current Report on Form 8-K dated
         August 28, 1998 and is herein incorporated by reference.

4.4      Amendment to Rights Agreement dated as of August 21, 1998, between the
         Registrant and Harris Trust and Savings Bank, as Rights Agent, was
         filed with the SEC as an exhibit to the Registrant's Current Report on
         Form 8-K dated August 28, 1998 and is herein incorporated by
         reference.

4.5      Amendment to Rights Agreement dated as of August 6, 2001, between the
         Registrant and ComputerShare Investor Services, as Rights Agent was
         filed with the SEC on October 5, 2001 as an exhibit the Registrant's
         Registration Statement on Form S-3 (File No. 333-71014 and is herein
         incorporated by reference.

                                       22
<PAGE>
(b)  Reports of Form 8-K

     On August 8, 2001, the Company filed a Current Report as Form 8-K dated
     August 8, 2001 reporting information under Item 5 (Other Events). No
     financial statements were filed with such report.


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: November 14, 2001                 By /s/ Steven G. Manson
                                           -------------------------------------
                                           Steven G. Manson
                                           President and Chief Executive Officer


                                        By /s/ Michael J. O'Donnell
                                           -------------------------------------
                                           Michael J. O'Donnell
                                           Chief Financial Officer

                                       23