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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 March 31, 1998

                                       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)
<TABLE>
<S>                                                             <C>
                 Delaware                                                  86-0446453
--------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)                  (IRS employer identification number
</TABLE>


                          5 Cambridge Center, 3rd Floor
                               Cambridge, MA 02142
                                 (520) 670-7100
                -------------------------------------------------
               (Address, including zip code, and telephone number,
                      including area code, of registrant's
                          principal executive offices)

      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such  reports),  and (2) has been subject to the
filing requirements for at least the past 90 days.

                                 Yes x    No
                                    ---     ---
       Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (May 15, 1998).

                 Common stock, $.01 par value: 14,539,231 shares

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<PAGE>
                         Artisoft Inc. and Subsidiaries
                                      INDEX




                                                                            Page
                                                                            ----
PART I.    FINANCIAL INFORMATION

       Item 1.  Financial Statements

                  Consolidated Balance Sheets-
                     March 31, 1998 and June 30, 1997                          3

                  Consolidated Statements of Operations-
                     Three Months and Nine-months Ended
                     March 31, 1998 and 1997                                   4

                  Consolidated Statements of Cash Flows-
                     Nine-months Ended March 31, 1998
                     and 1997                                                  5

                  Notes to Consolidated Financial Statements                 6-9

       Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations            10-18


PART II.   OTHER INFORMATION

       Item 1.  Legal Proceedings                                             19
                                                                         
       Item 2.  Changes in Securities                                         19
                                                                         
       Item 3.  Defaults Upon Senior Securities                               19
                                                                         
       Item 4.  Submission of Matters to a Vote by Security Holders           19
                                                                         
       Item 5.  Other Information                                             19
                                                                         
       Item 6.  Exhibits and Reports on Form 8-K                              19
                                                                         


SIGNATURES                                                                    20



EXHIBITS

       11       Computation of Net Income (Loss) Per Share                    21

       27       Financial Data Schedule                                       22
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                                    March 31,   June 30,
ASSETS                                                                                1998        1997
                                                                                      ----        ----
                                                                                   (unaudited)
<S>                                                                                 <C>         <C>     
Current assets:
     Cash and cash equivalents                                                      $ 18,962    $ 14,673
     Receivables:
          Trade accounts, net                                                          3,726       5,011
          Income taxes                                                                  --         4,300
          Notes and other                                                                296         580
     Inventories                                                                         994       1,860
     Prepaid expenses                                                                    319         833
     Property and equipment held for sale                                               --         2,543
                                                                                    --------    --------
           Total current assets                                                       24,297      29,800
                                                                                    --------    --------

Property and equipment                                                                 7,222       7,883
     Less accumulated depreciation and amortization                                   (5,067)     (5,060)
                                                                                    --------    --------
           Net property and equipment                                                  2,155       2,823
                                                                                    --------    --------

Other assets                                                                           2,173       2,748
                                                                                    --------    --------
                                                                                    $ 28,625    $ 35,371
                                                                                    ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                               $  1,428    $  1,345
     Accrued liabilities                                                               1,898       3,118
     Accrued restructuring costs                                                         472       4,950
     Mortgage note payable                                                              --         2,182
     Current portion of capital lease obligations                                        467         458
                                                                                    --------    --------
           Total current liabilities                                                   4,265      12,053
                                                                                    --------    --------

Capital lease obligations,
     net of current portion                                                              364         714

Commitments and contingencies                                                           --          --

Shareholders' equity:
     Preferred stock, $1.00  par value. Authorized 11,433,600 shares; none issued       --          --
     Common stock, $.01 par value.  Authorized 50,000,000 shares;
        issued  27,859,731 shares at March 31,
        1998 and 27,848,464 shares at June 30, 1997                                      279         278
     Additional paid-in capital                                                       96,244      96,227
     Accumulated deficit                                                              (2,743)     (4,117)
     Less treasury stock, at cost, 13,320,500 shares at March 31,
        1998 and June 30, 1997                                                       (69,784)    (69,784)
                                                                                    --------    --------
           Total shareholders' equity                                                 23,996      22,604
                                                                                    --------    --------
                                                                                    $ 28,625    $ 35,371
                                                                                    ========    ========
</TABLE>
           See accompanying notes to consolidated financial statements
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                     Three Months Ended           Nine-months Ended
                                                          March 31,                  March 31,
                                                      1998         1997           1998         1997
                                                    ---------------------       ---------------------
                                                         (unaudited)                 (unaudited)
<S>                                                 <C>          <C>            <C>          <C>     
Net sales                                           $  6,215     $  8,452       $ 19,701     $ 29,077
Cost of sales                                          1,659        3,034          4,964       10,080
                                                    --------     --------       --------     --------
         Gross profit                                  4,556        5,418         14,737       18,997
                                                    --------     --------       --------     --------
                                                                                         
Operating Expenses:                                                                      
         Sales and marketing                           2,582        5,620          7,612       18,258
         Product development                           1,823        2,305          5,437        6,961
         General and administrative                      747        1,327          2,402        4,195
         Restructuring cost                             (175)       1,334           (439)       3,139
                                                    --------     --------       --------     --------
                  Total operating expenses             4,977       10,586         15,012       32,553
                                                    --------     --------       --------     --------
                                                                                         
Income (loss) from operations                           (421)      (5,168)          (275)     (13,556)
                                                                                         
Other income, net                                        259          118          1,758          488
                                                    --------     --------       --------     --------
                                                                                         
         Income (loss) before income tax                                                 
         benefit and extraordinary item                 (162)      (5,050)         1,483      (13,068)
                                                                                         
Income tax benefit                                      --          1,387           --          4,070
                                                    --------     --------       --------     --------
                                                                                         
         Income (loss) before extraordinary                                              
         item                                           (162)      (3,663)         1,483       (8,998)
                                                                                         
Extraordinary loss from early                                                            
extinguishment of debt, net of                                                           
$0 income tax benefit                                   --           --             (109)        --
                                                    --------     --------       --------     --------
                                                                                         
         Net income (loss)                          $   (162)    $ (3,663)      $  1,374     $ (8,998)
                                                    --------     --------       --------     --------
                                                                                         
Basic and diluted net income (loss)                                                      
per share                                           $   (.01)    $   (.25)      $    .09     $   (.62)
                                                    --------     --------       --------     --------
                                                                                         
                                                                                         
                                                                                         
Weighted average common and                                                              
common equivalent shares outstanding                  14,607       14,549         14,576       14,542
                                                    --------     --------       --------     --------
</TABLE>                                                                
           See accompanying notes to consolidated financial statements
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                          Nine-months Ended
                                                                             March  31,
                                                                         1998          1997
                                                                         ----          ----
                                                                      (unaudited)   (unaudited)
<S>                                                                    <C>           <C>      
Cash flows from operating activities:                                             
     Net income (loss):                                                $  1,374      $ (8,998)
     Adjustments to reconcile net income (loss) to net                            
        cash provided by operating activities:                                    
            Extraordinary loss                                              109          --
            Depreciation and amortization                                 1,406         2,074
            Deferred income taxes                                          --            (747)
            Gain from disposition of property, net                       (1,504)           17
            Change in accounts receivable and inventory allowances       (2,629)       (1,658)
            Tax benefit of disqualifying dispositions                      --              22
      Changes in assets and liabilities:                                          
            Receivables:                                                          
                 Trade accounts                                           3,480         7,149
                 Income taxes                                             4,300         1,635
                 Notes and other                                            284           718
         Inventories                                                      1,301         1,588
         Prepaid expenses                                                   514          (518)
         Accounts payable and accrued liabilities                        (1,138)         (779)
         Accrued restructuring costs                                     (4,478)         --
         Income taxes payable                                              --            (256)
         Other assets                                                        23           (63)
                                                                       --------      --------
              Net cash provided by operating activities                   3,042          _184
                                                                       --------      --------
                                                                                  
Cash flows from investing activities:                                             
     Proceeds from sale of property and equipment                         4,228            35
     Purchases of property and equipment                                   (476)       (1,256)
                                                                       --------      --------
                                                                                  
              Net cash provided by (used in) investing activities         3,752        (1,221)
                                                                       --------      --------
                                                                                  
Cash flows from financing activities:                                             
     Purchase of treasury stock                                            --             (40)
     Proceeds (payments) from mortgage notes                             (2,182)        2,200
     Proceeds from exercise of stock options                               --             106
     Proceeds from sale-leaseback of equipment                             --           1,368
     Proceeds from issuance of common stock                                  18          --
     Principal payments on long term debt                                  (341)         (276)
                                                                       --------      --------
                                                                                  
              Net cash provided by (used in) financing activities        (2,505)        3,358
                                                                       --------      --------
                                                                                  
Net increase in cash and cash equivalents                                 4,289         2,321
Cash and cash equivalents at beginning of period                         14,673        15,325
                                                                       --------      --------
Cash and cash equivalents at end of period                             $ 18,962      $ 17,646
                                                                       --------      --------
</TABLE>
           See accompanying notes to consolidated financial statements
<PAGE>
                         Artisoft, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1)      Basis of Presentation

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

         The accompanying  unaudited consolidated financial statements have been
prepared  by the  Company  in  accordance  with  generally  accepted  accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management,  the accompanying financial statements
include all adjustments (of a normal recurring nature) which are necessary for a
fair  presentation of the financial  results for the interim periods  presented.
Certain  information  and footnote  disclosures  normally  included in financial
statements   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations.  Although the Company believes that the disclosures are adequate to
make the  information  presented  not  misleading,  it is  suggested  that these
consolidated  financial  statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's 1997 Annual
Report to  Shareholders  and report on Form 10-K.  The results of operations for
the  nine-months  ended March 31,  1998 are not  necessarily  indicative  of the
results to be expected for the full year.

(2)      Computation of Net Income (Loss) Per Share

         In February  1997,  the  Financial  Accounting  Standards  Board (FASB)
issued Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS  No.  128).  This  statement   establishes  standards  for  computing  and
presenting  earnings per share  ("EPS"),  and supersedes APB Opinion No. 15. The
Statement  replaces primary EPS with basic EPS and requires a dual  presentation
of basic and diluted EPS. The Statement is effective for both interim and annual
periods  ending after  December 15, 1997. The Company has adopted the provisions
of SFAS No. 128 for the quarter and nine-month  periods ended March 31, 1998 and
has restated the 1997 data.

(3)      Restructuring Cost

         The  accrued  restructuring  costs  in  the  accompanying  consolidated
balance  sheet at March 31, 1998  include  the  remaining  costs of  involuntary
employee termination  benefits,  international sales and support office closures
and related costs associated with the restructuring  actions effected during the
fiscal year ended June 30,  1997.  A majority of these  payments  were  actually
incurred during the nine-month period ended March 31, 1998. Employee termination
benefits include severance, wage continuation,  notice pay and medical and other
benefits.  Other costs associated with the restructuring  include  international
sales and support  office  closures and related costs of premise and other lease
terminations, legal and other professional fees.



The accrued  restructuring  costs at March 31, 1998  principally  consist of the
following:

<TABLE>
<CAPTION>
                                    Employee Termination                             Total Accrued
                                          Benefits         Office Closure Costs   Restructuring Costs
                                          --------         --------------------   -------------------
<S>                                     <C>                    <C>                    <C>        
Balance at June 30, 1997                $ 4,200,000            $   750,000            $ 4,950,000
                                                                                     
Cash paid for employee                                                                             
termination benefits                     (3,289,000)                  --               (3,289,000)
                                                                                     
Cash paid for office closure costs             --                 (750,000)              (750,000)
                                                                                     
Reduction in estimate of future                                                                               
restructuring costs                        (439,000)                  --                 (439,000)
                                        -----------            -----------            -----------
                                                                                     
Unaudited balance at March 31, 1998     $   472,000            $      --              $   472,000
                                        -----------            -----------            -----------
</TABLE>

         Additionally,  separate from the restructuring  costs identified above,
the Company  recorded  pre-tax  restructuring  charges of $3.1 million in fiscal
year 1997 as described below.

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

         The Company recorded an additional pre-tax restructuring charge of $1.3
million  during the quarter ended March 31, 1997  primarily due to severance and
other costs  associated  with the closing of the  Company's  Italian  office and
additional head count reduction in the U.S., principally at the Company's Tucson
location, in response to the decline in sales of its LANtastic NOS products.
<PAGE>
(4)      Inventories

         Inventories  at  March  31,  1998  and June  30,  1997  consist  of the
following (in thousands):


                                                      March 31,       June 30,
                                                        1998            1997
                                                      ---------       --------
                                                     (Unaudited)
                Raw materials                          $ 848          $  1,088
                Work-in-process                          183               261
                Finished goods                           254             1,236
                                                       -----          --------
                                                       1,285             2,585
                Inventory allowances                    (291)             (725)
                                                       -----          --------
                                                       $ 994          $  1,860
                                                       =====          ========


(5)      Property and Equipment

         Property  and  equipment at March 31, 1998 and June 30, 1997 consist of
the following (in thousands):

                                                  March  31,           June 30,
                                                     1998                1997
                                                  ---------              ----
                                                 (unaudited)
       
       Furniture and fixtures                      $    68              $   892
       Computers and other equipment                 7,060                6,929
       Leasehold improvements                           94                   62
                                                   -------              -------
                                                     7,222                7,883
       Accumulated depreciation and                                     
       amortization                                 (5,067)              (5,060)
                                                   -------              -------
                                                   $ 2,155              $ 2,823
                                                   =======              =======
                                                              


         As described  in Note 3, the  restructuring  actions  commenced in June
1997  included a relocation  of the  Company's  Tucson  operations  to a smaller
facility  in October  1997.  The  property  and  equipment  held for sale in the
accompanying  June 30, 1997  consolidated  balance  sheet was  comprised  of the
expected net realizable value of excess furniture and equipment and the net book
values of the Tucson land,  buildings and  improvements.  During the  nine-month
period ended March 31, 1998, all of the property and equipment held for sale was
disposed of.

         On October 31, 1997 the Company closed escrow on the sale of its Tucson
building.  The Company  received gross proceeds of $4.1 million on the sale, net
cash proceeds of $1.6 million after the  pre-payment of a $2.2 million  mortgage
and other associated  closing costs.  The Company  recognized a net gain of $1.3
million on the sale of the  building for the  nine-month  period ended March 31,
1998.
<PAGE>
(6)      Other Assets

         Other  assets  at March  31,  1998 and June  30,  1997  consist  of the
following (in thousands):

                                                        March  31,   June 30,
                                                           1998        1997
                                                           ----        ----
                                                       (unaudited)
Trademarks and patents, net of
         accumulated amortization of $63 and $44          $   61      $   80
Purchased technology, net of                                        
         accumulated amortization of $1,502 and $984       1,953       2,471
Recoverable deposits and other                               159         197
                                                          ------      ------
                                                          $2,173      $2,748
                                                          ======      ======
<PAGE>
                         Artisoft, Inc. and Subsidiaries

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


Results of Operations


                  Net Sales. The Company's net sales for the quarter ended March
31, 1998 were $6.2 million, a decrease of 27% from net sales of $8.5 million for
the  corresponding  quarter of fiscal  1997 and a decrease of 9% from the second
quarter of fiscal  1998 net sales of $6.8  million.  For the  nine-month  period
ended March 31, 1998, the Company's net sales were $19.7 million,  a decrease of
32% from net sales of $29.1 million for the corresponding period of fiscal 1997.
The decreases in net sales for the quarter and nine-month period ended March 31,
1998, as compared to the corresponding  periods in fiscal 1997, were principally
due to the decline in sales of the Company's  LANtastic network operating system
(NOS)  products,  offset to a minor extent by increased  sales of the  Company's
ModemShare  32 software.  The decrease in net sales from the previous  quarter's
net sales was  primarily  the result of lower sales of the  Company's  CoSession
Remote OEM pre-loads  (principally in Japan), and iShare 2.5, and lower European
networking and communications software revenues.

         The Company distributes its products in both the U.S. and international
markets.  U.S.  sales  decreased  29% to $4.4 million (71% of net sales) for the
quarter ended March 31, 1998, from $6.2 million (74% of net sales), for the same
quarter a year ago.  U.S.  sales  decreased  29% to $ 14.3  million  (73% of net
sales), for the nine-month period ended March 31, 1998 from $20.0.  million (69%
of net sales),  for the same period in fiscal  1997.  The  decrease in U.S.  net
sales for both the quarter and the  nine-month  periods ended March 31, 1998, as
compared to the corresponding  periods in fiscal 1997,  primarily  resulted from
the decline in sales of LANtastic NOS products in U.S.  distribution  and retail
channels  along with  weaker  sales of the  Company's  communications  products,
especially iShare 2.5 and CoSession Remote 32.

         International  sales  decreased 18% to $1.8 million (29% of net sales),
for the quarter ended March 31, 1998, from $2.2 million (26% of net sales),  for
the same quarter a year ago and  decreased  10% from the second  quarter  fiscal
1998 net  sales  of $2.0  million.  International  sales  decreased  40% to $5.4
million (27% of net sales),  for the nine-month period ended March 31, 1998 from
$9.0 million (31% of net sales) for the same period in fiscal 1997. The decrease
in international net sales for both the quarter and the nine-month periods ended
March 31,  1998,  as  compared  to the  corresponding  periods  in fiscal  1997,
principally  resulted  from the  worldwide  decline  in sales of  LANtastic  NOS
products  (especially  in Europe) and weaker  sales of the  Company's  CoSession
Remote  software  in Japan.  The  decrease in  international  net sales from the
previous  quarter's  international net sales is the result of lower sales of the
Company's  networking  and  communications  software  products in Europe and the
Pacific Rim.

         Channel Mix. The Company distributes  substantially all of its products
through a combination of direct channels (principally  telesales),  and indirect
channels which include OEMs, systems integrators, value-added resellers ("VARs")
and software  retailers.  Indirect channel revenues for the quarters ended March
31,  1998 and 1997 were 66% and 68% of total  revenues,  respectively.  Indirect
channel  revenues for the nine-month  periods ended March 31, 1998 and 1997 were
63% and 66%, respectively.  The  decrease  in  indirect  channel  revenues  as a
percentage of total revenues for both the quarter and  nine-month  periods ended
March 31,  1998 as  compared  to the  corresponding  periods  in fiscal  1997 is
principally the result of a decrease in retail channel revenues (relating to the
Company's  LANtastic  NOS  and  communications   products)  and  a  decrease  in
international  OEM revenues from the Company's  CoSession  Remote 32 software as
well as  increased  direct  sales of the  Company's  ModemShare  32  software to
endusers.





         Gross  Profit.  The  Company's  gross  profit was $4.6 million and $5.4
million for the quarters  ended March 31, 1998 and 1997,  respectively  (74% and
64% of net  sales,  respectively).  Gross  profit  was $14.7  million  and $19.0
million for the nine-month periods ended March 31, 1998, and 1997,  respectively
(75% and 65% of net  sales,  respectively).  The net  increase  in gross  profit
margin  percentages for both the quarter and the nine-month  periods ended March
31,  1998,  as  compared  to the  corresponding  periods  in  fiscal  1997,  was
principally  due to the following  factors:  cost  efficiencies
<PAGE>
achieved at the Company's  distribution center due to the restructuring  actions
taken during fiscal year 1997,  substantially reduced product translation costs,
lower  inventory  reserve  requirements,  and  increased  sales of higher margin
software only content such as ModemShare  32,  LANtastic for NT and Visual Voice
4.0 software, partially offset by higher software licensing fees incurred on the
Company's  configuration  tracking and recovery  utility  (ConfigSafe).  The net
decrease in aggregate  dollars of gross  profit  margin for both the quarter and
nine-month  periods  ended March 31, 1998 is solely the result of the decline in
net sales (principally the LANtastic NOS products).

         Gross  profit  margins  may  fluctuate  from  quarter to quarter due to
changes in net sales,  product  mix,  pricing  actions  and changes in sales and
inventory allowances.

         Operating  Expenses.  Operating  expenses  were $5.0  million and $10.6
million for the quarters  ended March 31, 1998 and 1997  respectively,  (81% and
125% of net sales,  respectively).  Total operating  expenses were $15.0 million
and $32.6  million  for the  nine-month  periods  ended March 31, 1998 and 1997,
respectively,  (76%  and  112% of net  sales,  respectively).  The  decrease  in
absolute  dollars for both the quarter and  nine-month  periods ending March 31,
1998 was due to the restructuring  actions implemented by the Company during the
fiscal year ended June 30, 1997. The decrease in total  operating  expenses as a
percentage of net sales for both the quarter and nine-month  periods ended March
31, 1998 was due to the aforementioned  expense reductions associated with these
restructuring  actions  offset to a  significant  degree by the  decline  in net
sales.

         Sales and Marketing. Sales and marketing expenses were $2.6 million and
$5.6 million for the quarters ended March 31, 1998 and 1997, respectively,  (42%
and 66% of net sales,  respectively).  Sales and  marketing  expenses  were $7.6
million and $18.3  million for the  nine-month  periods ended March 31, 1998 and
1997, respectively,  (39% and 63% of net sales,  respectively).  The decrease in
aggregate  dollars for sales and  marketing  expenses and as a percentage of net
sales for the quarter  and the  nine-month  periods  ended  March 31,  1998,  as
compared to the corresponding periods in fiscal 1997, are due principally to the
Company's restructuring actions undertaken during the fiscal year ended June 30,
1997.  These  actions  included  the  closure  of  six of  the  Company's  eight
international sales offices and marketing and sales headcount  reductions at the
Company's Tucson headquarters.  Additionally,  the Company reduced certain other
marketing and  promotional  expenses  associated  with its LANtastic NOS product
lines primarily as a response to the decline in sales. These reductions in sales
and  marketing  expenses  were offset to a minor extent by  increased  sales and
marketing  expenditures on the Company's newly introduced  TeleVantage  computer
telephony  software and Visual Voice 4.0 . The sequential  increase in sales and
marketing  expenditures  between the  quarter  ended  December  31, 1997 and the
quarter  ended  March  31,  1998  was  principally  due to the  marketing  costs
associated  with the  launch of the  Company's  TeleVantage  computer  telephony
software.

         Product Development. Product development expenses were $1.8 million and
$2.3 million for the quarters ended March 31, 1998 and 1997, respectively,  (29%
and 27% of net sales,  respectively).  Product  development  expenses  were $5.4
million and $7.0  million for the  nine-month  periods  ended March 31, 1998 and
1997, respectively,  (27% and 24% of net sales,  respectively).  The decrease in
aggregate  dollars  for  product  development   expenses  for  the  quarter  and
nine-month period ended March 31, 1998, as compared to the corresponding periods
in  fiscal  1997  is  principally   attributable  to  the  headcount  reductions
associated  with the  restructuring  actions  taken during the fiscal year ended
June  30,  1997.  The  reduction  in  product  development   personnel  occurred
principally  in the  Company's  LANtastic NOS product line and was the result of
declining  sales.  The  reduction in aggregate  dollars for product  development
expenses  for the quarter  and  nine-month  periods  ended  March 31,  1998,  as
compared with  corresponding  periods in fiscal 1997 was offset to a significant
degree  by the  addition  of  product  development  personnel  in the  Company's
computer telephony development group principally associated with the development
of the Company's  TeleVantage  computer telephony software and Visual Voice 4.0.
The increase in product  development  expenses as a percentage  of net sales for
both the quarter and  nine-month  period ended March 31, 1998 as compared to the
corresponding  periods in fiscal 1997 is primarily  due to the decrease in sales
of the Company's LANtastic (NOS) products.
<PAGE>
         General and  Administrative.  General and administrative  expenses were
$.6 million and $1.3  million  for the  quarters  ended March 31, 1998 and 1997,
respectively,   (10%  and  15%  of  net  sales,   respectively).   General   and
administrative  expenses  were $2.0 million and $4.2 million for the  nine-month
periods ended March 31, 1998 and 1997,  respectively  (10% and 14% of net sales,
respectively).  The decrease in aggregate dollars for general and administrative
expenses for the quarter and nine-month periods ended March 31, 1998 as compared
to the  corresponding  periods in fiscal 1997, is  attributable to reductions in
administrative  personnel effected during the fiscal year ended June 30, 1997 as
a part of the Company's  restructuring plan. To a lesser extent, the decrease is
also the result of lower occupancy and maintenance  expenses  principally due to
the sale of the Company's Tucson,  Arizona  headquarters and the relocation to a
lower cost facility and the  associated  reductions in  depreciation  expense on
these  facilities.  The  decrease  in general and  administrative  expenses as a
percentage of net sales for the quarter and the  nine-month  periods ended March
31, 1998, as compared to the corresponding  periods in fiscal 1997, is primarily
the result of the aforementioned  reductions  partially offset by the decline in
sales of the Company's LANtastic (NOS) products.

         Restructuring  Cost.  During the  quarter  ended  September  30,  1996,
primarily in response to lower than  expected  sales of  LANtastic  NOS products
during the quarter and  uncertainty  as to future sales levels of NOS  products,
the  Company  elected to take two  principal  actions;  first,  to  realign  the
resources of the Company to accelerate  the  development,  delivery and customer
adoption of new computer telephony and  communications  products and, second, to
reduce the Company's  operating  expenses.  The effect of the realignment was to
increase the Company's investment in product development,  marketing and channel
development in the high growth computer telephony and communications segments of
the Company's  business and thereby bring more focus to the delivery of products
in these areas, as well as to support continuing  differentiation  for LANtastic
in the future.

         During the  quarter  ended  March 31,  1997,  primarily  in response to
continued  substantial  weakness in sales of LANtastic  network operating system
NOS products,  the Company  elected to further reduce its operating  expenses in
Europe, principally through the closure of the Italian sales office, and certain
personnel  costs in the U.S.,  principally at the Tucson  facility.  The Company
recorded a $1.3  million  restructuring  charge for the quarter  ended March 31,
1997 to cover  severance costs  associated with these actions,  along with other
related expenses.

         In March 1998,  the Company  closed its Japanese sales office and plans
to complete the  liquidation of its Japanese  subsidiary by June 30, 1998.  This
action was taken  primarily  in  response to  increased  costs  associated  with
operating the subsidiary.

         Other Income,  Net. For the quarter ended March 31, 1998, other income,
net, increased to $.3 million,  from $.1 million in the corresponding quarter of
fiscal 1997. For the nine-month period ended March 31, 1998, other income,  net,
increased  to $1.8  million,  from $.5  million in the  corresponding  period of
fiscal 1997. The increase in other income,  net, for the quarter ended March 31,
1998  and  the  nine-month   period  ended  March  31,  1998,  was   principally
attributable to the  recognition of a gain on the sale of the Company's  Tucson,
Arizona headquarters of $1.3 million and increased investment income.

         Income Tax Benefit.  The  Company's  effective  income tax rate for the
quarter ended March 31, 1998, was 0% compared to an effective rate of (27.5%) in
the  corresponding  quarter of fiscal 1997. The Company's  effective  income tax
rate for the  nine-month  period  ended  March 31,  1998,  was 0% compared to an
effective  rate of  (29.0%)  in the  corresponding  period of fiscal  1997.  The
Company did not  recognize  tax expense  for the quarter or  nine-month  periods
ended March 31, 1998 due to the  carryforward of federal and state net operating
losses and the reversal of certain book-tax timing differences.

         Extraordinary loss from early  extinguishment of debt. In October 1997,
the Company incurred a $109,000  prepayment penalty upon the sale of its Tucson,
Arizona  headquarters and the subsequent repayment of a $2.2 million mortgage on
that  facility.  The Company  utilized  proceeds  received  from the sale of its
Tucson,  Arizona  headquarters  to prepay the mortgage  obligation.  There is no
income tax effect from the  transaction.  The per share amount of  extraordinary
loss net of income tax effects is $(.01) for the  nine-month  period ended March
31, 1998.
<PAGE>
Future Results


         On April 23, 1998,  the Company  announced  its  intention to focus the
majority of its resources on its computer telephony products and consolidate its
communications and networking products into a wholly-owned subsidiary located in
Tucson,  Arizona and close its Iselin,  New Jersey sales and development  office
and its United  Kingdom  sales  office by June 30,  1998.  The Company will make
additional  investments  in sales,  marketing and  development in order to build
awareness, market and channels for its computer telephony products.

         The Company  intends to increase its  investments  and  expenditures in
sales,  marketing  and  development  of computer  telephony  products  including
TeleVantage. There can be no assurance that the Company will be able to develop,
market and sell such products  successfully  or at  particular  levels or within
particular  time-frames.  Accordingly,  the  Company  could  experience  a  slow
increase in computer  telephony  revenues as it attempts to build a distribution
channel and  reseller  programs  that may build  market  awareness  for computer
telephony  products.  A  slow  increase  in  the  Company's  computer  telephony
revenues,  particularly  if  combined  with  future  revenue  declines  from the
Company's  networking  and  communicating  software  products,  could  cause the
Company to experience losses.

         The Company's  future  results of operations  involve a number of risks
and  uncertainties.  Among the factors that could cause future results to differ
materially from historical  results are the following:  business  conditions and
the general economy; competitive pressures, acceptance of new products and price
pressures; availability of third-party compatible products at reasonable prices;
risk of  nonpayment  of  accounts or notes  receivable;  risks  associated  with
foreign operations  (especially those in Japan and other Asian countries);  risk
of product  line or  inventory  obsolescence  due to shifts in  technologies  or
market demand;  timing of software  introductions;  litigation.  These and other
risk factors are outlined below.

Year 2000

         The Company  recognizes the potential  business  impacts related to the
Year 2000 computer  system issue.  The issue is one where  computer  systems may
recognize the designation  "00" as 1900 when it means 2000,  resulting in system
failure or  miscalculations.  The Company is  utilizing  resources  to identify,
correct, reprogram and test its internal systems for Year 2000 compliance. It is
anticipated that all internal systems  reprogramming and correction efforts will
be completed by December 31, 1998.  The Company has tested all of its  currently
shipping software and determined its software products to be Year 2000 compliant
in all respects.

Liquidity and Capital Resources

         The Company had cash and cash equivalents of $19.0 million at March 31,
1998,  compared to $14.7 million at June 30, 1997, and working  capital of $20.0
million  at March 31,  1998  compared  to $17.7  million at June 30,  1997.  The
increase in cash and cash  equivalents was principally the result of the receipt
of a federal income tax refund of  approximately  $4.2 million and cash received
from the sale of its Tucson,  Arizona  headquarters and associated furniture and
equipment,  partially offset by severance  payments as a result of the Company's
restructuring  actions  effected  during the quarter ended June 30, 1997 and the
prepayment of the mortgage on the Tucson facility. The increase in the Company's
working  capital was  primarily  the result of the increases in cash balances as
described above.

         The Company funds its working capital  requirements  primarily  through
cash flows  from  operations  and  existing  cash  balances.  While the  Company
anticipates  that existing cash balances and cash flows from  operations will be
adequate to meet the  Company's  current and expected cash  requirements  for at
least the next year,  additional  investments  by the  Company  to  acquire  new
technologies  and products may necessitate that the Company seek additional debt
<PAGE>
or equity capital. There can be no assurance that such additional financing will
be available when needed or, if available,  will be on  satisfactory  terms.  In
order to raise capital,  the Company may issue debt or equity securities and may
incur substantial dilution.

Recent Accounting Pronouncements

         In June 1997, the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income" (SFAS No. 130). SFAS No. 130 establishes  requirements for disclosure of
comprehensive  income and becomes  effective for the Company for the year ending
June 30, 1999.

         In June 1997, the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting Standards No. 131, "Disclosure about Segments
of an  Enterprise  and  Related  Information"  (SFAS  No.  131).  SFAS  No.  131
establishes   standards  for  disclosure  about  operating  segments  in  annual
financial  statements and selected  information in interim financial reports. It
also establishes  standards for related disclosures about products and services,
geographic  areas and major  customers.  This statement  supersedes SFAS No. 14,
"Financial  Reporting for Segments of a Business  Enterprise".  The new standard
becomes  effective  for the  Company  for the year  ending  June 30,  1999,  and
requires that comparative  information from earlier years be restated to conform
to the requirements of this standard.

         In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2,  "Software Revenue Recognition" ("SOP 97-2").
SOP 97-2  provides  guidance on when revenue  should be  recognized  and in what
amounts  for  licensing,  selling,  leasing,  or  otherwise  marketing  computer
software.  SOP 97-2 is  effective  for  financial  statements  for fiscal  years
beginning after December 15, 1997. Earlier application for financial  statements
or  information  that has not been issued is  encouraged.  The Company  does not
believe  that the  adoption  of SOP 97-2  will  have a  material  impact  on its
software revenue recognition practices.

         During the  quarter  ended  December  31,  1997,  the  Company  adopted
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"), as issued by the Financial  Accounting  Standards Board. SFAS No. 128
simplifies  the standards for  computing  earnings per share.  The effect of the
Company adopting  Statement No. 128 is that basic and diluted EPS was $(.01) and
$(.01)  for the  quarter  ended  March  31,  1998  and  $.09  and  $.09  for the
nine-months  ended March 31,  1998.  Basic and diluted EPS was $(.25) and $(.25)
for the quarter  ended March 31, 1997 and $(.62) and $(.62) for the  nine-months
ended March 31, 1997.

RISK FACTORS

General

         Competition.  The PC  and  computer  telephony  industries  are  highly
competitive and are  characterized by rapidly  changing  technology and evolving
industry  standards.  The Company competes with other software 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 the Company. As a result,  these competitors may be able to
respond more quickly and effectively to new or emerging technologies and changes
in customer  requirements  or to devote  greater  resources to the  development,
promotion, sales and support of their products than the Company.  Competition in
the PC and  computer  telephony  industries  is likely to  intensify  as current
competitors  expand their product lines, more features are included in operating
systems (e.g.,  Windows 98), new computer telephony  applications are developed,
and as new  companies  enter  the  markets  or  segments  in which  the  Company
currently  competes.  The PC industry is also  characterized by a high degree of
consolidation  which favors  companies with greater  resources than those of the
Company. Consequently, the Company expects it products to continue to experience
increased competition,  which could result in significant price reductions, loss
of market share and lack of acceptance of new products,  any of which could have
a material  adverse effect on the Company's  business,  financial  condition and
results of operations. The Company's new product introductions can be subject to
severe price and other  competitive  pressures.  While the Company  endeavors to
introduce  its products to the  marketplace  in a timely  manner there can be no
assurances  that  due to  the  greater  financial  resources  of  the  Company's
competitors  that these products will be  successful.  There can be no assurance
that the  Company's  products  will be able to compete  successfully  with other
products offered presently or in the future by other vendors.
<PAGE>
         Returns  and Price  Protection.  The  Company is exposed to the risk of
product returns and rotations from its distributors and other volume purchasers,
which are  estimated  and  recorded  by the  Company  as a  reduction  in sales.
Although  the Company  attempts to monitor and if  necessary  adjust its channel
inventories  to be consistent  with current  levels of sell  through,  localized
overstocking  may occur with  certain  products due to rapidly  evolving  market
conditions.  In addition, the risk of product returns and rotations may increase
if the demand for its existing  products  should rapidly decline due to regional
economic troubles or increased  competition.  Although the Company believes that
it provides adequate allowances for product returns and rotations,  there can be
no  assurance  that actual  product  returns and  rotations  will not exceed the
Company's  allowances.  Any product  returns and rotations in excess of recorded
allowances  could result in a material adverse effect on net sales and operating
results.  As the Company  introduces more new products,  the  predictability and
timing of sales to end users and the  management  of returns  to the  Company of
unsold products by distributors and volume  purchasers  becomes more complex and
could result in material fluctuations in quarterly sales and operating results.

         The Company is also occasionally  exposed to its distributors and other
volume  purchasers for price protection for list price reductions by the Company
on its products held in such customers'  inventories.  The Company  provides its
distributors  with price  protection  in the event that the Company  reduces the
list  price  of  its  products  due  to  uncontrollable  competitive  pressures.
Distributors  and other volume  purchasers  are usually  offered  credit for the
impact of a list price  reduction  on the expected  revenue  from the  Company's
products in the  distributors'  inventories at the time of the price  reduction.
Although  the  Company  maintains  allowances  against the effects of such price
protections,  and believes that it has provided  adequate  allowances  for price
protection,  there can be no  assurance  that the  impact of actual  list  price
reductions  by the Company will not exceed the  Company's  allowance.  Any price
protection  in excess  of the  recorded  allowance  could  result in a  material
adverse effect on sales and operating results.

         Foreign Conditions.  The Company is exposed to certain risks associated
with  recent  financial  conditions  in the Pacific Rim region that are having a
negative impact upon the currencies and economies of Australia,  Japan and other
Pacific Rim  countries.  The Company has  operations in Japan that accounted for
approximately 4% of its net revenues for the quarter ended March 31, 1998. While
the Company  believes that its sales from the Pacific rim countries  will not be
materially impacted by this current financial turmoil there can be no assurances
that continued severe economic disruption in these economies would not adversely
affect future operating results.

         Factors Affecting  Pricing.  Substantially all of the Company's revenue
in each fiscal quarter results from orders booked in that quarter. A significant
percentage of the Company's  bookings and sales to distributors and other volume
purchasers  historically  have occurred during the last month of the quarter and
are  concentrated  in the  latter  half of that  month.  Orders  placed by major
customers are typically based upon customers'  recent  historical and forecasted
sales  levels for Company  products  and  inventory  levels of Company  products
desired to be  maintained  by those major  customers  at the time of the orders.
Moreover,  orders may also be based upon financial  practices by major customers
designed  to  increase  the  return on  investment  or yield on the sales of the
Company's  products  to  VARs  or  end-users.   Major   distribution   customers
occasionally  receive market  development  funds from the Company for purchasing
Company  products  and from time to time  extended  terms,  in  accordance  with
industry practice,  depending upon competitive conditions. The Company currently
does not offer any cash rebates to its U.S.  distribution  partners.  Changes in
purchasing patterns by one or more of the Company's major customers,  changes in
customer  policies  pertaining to desired  inventory levels of Company products,
negotiations  of market  development  funds,  or otherwise,  or in the Company's
ability to anticipate in advance the product mix of customer orders could result
in material fluctuations in quarterly operating results.

Computer Telephony

         Computer   Telephony   Product   Competition.   The  market  for  open,
standards-based  telephony  tools,  applications  and  system-level  products is
relatively  new, and rapidly  evolving.  There can be no  assurances  that these
markets will continue to expand, or if they do, that the Company's products will
receive widespread  acceptance.  Further, the market for the Company's telephony
products is  characterized  by the rapid  evolution  of  telephony  hardware and
software standards, by changing customer requirements, and is highly competitive
with respect to timely product  introduction.  These  characteristics may render
the Company's telephony products obsolete or unmarketable.

     The Company believes that the principal  competitive  factors affecting the
telephony  markets it serves  include  vendor and  product  reputation,  product
architecture,  functionality and features,  scalability, ease of use, quality of
product  and  support,   performance,   price,   brand  name   recognition   and
effectiveness  of sales and marketing  efforts.  There can be no assurances that
the  Company  can  maintain  and grow its market  position  against  current and
potential  competitors,  especially those with significantly  greater financial,
marketing,  service,  support,  technical and other competitive  resources.  Any
failure by the Company to expand its distribution channel for telephony products
or any  failure  to  maintain  and grow its  competitive  position  would have a
material adverse effect upon the Company's  revenues from its telephony  product
line.
<PAGE>
          The Company released its newest telephony product  TeleVantage in late
March 1998.  TeleVantage  is a phone system  designed for small and medium sized
businesses  and  branch  offices.  The  Company  believes  this  product  offers
functionality  superior to that of a traditional standalone PBX. However, due to
the complexity of this software and the mission  critical systems it is designed
to operate,  there can be no assurances  that the software will be  successfully
introduced, launched, marketed or sold.

         Computer  Telephony  Customers  and Market  Acceptance.  The Company is
currently and will continue to invest significant  resources in the development,
marketing and launch of new telephony  products.  Due to the complexity of these
tools and system level products the Company's  telephony product line is subject
to  significant  risk.  Software  products as complex as those  currently  under
development  by the Company are often subject to market  acceptance  challenges.
There can be no assurance  that the Company will not encounter  difficulties  in
successfully introducing,  marketing and promoting these products. Additionally,
these new telephony  products are  principally  targeted at small to medium size
businesses.   The  Company's   existing  network  of  qualified   resellers  has
historically  sold  the  Company's   networking  and  communications   products.
Therefore the Company anticipates the need to recruit and train a new network of
qualified  value added resellers in launching its computer  telephony  products.
There can be no assurances that the Company will be successful in establishing a
base of  qualified  resellers  to sell its  telephony  products.  The  Company's
success in launching  these products will likely be influenced by its ability to
attract and inform  qualified  value added  resellers and  interconnects  on the
features and functionality of these emerging technologies.

         The  Company's  computer  telephony  products  compete in a  relatively
immature industry with as yet unproven  technologies.  There can be no assurance
that the current  technological  innovations in the computer  telephony industry
will be widely  adopted by small to medium  size  businesses  or that  telephony
standards  will  evolve  in a  manner  that  is  advantageous  to the  Company's
telephony products.

Networking and Communications

         Networking and Communications Software Customers. The Company relies on
a network of  distributors  and value added  resellers  (VARs) for a significant
portion of both its domestic and international  networking and PC communications
product revenues.  In addition, a majority of the sales of CoSession Remote, the
Company's PC remote computing product, are to PC OEM's. Generally,  there are no
minimum purchase requirements for the Company's distributors,  VARs and OEMs and
many of the Company's distributors and VARs sell competitive products. There can
be no assurance that these  customers will give priority to the marketing of the
Company's products as compared to competing products or alternative solutions or
that such customers will continue to offer the Company's products.  In the event
of the  termination  of the  Company's  relationship  with  one  or  more  major
distributors,  the Company would have to find suitable  alternative  channels of
distribution.  The absence of such  alternatives  could have a material  adverse
effect on the Company's business,  financial condition and results of operation.
Certain of the Company's PC OEM relationships  require the scheduled delivery of
product revisions and new products. The failure to adhere to agreed-upon product
delivery  schedules  could result in the termination of key  relationships  with
major PC manufacturers, which could have a significant adverse impact on current
and future revenues in the PC OEM channel. The Company's OEM revenue streams are
dependent  upon the  maintenance  of one or more key PC OEM  relationships.  The
termination of any one of these  relationships  may materially  adversely effect
the Company's current and future revenues.

<PAGE>
         Networking Software Competition. The Company's major competitors in the
small  business  networking  market are Microsoft  Corporation  (Microsoft)  and
Novell,  Inc.  (Novell).  Both of these  companies  have  substantially  greater
financial,  technological,  production  and sales and marketing  resources  than
those of the Company.

         Management  believes  that the  inclusion  of  networking  capabilities
(printer,  file and  application  sharing) in  Microsoft's  Windows 95 operating
system  (released  in  August  1995)  have  had  and  will  continue  to  have a
significant detrimental impact on sales of the Company's LANtastic NOS products.
Windows 95 is  pre-loaded  on  virtually  all Pentium  processor-based  personal
computers currently sold worldwide. The impact of Windows 95 has been compounded
by the dominance and visibility of Microsoft in the personal  computer  software
market and the upgrade by small  businesses  to Pentium  PC's.  In August  1996,
Microsoft  released  Windows  NT 4.0,  a client  server  network  version of the
Windows operating system.  Management  believes that the workstation  version of
Windows  NT  4.0  which,  like  Windows  95,  includes  peer-to-peer  networking
capabilities and is pre-loaded on Pentium PC's, has provided  significant direct
competition  to the  LANtastic  NOS in the  small  business  networking  market.
Further,  business  applications  software vendors appear to be rapidly adapting
their products to Windows NT. Management  believes that this trend combined with
the fact that DOS, Windows 3.x and Windows 95 clients are compatible with the NT
server has and will  continue  to provide  substantial  competitive  pressure on
sales of LANtastic NOS products.  Microsoft has announced the release of the new
Windows 98 operating  system for late June 1998.  Management  believes that this
new operating  system will further erode its LANtastic (NOS) install base. These
events will likely further diminish the future revenue potential of LANtastic.

         Finally,  the movement of the networking  industry  towards the uniform
use of Internet  technologies  in the  construction  of local area  networks (so
called intranets)  constitutes a risk that demand for more proprietary networks,
such as LANtastic, will decline further, and that competition will emerge from a
new class of players,  such as Netscape  Communications,  Sun Microsystems,  and
others.

         Remote  Computing  Software  Competition.  The  principal  distribution
channel for the Company's remote computing product,  CoSession Remote 32 version
8, is through OEM  arrangements  with PC  manufacturers.  In December  1997, the
Company  released a 32-bit  version of the product to support the Windows 95 and
Windows NT operating  systems.  As the Company's  major  competitors  also offer
32-bit remote computing products, it is critical, for the continuance of the OEM
relationships,  that the Company successfully market the 32-bit product and meet
major OEM customer e-commerce and other promotional requirements.  The Company's
ability to grow its remote computing software revenues will likely depend on its
success in  leveraging  existing  OEM  relationships  to develop  new sources of
revenue such as e-commerce.  The loss of one or more of these OEM  relationships
could  have a  significant  impact on the  Company's  net  sales  and  operating
results.  Microsoft has  announced  its intention to include a remote  computing
component in its Windows 98  operating  systems  (scheduled  for release in late
June 1998) and currently distributes Net Meeting at no charge from its Web site.
These actions will likely lead to diminished demand for the Company's  CoSession
remote  control  product,  and  consequently  decreased  net sales and operating
results.

         Communications Software Competition. Microsoft, because of its dominant
position  in  the  PC  operating  systems  and  business  applications  markets,
frequently  offers  value-added  functionality  to its  products  in the form of
enhancements to its Windows operating systems, which are pre-loaded on new PC's,
or by offering  free  products  for download  from its World Wide Web site.  The
Company  believes  that  Microsoft's  next  version  of its  Windows  NT  Server
(tentatively  scheduled  for  release  in either  late  1998 or early  1999) may
include both modem sharing and internet sharing  capabilities.  The inclusion of
modem sharing and internet  sharing  capabilities  in Windows NT could result in
substantially  increased  competition  for the Company's  ModemShare  and iShare
products  which  could  have a  significant  impact on the  Company's  sales and
operating results (see caption above entitled, "Networking Software" for further
discussion of Windows NT).
<PAGE>
         Due to  the  foregoing,  and  other  factors  affecting  the  Company's
operating results,  past financial  performance should not be considered to be a
reliable  indicator  of  future  performance,   and  investors  should  not  use
historical trends to anticipate results or trends in future periods.


"Safe Harbor"  Statement under the Private  Securities  Litigation Reform Act of
1995

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


Item 1.     LEGAL PROCEEDINGS


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

Item 2.     CHANGES IN SECURITIES
            None

Item 3.     DEFAULTS UPON SENIOR SECURITIES
            None

Item 4.     SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS
            None

Item 5.     OTHER INFORMATION
            None

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K

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

              No. 27 - Financial Data Schedule for Form 10-Q dated May 15, 1998

(c)   Reports on Form 8-K
              There were  no reports  filed on Form 8-K  during the three months
ended March 31, 1998
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                                   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:  May 15, 1998             By /s/ T. Paul Thomas
                                  -------------------------------------- 
                                  T. Paul Thomas
                                  President and Chief Operating Officer






                                By /s/ Kirk D. Mayes
                                  -------------------------------------- 
                                  Kirk D. Mayes
                                  Corporate Controller, Chief Accounting Officer
                                  (Acting Principal Financial Officer)