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                       SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549-1004
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                                    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, 1999

                                       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                               (IRS employer
       of 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 (MAY 10, 1999).

                 COMMON STOCK, $.01 PAR VALUE: 14,781,864 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, 1999 and June 30, 1998                         3

                  Consolidated Statements of Operations-
                     Three Months and Nine Months Ended
                     March 31, 1999 and 1998                                  4

                  Consolidated Statements of Cash Flows-
                     Nine Months Ended March 31, 1999
                     and 1998                                                 5

                  Notes to Consolidated Financial Statements                6-9

       Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations           10-22


PART II.   OTHER INFORMATION

       Item 1. Legal Proceedings                                             23

       Item 2. Changes in Securities                                         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



SIGNATURES                                                                   24



EXHIBITS

       11       Computation of Net Income (Loss) Per Share                   25

       27       Financial Data Schedule                                      26

                                       2
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                           March 31,   June 30,
ASSETS                                                       1999        1998
                                                           --------    --------
                                                               (unaudited)
Current assets:
     Cash and cash equivalents .........................   $ 17,183    $ 18,514
     Receivables:
          Trade accounts, net ..........................      1,879       2,813
          Other receivables ............................        143         279
     Inventories .......................................      1,169         917
     Prepaid expenses ..................................        367         283
                                                           --------    --------
         Total current assets ..........................     20,741      22,806
                                                           --------    --------

Property and equipment .................................      6,024       5,333
     Less accumulated depreciation and amortization ....     (4,763)     (4,198)
                                                           --------    --------
         Net property and equipment ....................      1,261       1,135
                                                           --------    --------

Other assets ...........................................      1,148       1,567
                                                           --------    --------
                                                           $ 23,150    $ 25,508
                                                           ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable ..................................   $  1,348    $  1,598
     Accrued liabilities ...............................      2,019       1,670
     Accrued restructuring costs .......................        285       1,536
     Current portion of capital lease obligations ......        401         464
                                                           --------    --------
         Total current liabilities .....................      4,053       5,268
                                                           --------    --------

Capital lease obligations,
     net of current portion ............................         --         289

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  28,098,223 shares at March 31,
       1999 and 27,980,602 shares at June 30, 1998 .....        280         279
     Additional paid-in capital ........................     96,773      96,486
     Accumulated deficit ...............................     (8,172)     (7,030)
     Less treasury stock, at cost, 13,320,500 shares
       at March 31, 1999 and June 30, 1998 .............    (69,784)    (69,784)
                                                           --------    --------
         Total shareholders' equity ....................     19,097      19,951
                                                           --------    --------
                                                           $ 23,150    $ 25,508
                                                           ========    ========

          See accompanying notes to consolidated financial statements.

                                       3
<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,
                                              --------------------    --------------------
                                                1999        1998        1999        1998
                                                ----        ----        ----        ----
                                                   (unaudited)            (unaudited)
<S>                                           <C>         <C>         <C>         <C>
Net sales .................................   $  5,751    $  6,215    $ 16,247    $ 19,701
Cost of sales .............................      1,907       1,659       4,871       4,964
                                              --------    --------    --------    --------
  Gross profit ............................      3,844       4,556      11,376      14,737
                                              --------    --------    --------    --------

Operating Expenses:
  Sales and marketing .....................      2,121       2,582       6,265       7,612
  Product development .....................      1,455       1,823       3,896       5,437
  General and administrative ..............      1,035         747       2,963       2,402
  Restructuring cost ......................         --        (175)         --        (439)
                                              --------    --------    --------    --------
    Total operating expenses ..............      4,611       4,977      13,124      15,012
                                              --------    --------    --------    --------

Income (loss) from operations .............       (767)       (421)     (1,748)       (275)

Other income, net .........................        187         259         606       1,758
                                              --------    --------    --------    --------

  Income (loss) before extraordinary item .       (580)       (162)     (1,142)      1,483

  Extraordinary loss from early
  extinguishment of debt, net of
  $0 income tax benefit ...................         --          --          --        (109)
                                              --------    --------    --------    --------

  Net income (loss) .......................   $   (580)   $   (162)   $ (1,142)   $  1,374
                                              --------    --------    --------    --------

Net income (loss) per common share -
  basic and diluted .......................   $   (.04)   $   (.01)   $   (.08)   $    .09
                                              --------    --------    --------    --------

Weighted average common shares outstanding:
  Basic .....................................   14,764      14,539      14,705      14,529
                                              --------    --------    --------    --------

  Diluted ...................................   14,764      14,539      14,705      14,576
                                              --------    --------    --------    --------
</TABLE>

See accompanying notes to consolidated financial statements.

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

                                                            Nine Months Ended
                                                                 March 31,
                                                           --------------------
                                                             1999        1998
                                                           --------    --------
                                                                (unaudited)

Cash flows from operating activities:
  Net income (loss): ...................................   $ (1,142)   $  1,374
  Adjustments to reconcile net income (loss)
    to net cash provided by (used in)
    operating activities:
      Extraordinary loss ...............................         --         109
      Depreciation and amortization ....................      1,088       1,406
      Gain from disposition of property, net ...........          4      (1,504)
      Change in accounts receivable and inventory
        allowances .....................................       (399)     (2,629)
      Tax benefit of disqualifying dispositions ........         34          --
      Changes in assets and liabilities:
        Receivables:
          Trade accounts ...............................      1,130       3,480
            Income taxes ...............................         --       4,300
            Notes and other ............................        136         284
         Inventories ...................................        (48)      1,301
         Prepaid expenses ..............................        (84)        514
         Accounts payable and accrued liabilities ......         99      (1,138)
         Accrued restructuring costs ...................     (1,251)     (4,478)
         Other assets ..................................         (8)         23
                                                           --------    --------
           Net cash (used in) provided by operating
             activities ................................       (441)      3,042
                                                           --------    --------
Cash flows from investing activities:

  Proceeds from sale of property and equipment .........         12       4,228
  Purchases of property and equipment ..................       (804)       (477)
                                                           --------    --------
    Net cash (used in) provided by investing activities        (792)      3,751
                                                           --------    --------
Cash flows from financing activities:
  Proceeds from issuance of common stock ...............        254          18
    Principal payments on long term debt ...............       (352)     (2,522)
                                                           --------    --------
      Net cash used in financing activities ............        (98)     (2,504)
                                                           --------    --------
Net (decrease) increase in cash and cash equivalents ...     (1,331)      4,289
Cash and cash equivalents at beginning of period .......     18,514      14,673
                                                           --------    --------
Cash and cash equivalents at end of period .............   $ 17,183    $ 18,962
                                                           ========    ========

          See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) BASIS OF PRESENTATION

     The  consolidated  financial  statements  include the accounts of Artisoft,
Inc.  and  its  three  wholly-owned  subsidiaries:  Triton  Technologies,  Inc.,
Artisoft  "FSC",  Ltd.  (which has  elected  to be  treated  as a foreign  sales
corporation)  and  NodeRunner,  Inc. 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   unaudited
consolidated 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  accurate,  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  1998  Annual  Report to  Shareholders  and report on Form  10-K.  The
results of  operations  for the three or nine month periods ended March 31, 1999
are not necessarily  indicative of the results to be expected for the full year.

(2) COMPUTATION OF NET INCOME (LOSS) PER SHARE

     Basic  earnings per share is computed by dividing  income  attributable  to
common  shareholders by the weighted average number of common shares outstanding
for the period.  Diluted earnings per share reflects the potential dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
exercised or converted into common stock that then shared in the earnings of the
Company.  In calculating  net loss per common share for the three and nine month
periods ended March 31, 1999,  318,209 and 84,919 common stock equivalent shares
consisting  of stock options have been excluded  because their  inclusion  would
have been anti-dilutive.


(3) SEGMENTATION OF FINANCIAL RESULTS

     The  financial  results  for the three month and nine month  periods  ended
March 31, 1999 are summarized below by product group (in thousands):

                                       6
<PAGE>
                                              Three Months      Nine Months
                                                  Ended            Ended
                                             March 31, 1999    March 31, 1999
                                             --------------    --------------

     COMPUTER TELEPHONY GROUP:

       Net sales                                 $ 1,853          $  4,805
       Gross profit                              $   995          $  2,681
       Gross profit margin                            54%               56%
       Operating (loss)                          $(1,807)         $ (4,972)
       Net (loss)                                $(1,807)         $ (4,972)
       Capital expenditures                      $   109          $    620
       Depreciation and amortization expense     $   129          $    322


     COMMUNICATIONS SOFTWARE GROUP:

       Net sales                                 $ 3,898          $ 11,442
       Gross profit                              $ 2,849          $  8,695
       Gross profit margin                            73%               76%
       Operating income                          $ 1,040          $  3,224
       Net income                                $ 1,227          $  3,830
       Capital expenditures                      $    49          $    184
       Depreciation and amortization expense     $   248          $    766



     The  Company's  Computer  Telephony  Product  Group  principally   includes
revenues  from the  TeleVantage  and Visual Voice product  lines.  The Company's
Communications   Software  Group  includes  revenues  from  the  LANtastic  NOS,
CoSession Remote, i.Share and ModemShare product lines.

(4) RESTRUCTURING COST

     The accrued  restructuring costs in the accompanying  consolidated  balance
sheet at March 31, 1999 include the costs of  involuntary  employee  termination
benefits for certain Communications Software Group employees, costs to close the
Company's  United Kingdom and Iselin,  New Jersey sales and support  offices and
related costs  associated  with the  restructuring  actions  effected during the
fiscal year ended June 30, 1998.

                                       7
<PAGE>
The accrued  restructuring  costs at March 31, 1999  principally  consist of the
following (in thousands):

                                                     Total Accrued
                                                  Restructuring Costs
                                                  -------------------

     Balance at June 30, 1998                           $ 1,536

     Cash paid for
     employee
     termination benefits                                  (650)

     Cash paid for office closure costs                    (601)
                                                        -------

     Unaudited balance at March 31, 1999                $   285
                                                        -------

(5) INVENTORIES

     Inventories  at March 31, 1999 and June 30, 1998  consist of the  following
(in thousands):


                                                March 31,          June 30,
                                                   1999              1998
                                                 -------           -------
                                               (unaudited)
     Raw materials                               $   991           $   938
     Work-in-process                                 152               109
     Finished goods                                  157               205
                                                 -------           -------
                                                   1,300             1,252
     Inventory allowances                           (131)             (335)
                                                 -------           -------
                                                 $ 1,169           $   917
                                                 =======           =======


(6) PROPERTY AND EQUIPMENT

     Property  and  equipment at March 31, 1999 and June 30, 1998 consist of the
following (in thousands):

                                                  March 31,        June 30,
                                                    1999             1998
                                                   -------         -------
                                                (unaudited)

     Furniture and fixtures                        $    36         $     6
     Computers and other equipment                   5,721           5,259
     Leasehold improvements                            267              68
                                                   -------         -------
                                                     6,024           5,333

     Accumulated depreciation and
       amortization                                 (4,763)         (4,198)
                                                   -------         -------
                                                   $ 1,261         $ 1,135
                                                   =======         =======

                                       8
<PAGE>
(7) OTHER ASSETS

     Other assets at March 31, 1999 and June 30, 1998  consist of the  following
(in thousands):

                                                   March 31,        June 30,
                                                     1999             1998
                                                    ------           ------
                                                  (unaudited)

     Trademarks and patents, net of
       accumulated amortization of $90 and $70      $   35           $   55
     Purchased technology, net of accumulated
       amortization of $1,721 and $1,323               989            1,387
     Recoverable deposits and other                    124              125
                                                    ------           ------
                                                    $1,148           $1,567
                                                    ======           ======

(8) ACCRUED LIABILITIES

     Accrued  liabilities  at March 31,  1999 and June 30,  1998  consist of the
following (in thousands):

                                                   March 31,        June 30,
                                                     1999             1998
                                                    ------           ------
                                                  (unaudited)

     Compensation and benefits                      $  877           $  799
     Payroll, sales and property taxes                 109               88
     Marketing                                         384              349
     Royalties                                         310              227
     Other                                             339              207
                                                    ------           ------
                                                    $2,019           $1,670
                                                    ======           ======

                                       9
<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, 1999
were $5.8  million,  a  decrease  of 7% from net sales of $6.2  million  for the
corresponding  quarter  of fiscal  1998 and an  increase  of 6% from the  second
quarter of fiscal  1999 net sales of $5.4  million.  For the  nine-month  period
ended March 31, 1999, the Company's net sales were $16.2 million,  a decrease of
18% from net sales of $19.7 million for the corresponding period of fiscal 1998.
The  decreases in net sales for the quarter and  nine-month  periods ended March
31,  1999,  as  compared  to the  corresponding  periods  in fiscal  1998,  were
principally   due  to  the  decline  in  sales  of  certain  of  the   Company's
Communications  Software Group products,  primarily lower sales of the Company's
LANtastic  network  operating system (NOS) products.  This decline was partially
offset by increases in sales of the Company's Computer Telephony  products.  The
sequential  increase  in net sales  from the  previous  quarter's  net sales was
primarily  the result of increased  sales of the  Company's  Computer  Telephony
products  especially its TeleVantage  PC-based PBX telephone system software and
related hardware.

     The Company  distributes  its products in both the U.S.  and  international
markets.  U.S.  sales  increased  7% to $4.7  million (81% of net sales) for the
quarter ended March 31, 1999, from $4.4 million (71% of net sales), for the same
quarter a year ago. U.S. sales decreased 8% to $ 13.1 million (81% of net sales)
for the  nine-month  period ended March 31, 1999 from $14.3  million (73% of net
sales),  for the same period in fiscal 1998.  The increase in aggregate U.S. net
sales and U.S.  net  sales as a  percentage  of total net sales for the  quarter
ended March 31, 1999,  as compared to the  corresponding  period in fiscal 1998,
principally  resulted  from an  increase  in U.S.  net  sales  of the  Company's
Computer Telephony  products,  particularly  TeleVantage and an increase in U.S.
based  Communications  Software  Group  Original  Equipment  Manufacturer  "OEM"
revenue.  The decrease in aggregate  U.S.  net sales for the  nine-month  period
ended March 31, 1999, is primarily the result of the overall decline in sales of
the Company's  LANtastic network operating system (NOS) products  principally in
U.S.  retail,  mail order and  distribution  channels,  partially  offset by the
aforementioned  increases in sales of the Company's  Computer Telephony products
and U.S. based Communications  Software Group OEM revenues. The increase in U.S.
net sales as a  percentage  of total net sales for the  nine-month  period ended
March 31, 1999, is principally the result of the increase in U.S. based Computer
Telephony  revenues and U.S.  based  Communications  Software Group OEM revenues
together with the decline in international sales.

     International  sales  decreased  39% to $1.1 million (19% of net sales) for
the quarter  ended March 31, 1999 from $1.8  million  (29% of net sales) for the
same quarter a year ago.  International sales decreased 43% to $3.1 million (19%
of net sales) for the  nine-month  period ended March 31, 1999 from $5.4 million
(27% of net  sales)  for the  same  period  in  fiscal  1998.  The  decrease  in
international  net sales as a percentage of total net sales for both the quarter
and  the   nine-month   periods  ended  March  31,  1999,  as  compared  to  the
corresponding  periods  in fiscal  1998,  primarily  resulted  from a decline in
worldwide  sales of the  Company's  LANtastic  network  operating  system  (NOS)
products  (particularly  in Latin  America and Asia) as well as a decline in net
sales of CoSession Remote preloads in Asia (especially Japan).

     GROSS PROFIT.  The Company's gross profit was $3.8 million and $4.6 million
for the quarters ended March 31, 1999 and 1998, respectively (67% and 73% of net
sales,  respectively).  Gross profit was $11.4 million and $14.7 million for the
nine-month periods ended March 31, 1999, and 1998,  respectively (70% and 75% of
net sales,  respectively).  The net decrease in gross profit margin  percentages
for both the  quarter  and the  nine-month  periods  ended  March 31,  1999,  as
compared to the corresponding periods in fiscal 1998, was principally due to the
following factors: substantially higher software licensing fees on the Company's

                                       10
<PAGE>
configuration tracking and recovery  utility(ConfigSafe)  and increased sales of
lower margin Computer Telephony hardware products and TeleVantage NFR's (Not For
Resale Kits).  The decline was partially  offset by lower software  amortization
costs and lower inventory  reserve  requirements.  The net decrease in aggregate
dollars of gross profit margin for both the quarter and nine-month periods ended
March 31,  1999 is  principally  the result of the  decline in net sales and the
aforementioned product mix changes.

     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 $4.6 million and $5.0 million
for the quarters ended March 31, 1999 and 1998 respectively, (80% of net sales).
Total operating expenses were $13.1 million and $15.0 million for the nine-month
periods ended March 31, 1999 and 1998, respectively,  (81% and 76% of net sales,
respectively).  The  decrease in absolute  dollars was due to the  restructuring
actions  implemented by the Company in its Communications  Software Group during
the fiscal year ended June 30, 1998, substantially offset by increased operating
expenditures in its Computer  Telephony  Group.  The increase in total operating
expenses as a percentage of net sales for the nine-month  period ended March 31,
1999 as compared to the corresponding period in fiscal year 1998, was due to the
aforementioned  worldwide decline in the Company's Communications Software Group
LANtastic network  operating system (NOS) products,  offset by the reductions in
the  Communications  Software group operating  expenditures  effected during the
June 30, 1998 restructuring actions.

     SALES AND  MARKETING.  Sales and  marketing  expenses were $2.1 million and
$2.6 million for the quarters ended March 31, 1999 and 1998, respectively,  (37%
and 42% of net sales,  respectively).  Sales and  marketing  expenses  were $6.3
million and $7.6  million for the  nine-month  periods  ended March 31, 1999 and
1998,  respectively,  (39% of net sales).  The decrease in aggregate dollars for
sales and marketing  expenses for the quarter and the  nine-month  periods ended
March 31, 1999, as compared to the corresponding periods in fiscal 1998, are due
principally   to  the   restructuring   actions   undertaken  in  the  Company's
Communications  Software Group during the fiscal year ended June 30, 1998. These
actions included the termination of certain Communications Software Group sales,
marketing and support personnel and the elimination of costs associated with the
Company's  Communications  Software  Group Japanese and United Kingdom sales and
support  offices  during the quarter ended June 30, 1998.  These  decreases were
offset to a minor extent by increased sales and marketing costs  associated with
the Company's Computer Telephony products (especially TeleVantage). The decrease
in sales and  marketing  expenses as a  percentage  of net sales for the quarter
ended  March 31, 1999 as  compared  to the  corresponding  period in fiscal year
1998, was principally  attributable to the aforementioned  restructuring actions
taken in the Company's  Communications  Software  Group during the quarter ended
June 30, 1998.

     PRODUCT  DEVELOPMENT.  Product  development  expenses were $1.5 million and
$1.8 million for the quarters ended March 31, 1999 and 1998, respectively,  (25%
and 29% of net sales,  respectively).  Product  development  expenses  were $3.9
million and $5.4  million for the  nine-month  periods  ended March 31, 1999 and
1998, respectively,  (24% and 28% of net sales,  respectively).  The decrease in
product  development  expenses in both aggregate  dollars and as a percentage of
net sales for the quarter  and  nine-month  periods  ended  March 31,  1999,  as
compared  to  the   corresponding   periods  in  fiscal  1998,  is   principally
attributable  to certain  restructuring  actions  taken during the quarter ended
June 30, 1998 which reduced product development staffing levels in the Company's
Communications  Software Group. The decrease in product development  expenses in
the Company's Communications Software Group was partially offset by higher costs
associated with increased product  development  staffing levels in the Company's
Computer Telephony Group.

     GENERAL AND ADMINISTRATIVE.  General and administrative  expenses were $1.0
million  and $.7  million  for the  quarters  ended  March 31,  1999,  and 1998,
respectively,   (18%  and  12%  of  net  sales,   respectively).   General   and
administrative  expenses  were $3.0 million and $2.4 million for the  nine-month
periods ended March 31, 1999 and 1998,  respectively  (18% and 12% of net sales,
respectively).  The increase in aggregate dollars for general and administrative
expenses and general administrative  expenses as a percentage of total net sales
for both the quarter and nine-month periods ended March 31, 1999, as compared to

                                       11
<PAGE>
the  corresponding  periods in fiscal 1998, is  attributable  to the addition of
certain corporate administrative personnel and increased depreciation expense on
certain  equipment  purchases and improvements  made to the Company's  corporate
offices in Cambridge,  Massachusetts,  along with increased depreciation expense
on the Company's  new  financial  software  package.  Additionally,  the Company
incurred  increased  occupancy  costs  in  its  Cambridge,   Massachusetts-based
headquarters due to increased  staffing levels during the quarter and nine-month
periods ended March 31, 1999 as compared to the corresponding  periods in fiscal
1998.

     RESTRUCTURING  COST. For the quarter and nine-month periods ended March 31,
1998, the Company  reduced by $ .2 million and $ .4 million,  respectively,  its
restructuring  accruals  due to  lower  than  anticpated  costs in  closing  its
Communications  Software Group  international sales and support offices. No such
reductions were recorded for the quarter and nine-month  periods ended March 31,
1999.

     OTHER INCOME, NET. For the quarter ended March 31, 1999, other income, net,
decreased  to $ .2 million,  from $ .3 million in the  corresponding  quarter of
fiscal 1998. For the nine-month period ended March 31, 1999, other income,  net,
decreased  to $ .6 million,  from $ 1.8 million in the  corresponding  period of
fiscal 1998. The decrease in other income,  net, for the quarter ended March 31,
1999,  as compared  to the  corresponding  quarter in fiscal  year 1998,  is the
result of lower interest  income  received on the Company's  cash balances.  The
decrease in other income,  net, for the nine-month  period ended March 31, 1999,
as compared to the  corresponding  period in fiscal year 1998,  was  principally
attributable to the  recognition of a gain on the sale of the Company's  Tucson,
Arizona  headquarters of $1.3 million for the nine-month  period ended March 31,
1998.

     EXTRAORDINARY LOSS FROM EARLY  EXTINGUISHMENT OF DEBT. In October 1997, the
Company incurred a $ .1 million  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 quarter and nine-month  periods
ended March 31, 1998.

FUTURE RESULTS

     The Company is currently and will continue to focus a substantial  majority
of its business  resources on its computer telephony  products.  Concurrent with
the  expanded  investment  in  computer  telephony  products,  the  Company  has
substantially  reduced its investment in its  communications  software products.
There  can  be  no  assurances  that  with  the  reduced  sales,  marketing  and
development  investment in the communications  software  products,  that revenue
levels for these products will continue at their current levels in the future.

     The  Company   intends  to  continue  to  increase  its   investments   and
expenditures in sales,  marketing and development of computer telephony products
(especially  TeleVantage).  There can be no  assurance  that the Company will be
able to market or sell such products successfully or at particular levels within
particular time-frames.  Accordingly, the Company could experience a slower than
anticipated increase  in computer  telephony  revenues as it attempts to build a
distribution  and reseller  network that may build market awareness for computer
telephony  products.  A  slow  increase  in  the  Company's  computer  telephony
revenues,  particularly  if  combined  with  increased  investment  in  computer
telephony product development and marketing along with declining  communications
software  product  revenues,  may  cause the  Company  to  experience  increased
operating losses in the future.

     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  receivable;  risk of product line or inventory
obsolescence due to shifts in technologies or market demand;  timing of software
introductions and litigation. These and other risk factors are outlined below.

                                       12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

     The Company  had cash and cash  equivalents  of $17.2  million at March 31,
1999  compared to $18.5  million at June 30,  1998 and working  capital of $16.7
million  at March 31,  1999  compared  to $17.5  million at June 30,  1998.  The
decrease in cash and cash  equivalents was the result of the following  factors:
employee termination benefit payments to certain  Communications  Software Group
employees  and  payments  associated  with the closure of the  Company's  United
Kingdom  sales  and  support  office  and  increased  development,  sales  force
expansion and marketing investments in the Company's Computer Telephony Products
Group. The decrease in the Company's working capital was primarily the result of
the  Company's  operating  loss and the net increase in property  and  equipment
balances at March 31, 1999 offset by increased  inventory  balances at March 31,
1999.

     The Company funds its working capital  requirements  primarily through cash
flows from operations and existing cash balances.  While the Company anticipates
that existing cash balances and cash flows from  operations  will be adequate to
meet the Company's  current and expected cash requirements for at least the next
year,  additional  investments  by the Company to acquire new  technologies  and
products  may  necessitate  that the  Company  seek  additional  debt or  equity
capital.  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.  Comprehensive  income  includes  such items as foreign  currency
translation adjustments and unrealized holding gains and losses on available for
sale securities that are currently being presented by the Company as a component
of shareholders'  equity.  The adoption does not have an impact on the Company's
financial results.

     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 February 1998, the Financial  Accounting  Standards  Board (FASB) issued
Statement  of  Financial   Accounting  Standards  (SFAS)  No.  132,  "Employers'
Disclosures  about Pensions and Other  Postretirement  Benefits (an amendment of
FASB  Statements No. 87, 88, and 106).  This statement  standardizes  employers'
disclosure  requirements about pensions and other  postretirement  benefit plans
and requires  additional  information on changes in the benefit  obligations and
fair  values  of plan  assets  that will  facilitate  financial  analysis.  This
statement  supersedes the disclosure  requirements  in SFAS No. 87,  "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for  Termination  Benefits",  and  SFAS  No.  106,  "Employers'  Accounting  for
Postretirement Benefits Other Than Pensions". The new standard becomes effective
for the Company for the fiscal year ending June 30, 1999.  The adoption does not
have an impact on the Company's financial results.

                                       13
<PAGE>
YEAR 2000

     The Company  recognizes the potential  business impacts related to the Year
2000 computer  system issue and is implementing a plan to assess and improve the
Company's state of readiness with respect to such issues. The Year 2000 issue is
one where computer  systems may recognize the  designation  "00" as 1900 when it
means 2000, resulting in system failure or miscalculations.

     Commencing in 1997,  the Company  initiated a  comprehensive  review of its
core information technology systems, which the Company is dependent upon for the
conduct of day to day business operations, in order to determine the adequacy of
those systems in light of future business requirements.  Year 2000 readiness was
one of a variety of factors to be considered in the review of core systems.

     In recognition of the Year 2000 issue, the Company in September 1997, began
a  comprehensive  review  of  its  information  technology  and  non-information
technology systems used by the Company,  computer hardware and software products
sold by the Company,  and computer hardware and software products and components
and other  equipment  supplied  to the  Company by third  parties.  Such  review
includes testing and analysis of Company products and inquiries of third parties
supplying  information   technology  and  non-information   technology  systems,
computer hardware and software  products and components,  and other equipment to
the Company.

     The Company has divided its Year 2000 review into three  phases.  The first
addresses  the  Company's  core  information  technology  systems  and  products
currently sold by the Company.  The second phase addresses non-core  information
technology systems and  non-information  technology  systems.  In addition,  the
Company will implement  required Year 2000 upgrades and replacements  during the
second  phase.  The third phase  addresses  third party  suppliers  of products,
supplies and services necessary to the Company's ongoing operations. The Company
substantially  completed  the first phase of its review in September  1998.  The
Company believes it will complete the second and third phases by September 1999.

     In the first phase of its Year 2000  review,  the Company  tested  software
products currently  manufactured and shipped by the Company, and determined that
most such products are Year 2000  compliant.  Certain of the Company's  products
that were  discontinued  prior to fiscal  1998 are not Year 2000  compliant.  In
cases where such  non-Y2K  compliant  products  are still sold on a  replacement
basis only, the Company requires the customer to sign a release of liability for
all damages potentially caused by such non-Y2K compliant  products.  The Company
maintains a section on its web site that  identifies  all  products  the Company
sells and ships and lists their Y2K status. The Company also responds via direct
mail, e-mail or telephone, as appropriate, to customer and supplier requests for
information  on Y2K  compliancy  of its  products.  The Company has notified its
distributors,  resellers and end users of cases of non-compliance where possible
and has authorized returns and replacement of these products where possible. The
Company  believes  the cost of  these  returns  or  product  replacements  to be
immaterial,  and that the Company's  reserves are adequate to cover such returns
and replacements. The Company also has made inquiries of third parties supplying
the  Company  with  computer  hardware  and  software  products  and  components
currently sold by the Company,  and has received  assurances  that such products
and components are or will be Year 2000  compliant.  The Company has followed up
with third party  suppliers  and  vendors  who did not respond to the  Company's
initial inquiries via telephone, mail or e-mail as appropriate. The Company will
review  supplier/vendor  replacement options as necessary.  With respect to core
information technology, the Company has made inquires of third parties supplying
computer  hardware  and  software  operating  systems  to the  Company,  and has
received  assurances that, except as discussed below, such hardware and software
systems are or will be Year 2000 compliant.

     As a result of its review to date, the Company has determined  that certain
of its internal  financial  software  systems are  inadequate  for the Company's
future business needs and need to be replaced because of various considerations,
including Year 2000  non-compliance.  In certain cases the timing of replacement

                                       14
<PAGE>
systems is being accelerated  because of Year 2000 issues,  although the Company
believes  replacement would have been necessary in the near future regardless of
such issues.  The  implementation of this new software package occurred on April
1, 1999 and the Company  continues to perform  diagnostic  evaluation of the new
software before finalizing the migration. The Company expects final migration to
occur  prior to June 1, 1999.  The  Company  has spent less than $.3  million to
implement  and  migrate  to this  new  software  package.  These  costs  will be
capitalized over the life of the purchased  software  package.  The Company does
not expect the amounts to be expensed  over the life of the software  package to
have a material effect on its financial position or results of operations.

     The Company has also identified certain other internal sales, marketing and
support management software packages that are not fully Year 2000 compliant. The
Company has completed the evaluation of these internal  systems and is currently
re-allocating internal resources to complete the necessary programming to ensure
Year 2000 compliancy. The Company anticipates that these programming changes and
subsequent testing will be completed by September 1999.

     At this time,  the Company has not developed Year 2000  contingency  plans,
other than the review and remedial actions  described above, and does not intend
to do so unless the  Company  believes  such plans are merited by the results of
its continuing Year 2000 review.  The Company maintains and deploys  contingency
plans designed to address various other potential business interruptions.  These
plans may be applicable to address the interruption of support provided by third
parties resulting from their failure to be Year 2000 ready.

     If the Company or the third parties with which it has relationships were to
cease or not successfully  complete its or their Year 2000 remediation  efforts,
the  Company  could  encounter  disruptions  to its  business  that could have a
material  adverse  effect on its  business,  financial  position  and results of
operations. The Company could be materially and adversely impacted by widespread
economic or financial market disruption or by Year 2000 computer system failures
at third parties with which it has relationships.

"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, Year 2000 issues and other risks
detailed from time to time in the Company's  Securities and Exchange  Commission
filings. The Company filed its 1998 Form 10-K on September 25, 1998 and its 1999
Second Quarter Form 10-Q on February 11, 1999.  Please refer to these  documents
for a more detailed  discussion of the risks and  uncertainties  associated with
the Company's future operations.

RISK FACTORS

GENERAL

     COMPETITION.  The communications software 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  software  industry  is  likely  to  intensify  as  current
competitors  expand their product lines, more features are included in operating
systems (e.g.,  Windows NT 5.0),  new  applications  are  developed,  and as new
companies enter the markets or segments in which the Company currently competes.
The software  industry is also  characterized  by a high degree of consolidation
which  favors  companies  with  greater  resources  than  those of the  Company.

                                       15
<PAGE>
Consequently,   the  Company  expects  its  products  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 or even  accepted.  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.

     CONNECTIVITY  AND DEPENDENCE.  The Company's  ability to successfully  sell
certain of its products is to a significant degree dependent on operating system
connectivity,   principally  with  Microsoft's  operating  systems.  Should  the
Company's  products become  non-compatible  with the dominant  operating systems
currently in use in the PC industry,  the Company's  revenues from such products
could be materially adversely impacted. In addition, the Company's revenues will
be  adversely   affected  if  software   solutions   similar  to  the  Company's
Communications  Software  Group products are bundled with or  incorporated  into
dominant operating systems,  as has occurred and can be expected to occur in the
future with respect to the Company's Communications Software Group products.

     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.

     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 value  added  resellers  ("VAR's")  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 and changes in the
Company's  ability to anticipate  in advance the product mix of customer  orders
could result in material fluctuations in quarterly operating results.

     PRODUCT CONCENTRATION.  The Company has in the past derived, and may in the
future  derive,  a significant  portion of its revenues from a relatively  small
number of  products.  Declines in the  revenues  from these  software  products,
whether as a result of  competition,  technological  change,  price pressures or
other factors,  would have a material adverse effect on the Company's  business,
results of  operations  and  financial  condition.  Further,  life cycles of the
Company's products are difficult to estimate due in part to the recent emergence
of certain of the  Company's  products,  the effect of new  products  or product

                                       16
<PAGE>
enhancements,  technological  changes  in the  software  industry  in which  the
Company  operates and future  competition.  There can be no  assurance  that the
Company will be  successful  in  maintaining  market  acceptance  of its current
products or any new products or product enhancements.

     DEPENDENCE  ON NEW PRODUCT  OFFERINGS.  The Company's  future  success will
depend,  in  significant  part,  on its  ability  to  successfully  develop  and
introduce  new  software  products and  improved  versions of existing  software
products  on a timely  basis and in a manner  that will allow such  products  to
achieve broad customer  acceptance.  There can be no assurance that new products
will be introduced on a timely basis,  if at all. If new products are delayed or
do not achieve market acceptance,  the Company's business, results of operations
and financial condition will be materially adversely affected.  In the past, the
Company has also  experienced  delays in  purchases of its products by customers
anticipating  the  launch  of new  products  by  the  Company  or the  Company's
customers.   There  can  be  no  assurance  that  material  order  deferrals  in
anticipation of new product  introductions  will not occur. There can also be no
assurance  that the Company will be successful in  developing,  introducing on a
timely  basis and  marketing  such  software or that any such  software  will be
accepted in the market.

     TECHNOLOGICAL  CHANGE.  The markets for computer  software  applications is
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  the   Company's   existing   products   obsolete  and
unmarketable.  The  Company's  future  success  will  depend upon its ability to
develop  and  introduce  new  software  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 its customers.  There can be no assurance that the Company will be successful
in developing and marketing new products that respond to  technological  changes
or  evolving   industry   standards,   that  the  Company  will  not  experience
difficulties   that  could   delay  or  prevent  the   successful   development,
introduction and marketing of these new products,  or that its new products will
adequately  meet  the   requirements  of  the  marketplace  and  achieve  market
acceptance.  If the Company is unable,  for  technological or other reasons,  to
develop and  introduce  new products in a timely  manner in response to changing
market conditions or customer requirements,  the Company's business,  results of
operations and financial condition could be adversely affected.

     POTENTIAL  FOR  UNDETECTED  ERRORS.  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  after  commencement  of
commercial shipments,  resulting in loss of or delay in market acceptance or the
recall of such  products,  which could have a material  adverse  effect upon the
Company's business,  results of operations and financial condition.  The Company
provides  customer  support for most of its  products.  The Company  will in the
future offer new products.  If these products are flawed,  or are more difficult
to use than traditional Company products,  customer support costs could rise and
customer satisfaction levels could fall.

     DUPLICATION OF SOFTWARE.  The Company duplicates nearly all of its software
at its  Tucson,  Arizona  facility.  The  Company  believes  that  its  internal
duplication  capability is economically  advantageous  because it eliminates the
profit margin required by outside  duplication sources and enables a high degree
of scheduling and other control. This concentration of production does, however,
expose the Company to the risk that  production  could be  disrupted  by natural
disaster  or other  events,  such as the  presence  of a virus in the  Company's
duplicators.  The Company  believes  that it could  retain  outside  duplication
alternatives  quickly, but there is no assurance that it could do so or, if such
arrangements  could be made, that duplication  could take place in an economical
or timely manner.

     PRE-LOAD  SOFTWARE   MARKET; CD ROM'S.  The  Company  primarily  sells  its
communications  software  in a form that  includes a disk or disks and a manual.
Currently,  the Company has the capability to produce its products in-house only
on 3 1/2-inch  diskettes.  However,  with  the  expansion  of the  size  of most
software programs,  CD-ROM has surpassed diskettes as the most prominent medium.
Many of the Company's  customers  "pre-load" the Company's  software onto a hard

                                       17
<PAGE>
disk.  These  arrangements  eliminate  the need for a disk and may eliminate the
need for a manual. The pre-load  arrangements  produce smaller unit revenues for
the Company and eliminate the  Company's  ability to generate  revenues from its
production  facilities.  The Company does not currently  have the  capability to
produce  CD-ROMs  and the cost to  develop  such  production  capability  may be
prohibitive.  The Company  currently  contracts CD-ROM production to specialized
CD-ROM facilities. The Company expects continued rapidly expanding growth in the
pre-load and CD-ROM usage  mediums,  more of the Company's  relationships  would
involve  product  pre-loads and CD-ROM  production  and the Company's  business,
results of operations and financial condition could be adversely affected.

     INTELLECTUAL  PROPERTY RIGHTS.  The Company's success is dependent upon its
software  code  base,  its  programming  methodologies  and  other  intellectual
properties. To protect its proprietary technology,  the Company relies 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 the Company  will be adequate to deter  misappropriation
of its  proprietary  information,  or to prevent the successful  assertion of an
adverse claim to software  utilized by the Company,  or that the Company will be
able to  detect  unauthorized  use and  take  effective  steps  to  enforce  its
intellectual   property  rights.   The  Company  owns  United  States  trademark
registrations  for  certain of its  trademarks.  In  addition,  the  Company has
applied for  trademark  protection  on a number of its recently  introduced  new
technologies.  Certain of the Company's trademark applications are still pending
and no assurances can be made that the trademark  applications  will be accepted
by the U.S.  Trademark  and Patent  Office.  A rejection of one or more of these
trademark  applications  could have a material  adverse  affect on the Company's
ability to  successfully  sell and market  these new  products.  In selling  its
products,  the Company  relies  primarily on "shrink wrap" licenses that are not
signed by  licensees  and,  therefore,  may be  unenforceable  under the laws of
certain  jurisdictions.  In addition, the laws of some foreign countries provide
substantially  less protection to the Company's  proprietary  rights than do the
laws of the  United  States.  Trademark  or patent  challenges  in such  foreign
countries  could,  if  successful,  materially  disrupt  or even  terminate  the
Company's  ability  to sell  its  products  in  such  markets.  There  can be no
assurance that the Company's means of protecting its proprietary  rights will be
adequate  or that  the  Company's  competitors  will not  independently  develop
similar technology. Further, although the Company believes that its services and
products do not  infringe  on the  intellectual  property  rights of others such
claims have been and in the future may be  asserted  against  the  Company.  The
failure of the Company to protect its proprietary  property, or the infringement
of the  Company's  proprietary  property  on the rights of others,  could have a
material  adverse  effect on the Company's  business,  results of operations and
financial condition.

     From time to time,  the Company has received and may in the future  receive
communications  from third parties  asserting that the Company's  trade names or
that  features,  content,  or trademarks  of certain of the  Company's  products
infringe upon  intellectual  property rights held by such third parties.  As the
number of trademarks, patents, copyrights and other intellectual property rights
in the Company's  industry  increases,  and as the coverage of these patents and
rights and the  functionality  of products in the market  further  overlap,  the
Company believes that products based on its technology may  increasingly  become
the subject of  infringement  claims.  Such claims  could  materially  adversely
affect  the  Company,  and may also  require  the  Company to obtain one or more
licenses from third parties. There can be no assurance that the Company would be
able to obtain any such required  licenses upon reasonable terms, if at all, and
the failure by the Company to obtain such licenses could have a material adverse
effect on its business,  results of operations and financial  condition.  If the
Company were able to obtain such licenses,  the licensing costs could materially
effect the Company's future financial results. In addition, the Company licenses
technology on a non-exclusive  basis from several companies for inclusion in its
products  and  anticipates  that it will  continue to do so in the  future.  The
inability of the Company to continue to license these technologies or to license
other  necessary  technologies  for  inclusion in its products,  or  substantial
increases in royalty  payments  under these third party  licenses,  could have a
material  adverse  effect on its business,  results of operations  and financial
condition.

     Litigation or threatened  litigation in the software  development  industry
has increasingly been used as a competitive tactic both by established companies
seeking to  protect  their  existing  position  in the  market  and by  emerging

                                       18
<PAGE>
companies attempting to gain access to the market. If the Company is required to
defend itself against a claim, whether or not meritorious,  the Company could be
forced to incur substantial expense and diversion of management  attention,  and
may  encounter  market  confusion  and  reluctance  of customers to purchase the
Company's software  products.  Such claims have been asserted against certain of
the Company's  technologies.  Such  litigation,  if determined  adversely to the
Company,  could have a  substantial  material  adverse  effect on its  business,
results of operations and financial condition.

     DEPENDENCE UPON KEY PERSONNEL.  The Company's future performance depends in
significant part upon key technical and senior management personnel. The Company
is dependent on its 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 the Company's software
products and introduce  enhanced future products.  The industry is characterized
by a high  level of  employee  mobility  and  aggressive  recruiting  of skilled
personnel.  There can be no assurance that the Company's  current employees will
continue to work for the Company. Loss of services of key employees could have a
material  adverse  effect on the Company's  business,  results of operations and
financial  condition.  In  addition,  the Company  may need to grant  additional
options and provide other forms of incentive  compensation to attract and retain
key personnel. The Company has experienced and expects to continue to experience
difficulty in hiring key technical  personnel in certain of its key  development
offices.  These  difficulties  could lead to higher  compensation  costs and may
adversely effect the Company's future results of operations.

     FLUCTUATIONS  IN  QUARTERLY  OPERATING  RESULTS.  The  Company's  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,  changes in pricing  policies or price  reductions by the Company or
its  competitors;  variations  in the  Company's  sales  channels  or the mix of
product sales; the timing of new product  announcements and introductions by the
Company or its competitors; the availability and cost of supplies; the financial
stability  of major  customers;  market  acceptance  of new products and product
enhancements;  the  Company's  ability  to  develop,  introduce  and  market new
products,  applications  and  product  enhancements;  the  Company's  ability to
control costs;  possible  delays in the shipment of new products;  the Company's
success in expanding  its sales and  marketing  programs;  deferrals of customer
orders in  anticipation  of new  products,  product  enhancements  or  operating
systems;  changes in Company strategy;  personnel changes;  and general economic
factors.  The Company's  software  products are generally  shipped as orders are
received and  accordingly,  the Company has  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.  In addition, the Company's expense levels are based, in part, on its
expectations as to future  revenues.  If revenue levels are below  expectations,
operating results are likely to be adversely affected.  The Company's net income
may be  disproportionately  affected by a reduction in revenues because of fixed
costs related to generating its revenues. Quarterly results in the future may be
influenced by these or other factors and, accordingly,  there may be significant
variations in the Company's quarterly operating results.  Further, the Company's
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 the Company's  operating  results may be
below the  expectations of public market analysts and investors.  In such event,
the price of the Company's Common Stock could be adversely affected.

     POSSIBLE  VOLATILITY  OF STOCK PRICE.  The trading  price of the  Company's
Common Stock is likely to be subject to significant  fluctuations in response to
variations in quarterly operating results, changes in management,  announcements
of  technological  innovations or new products by the Company,  its customers or
its  competitors,  legislative  or  regulatory  changes,  general  trends in the
industry  and other  events or  factors.  In  addition,  the  stock  market  has
experienced  extreme  price and  volume  fluctuations  which  have  particularly
affected  the market  price for many high  technology  companies  similar to the
Company,  and which have often been  unrelated to the operating  performance  of
these companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock.  Further,  factors such as announcements of
new contracts or product  offerings by the Company or its competitors and market
conditions  for stocks  similar to that of the  Company  could have  significant
impact on the market price of the Common Stock.

                                       19
<PAGE>
     POSSIBLE  ACQUISITIONS OR DIVESTITURES.  From time to time, the Company may
consider acquisitions of or alliances with other companies that could complement
the Company's existing business, including acquisitions of complementary product
lines.  The Company may also consider the  divestiture of certain of its product
segments  should  conditions  warrant.  Although  the Company  may  periodically
discuss such potential transactions with a number of companies,  there can be no
assurance  that  suitable   acquisition  or  joint  venture  candidates  can  be
identified,  or that, if identified,  adequate and acceptable  financing sources
will be  available  to the  Company  that  would  enable it to  consummate  such
transactions.  Even if an acquisition or joint venture is consummated, there can
be no assurance  that the Company will be able to  integrate  successfully  such
acquired  companies or product lines into its existing  operations,  which could
increase the Company's  operating  expenses in the short-term and materially and
adversely affect the Company's results of operations.  Moreover, any acquisition
by  the  Company  may  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
the Company's  profitability.  Acquisitions  involve numerous risks, such as the
diversion  of the  attention of the  Company's  management  from other  business
concerns,  the  entrance of the Company  into  markets in which it has had no or
only limited experience, and the potential loss of key employees of the acquired
company,  all of which  could have a material  adverse  effect on the  Company's
business, financial condition and results of operations.

COMPUTER TELEPHONY

     COMPUTER  TELEPHONY  PRODUCT MARKET.  The market for open,  standards-based
computer telephony tools,  applications and system-level  products is relatively
new and is characterized by the rapid evolution of computer  telephony  hardware
and  software   standards,   emerging   technologies   and   changing   customer
requirements.  These characteristics may render the Company's computer telephony
products unmarketable or may make the expansion, timing and direction of product
development  unpredictable.  As a  result  of  these  factors,  there  can be no
assurance that computer  telephony  markets will continue to expand, or that the
Company's products will achieve market acceptance.

     The Company believes that the principal  competitive  factors affecting the
computer  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 assurance 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  maintain  and grow its  competitive  position  could have a material
adverse effect upon the Company's  revenues from its computer  telephony product
line.

     TeleVantage  is a  telephone  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
sold in high volume.  Additionally,  there can be no assurances that competitors
with substantially greater financial resources than that of the Company will not
develop their own PC-based PBX solutions and  subsequently  adversely affect the
Company's ability to market or sell its PC-based PBX solution, TeleVantage.

     The Company's  PC-based PBX solution  (TeleVantage)  could also face direct
competition  from companies with  significantly  greater  financial,  marketing,
service,  support and technical  resources.  In addition to the possibility that
these  companies may release a PC-based PBX solution,  they have signaled  their
intentions to develop "IP" (Internet  Protocol) based  applications.  Several of
the  Company's  potential   competitors  with  substantially  greater  financial
resources have recently announced  partnerships designed to develop,  market and
sell IP-based  telephony  solutions which could put the Company at a competitive
disadvantage and adversely  affect the Company's  ability to sell and market its
own  PC-based  PBX  solution,   TeleVantage.  The  Company  anticipates  certain
competitors with greater  financial  resources will continue to make substantial
new investments in developing  IP-based telephony solutions and may form further
partnerships that will put the Company at a competitive disadvantage, thus there
can be no  assurances  that the Company  will be able to  successfully  develop,
market or sell its own competing IP-based telephony solution.

                                       20
<PAGE>
     COMPUTER  TELEPHONY  CUSTOMERS  AND  MARKET  ACCEPTANCE.   The  Company  is
currently and will continue to invest significant  resources in the development,
marketing  and  selling  of new  computer  telephony  products.  There can be no
assurance  that the Company will achieve  market  acceptance of these  products.
Additionally,  these new computer telephony products are principally targeted at
small to medium sized  businesses.  The Company's  existing network of qualified
VAR's  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 VAR's to sell its computer telephony products. There can be
no assurance that the Company will be successful in establishing a critical mass
of qualified  computer  telephony  resellers.  The Company's  success in selling
these  products  will likely be  influenced by its ability to attract and inform
qualified VAR's 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. The Company believes that there will
be a gradual evolution toward open server-based  telephony enabled  applications
from the traditional proprietary PBX environment and that in such an environment
PC-based PBX systems will be widely  accepted.  The Company also  believes  that
there may be an eventual  gravitation  toward  Internet  Protocol  architectures
and/or voice over wire applications. However, there can be no assurance that the
current  technological  innovations in the computer  telephony  industry will be
widely adopted by small to medium sized  businesses or that telephony  standards
will evolve in a manner that is advantageous to or anticipated by the Company.

COMMUNICATIONS AND NETWORKING SOFTWARE

     NETWORKING AND COMMUNICATIONS  SOFTWARE CUSTOMERS.  The Company relies on a
network of distributors and VAR's for a significant portion of both its domestic
and international  networking and communications  software product revenues.  In
addition,  a majority of the sales of CoSession  Remote,  the  Company's  remote
communications  software  product,  are to PC original  equipment  manufacturers
("OEM's").  Generally,  there  are no  minimum  purchase  requirements  for  the
Company's distributors,  VARs or OEMs and many of the Company's distributors and
VAR's sell competitive products.  There can be no assurance that these customers
will give  priority  to the  marketing  of the  Company's  products  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  affect on the Company's  business,
financial  condition  and results of  operation.  Certain of the  Company's  OEM
relationships  require  the  scheduled  delivery  of product  revisions  and new
products.  Some of the Company's OEM product  offerings  involve the bundling of
licensed  technologies  with its own  technologies.  The  failure of the Company
and/or one of its licensors 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 OEM  channel.  The  Company's  OEM  revenue  streams are
dependent  upon  the  maintenance  of one or  more  key OEM  relationships.  The
termination of any one of these relationships may have a material adverse affect
on the Company's current and future revenues.

     NETWORKING AND  COMMUNICATIONS  SOFTWARE  COMPETITORS.  The Company's major
competitors in the small business networking market are the industry's principal
operating system provider and network  operating system provider.  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 95/98  operating  system
(released in August 1995 and June 1998,  respectively) has had and will continue
to have a significant detrimental impact on sales of the Company's LANtastic NOS
products.  Windows 95/98 is pre-loaded on virtually all Pentium  processor-based
personal computers currently sold worldwide.  The impact of Windows 95/98 on the
Company's  business has been  compounded  by the  dominance  and  visibility  of

                                       21
<PAGE>
Microsoft in the PC  marketplace  and the rapid  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
Windows NT 4.0,  which,  like Windows 95/98,  includes  peer-to-peer  networking
capabilities  in the workstation  version,  and is pre-loaded on certain Pentium
PC's, has provided  additional  significant  direct competition to the LANtastic
NOS both as a peer-to-peer and  client-server  networking  solution.  Management
believes that Microsoft will release  Windows NT 5.0 (Windows 2000) in mid 1999.
Windows NT 5.0 will likely combine the enhanced  security features of Windows NT
4.0 with the  functionality  of Windows 98. This  release may further  erode the
market share of the Company's LANtastic NOS product line. 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  Windows NT 5.0  (Windows  2000) server 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 i.Share  products which
could have a significant impact on the Company's sales and operating results.

     REMOTE  COMMUNICATIONS  AND OTHER OEM  SOFTWARE  CUSTOMERS.  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 95/98 and Windows NT 4.0 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 continue  expanding the
market for 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.

     The  Company  currently  licenses a  configuration  tracking  and  recovery
utility  (ConfigSafe)  which is  preloaded by certain of the  Company's  key OEM
partners.  The Company's  licensing  arrangement for this product  terminates in
late 1999 and the  failure to extend  this  licensing  arrangement  could have a
material adverse impact on the Company's future operating results.

     REMOTE  COMMUNICATIONS  AND OTHER OEM SOFTWARE  COMPETITORS.  Microsoft has
included a remote computing component in its Windows 98 OS released in June 1998
and  currently  distributes  Net  Meeting  at  no  charge  from  its  Web  site.
Additionally,  Symantec's  PC Anywhere  remote  computing  software  may provide
additional  competition  to the  Company's  CoSession  Remote 32  software  with
respect to certain of the  Company's  major OEM  customers.  These  actions will
likely lead to diminished  demand for the  Company's  CoSession  remote  control
product, and consequently decreased net sales and operating results.

                                       22
<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 10, 1999

(c)  Reports on Form 8-K

     There were no reports filed on Form 8-K during the three months ended March
     31, 1999

                                       23
<PAGE>
                                   SIGNATURES

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

                                      ARTISOFT, INC.



Date:  May 10, 1999                   By /s/ T. Paul Thomas
                                      ------------------------------------------
                                                T. Paul Thomas
                                      President and Chief Executive Officer


                                      By /s/ Sheldon M. Schenkler
                                      ------------------------------------------
                                                Sheldon M. Schenkler
                                      Vice President and Chief Financial Officer

                                       24