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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 December 31, 2000

                                       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 (February 14, 2001).

                 Common stock, $.01 par value: 15,723,127 shares

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<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES

                                      INDEX

                                                                           Page
                                                                           ----
PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements

             Condensed Consolidated Balance Sheets -
             December 31, 2000 (Unaudited) and June 30, 2000                  3

             Condensed Consolidated Statements of Operations (Unaudited) -
             Three and Six Months Ended December 31, 2000 and 1999            4

             Condensed Consolidated Statements of Cash Flows
             (Unaudited) - Six Months Ended December 31, 2000 and 1999        5

             Notes to Condensed Consolidated Financial Statements           6-8

     Item 2. Management's Discussion and Analysis of
             Financial Condition and Results of Operations                  9-18

     Item 2(a). Quantitative and Qualitative Disclosures about
                Market Risk                                                18-19

PART II. OTHER INFORMATION

     Item 1. Legal Proceedings                                                20

     Item 2. Changes in Securities                                            20

     Item 3. Defaults Upon Senior Securities                                  20

     Item 4. Submission of Matters to a Vote by Security Holders              20

     Item 5. Other Information                                                20

     Item 6. Exhibits and Reports on Form 8-K                                 21

SIGNATURES                                                                    22

EXHIBITS

     11   Computation of Net Income (Loss) Per Share                          23

                                       2
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                     December 31,      June 30,
                                                                         2000            2000
                                                                      ---------       ---------
                                                                     (unaudited)
<S>                                                                   <C>             <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents                                           $   8,496       $   5,120
  Short term investments                                                  1,244           2,490
  Receivables:
    Trade accounts, net                                                   1,435           1,511
    Other receivables                                                        51             146
  Inventories                                                             1,050             808
  Prepaid expenses                                                          638             366
                                                                      ---------       ---------
        Total current assets                                             12,914          10,441
                                                                      ---------       ---------

Long term investments                                                       994           7,797

Property and equipment                                                    3,160           2,353
  Less accumulated depreciation and amortization                         (1,509)         (1,140)
                                                                      ---------       ---------
        Net property and equipment                                        1,651           1,213
                                                                      ---------       ---------

Other assets                                                                195             179

Net assets from discontinued operations                                      --           1,864
                                                                      ---------       ---------

                                                                      $  15,754       $  21,494
                                                                      =========       =========
                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                    $     962       $     928
  Accrued liabilities                                                     2,006           1,937
  Deferred revenue                                                           84              41
                                                                      ---------       ---------
        Total current liabilities                                         3,052           2,906
                                                                      ---------       ---------

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 29,042,346 shares at December 31, 2000 and 28,742,744
   at June 30, 2000                                                         290             287
  Additional paid-in capital                                            102,295         101,363
  Accumulated deficit                                                   (20,099)        (13,278)
  Less treasury stock, at cost, 13,320,500 shares at
   December 31, 2000 and June 30, 2000                                  (69,784)        (69,784)
                                                                      ---------       ---------
         Total shareholders' equity                                      12,702          18,588
                                                                      ---------       ---------
                                                                      $  15,754       $  21,494
                                                                      =========       =========
</TABLE>
     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (in thousands, except share and per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              Three Months Ended             Six Months Ended
                                                                  December 31,                  December 31,
                                                            ---------------------       ---------------------
                                                              2000         1999           2000         1999
                                                            --------     --------       --------     --------
<S>                                                       <C>           <C>           <C>          <C>
Net sales                                                   $  2,022     $  3,653       $  4,243     $  6,374
Cost of sales                                                    473        1,240            972        2,508
                                                            --------     --------       --------     --------
       Gross profit                                            1,549        2,413          3,271        3,866
                                                            --------     --------       --------     --------

Operating Expenses:
  Sales and marketing                                          2,724        1,725          5,157        3,181
  Product development                                          1,415          709          2,677        1,455
  General and administrative                                   1,319          911          2,583        1,819
                                                            --------     --------       --------     --------
       Total operating expenses                                5,458        3,345         10,417        6,455
                                                            --------     --------       --------     --------

Loss from operations                                          (3,909)        (932)        (7,146)      (2,589)

Other income, net                                                136          263            325          450
                                                            --------     --------       --------     --------
       Net loss from continuing operations                  $ (3,773)    $   (669)      $ (6,821)    $ (2,139)
                                                            --------     --------       --------     --------
Income from discontinued operations, net of tax                   --          780             --        1,768
                                                            --------     --------       --------     --------

       Net income (loss)                                    $ (3,773)    $    111       $ (6,821)    $   (371)
                                                            ========     ========       ========     ========
Net loss per common share from continuing operations -
 Basic and Diluted                                          $   (.24)    $   (.04)      $   (.44)    $   (.14)
                                                            ========     ========       ========     ========

Net income (loss) per common share - Basic and Diluted      $   (.24)    $    .01       $   (.44)    $   (.02)
                                                            ========     ========       ========     ========
Weighted average common shares outstanding:
 Basic                                                        15,674       14,933         15,513       14,956
                                                            ========     ========       ========     ========
  Diluted                                                     15,674       16,228         15,513       14,956
                                                            ========     ========       ========     ========
 </TABLE>

     See accompanying notes to condensed consolidated financial statements.

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

<TABLE>
<CAPTION>
                                                                    Six Months Ended
                                                                       December 31,
                                                                  -----------------------
                                                                    2000          1999
                                                                  --------       --------
                                                                 (unaudited)
<S>                                                                   <C>           <C>
Cash flows from operating activities:
 Net loss                                                         $ (6,821)      $   (371)
 Adjustments to reconcile net loss to net
  cash (used in) provided by operating activities:
  Depreciation and amortization                                        369            254
  Change in accounts receivable and inventory allowances              (138)          (134)
 Changes in assets and liabilities:
  Receivables:
    Trade accounts                                                     246            379
    Other receivables                                                   95            (89)
  Inventories                                                         (274)          (567)
  Prepaid expenses                                                    (272)            61
  Accounts payable, accrued liabilities and deferred revenue           146          2,072
  Net assets from discontinued operations                            1,864         (1,234)
  Other assets                                                         (16)            43
                                                                  --------       --------
        Net cash (used in) provided by operating activities         (4,801)           414
                                                                  --------       --------
Cash flows from investing activities:
  Proceeds from sale of investment securities                        8,049             --
  Purchases of property and equipment                                 (807)          (138)
                                                                  --------       --------
        Net cash provided by (used in) investing activities          7,242           (138)
                                                                  --------       --------
Cash flows from financing activities:
  Proceeds from the exercise of stock options                          935            640
                                                                  --------       --------
        Net cash provided by financing activities                      935            640
                                                                  --------       --------

Net increase in cash and cash equivalents                            3,376            916
Cash and cash equivalents at beginning of period                     5,120         16,148
                                                                  --------       --------

Cash and cash equivalents at end of period                        $  8,496       $ 17,064
                                                                  ========       ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

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


(1)  BASIS OF PRESENTATION

     The condensed  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 condensed consolidated financial statements have
been prepared by the Company in accordance  with generally  accepted  accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management,  the accompanying financial statements
include all adjustments (of a normal recurring nature),  which are necessary for
a fair presentation of the financial results for the interim periods  presented.
Certain  information  and footnote  disclosures  normally  included in financial
statements   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations.  Although the Company believes that the disclosures are adequate to
make the  information  presented  not  misleading,  it is  suggested  that these
financial  statements be read in  conjunction  with the  consolidated  financial
statements and the notes thereto included in the Company's 2000 Annual Report on
Form 10-K.  The results of operations for the three or six months ended December
31, 2000 are not  necessarily  indicative  of the results to be expected for the
full year.

REVENUE RECOGNITION

     The  Company  has  adopted the  provisions  of SOP 97-2,  Software  Revenue
Recognition.  Revenue from  TeleVantage and Visual Voice software,  Visual Voice
hardware and TeleVantage NFR kits is recognized when (i) a signed  noncancelable
purchase  order  is  received,  (ii)  the  product  has  been  shipped  from our
distribution  facilities,  (iii)  our  revenue  on the  transaction  is fixed or
determinable, and (iv) collectibility is probable. Revenue from software license
agreements that have significant customizations and modification of the software
product is deferred and recognized using the percentage completion method. There
was no material change to our accounting for revenue as a result of the adoption
of SOP 97-2.

     Revenue from TeleVantage software  subscriptions is recognized ratably over
the subscription term, typically twelve months.

     Revenues recognized from consulting and training are derived primarily from
consulting,   implementation  and  training.  Revenue  from  both  training  and
consulting  is  recognized  as the services  are  performed,  collectibility  is
probable and such revenues are contractually  non-refundable.  Amounts collected
prior to satisfying  the above revenue  recognition  criteria are  classified as
deferred revenue.

CLASSIFICATION AND PRESENTATION OF INVESTMENTS

     At June 30, 2000 and  December  31, 2000 the Company had $10.3  million and
$2.2 million,  respectively,  in long and short term  investment  balances.  The
Company  has  classified  these  securities  as  "available  for  sale"  and has
presented  them at their  current  market  value as of  December  31, 2000 which
approximated their amortized cost bases on the  reclassification  date. Prior to

                                       6
<PAGE>
December 31, 2000, the Company classified these securities as "held to maturity"
and  accordingly,  presented the securities as adjusted for the  amortization or
accretion  of premiums  or  discounts.  Subsequent  to June 30, 2000 the Company
liquidated a portion of these  securities  prior to maturity to fund  operations
and  accordingly,  has  classified  the remaining  securities as "available  for
sale".

(2)  COMPUTATION OF NET LOSS PER SHARE

     Basic loss per share is computed by dividing  loss  attributable  to common
shareholders by the weighted average number of common shares outstanding for the
period.  Diluted loss 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  (loss) of the
Company.  In  calculating  unaudited net loss per common share for the three and
six  month  periods  ended  December  31,  2000 and the six month  period  ended
December 31, 1999,  198,440,  381,430 and  1,115,067  shares,  respectively,  of
anti-dilutive  common stock equivalent  shares  consisting of stock options have
been excluded because their inclusion would have been anti-dilutive.

(3)  DISCONTINUED OPERATIONS

     In September  1999, the Company  announced its intention to investigate the
potential  separation of its two business  units:  the  Communications  Software
Group (CSG) and the Computer Telephony Group (CTG). On June 2, 2000, the Company
signed a definitive  agreement to sell the CSG assets to Prologue Software Group
for approximately $3.0 million  (including  accounts  receivable).  The sale was
closed   effective  June  30,  2000.  Thus  the  Company  has  reclassified  the
accompanying   consolidated   balance  sheets,   statements  of  operations  and
statements of cash flows of CSG to Discontinued Operations.

     The  following is a summary of the  operating  results of the  Discontinued
Operations  for the three and six month  periods  ended  December  31,  1999 (in
thousands):

                                        Three Months Ended     Six Months Ended
                                         December 31, 1999     December 31, 1999
                                         -----------------     -----------------

       Net sales                              $3,074                $6,754
       Cost of sales                             609                 1,563
                                              ------                ------
       Gross profit                            2,465                 5,191
                                              ------                ------
       Operating expenses                      1,685                 3,423
                                              ------                ------
       Net income                             $  780                $1,768
                                              ======                ======

(4)  INVENTORIES

     Inventories  at  December  31,  2000  and  June  30,  2000  consist  of the
following:

                                            December 31,           June 30,
                                               2000                 2000
                                              -------              -------
                                            (Unaudited)

       Raw materials                          $   546              $   487
       Work-in-process                             76                   --
       Finished goods                             689                  550
                                              -------              -------
                                                1,311                1,037
       Inventory allowances                      (261)                (229)
                                              -------              -------
                                              $ 1,050              $   808
                                              =======              =======

                                       7
<PAGE>
(5)  PROPERTY AND EQUIPMENT

     Property  and  equipment  at December 31, 2000 and June 30, 2000 consist of
the following:

                                                    December 31,       June 30,
                                                       2000             2000
                                                      -------          -------
                                                    (Unaudited)

      Furniture and fixtures                          $    70          $    39
      Computers and other equipment                     2,788            2,035
      Leasehold improvements                              302              279
                                                      -------          -------
                                                        3,160            2,353
      Accumulated depreciation and amortization        (1,509)          (1,140)
                                                      -------          -------
                                                      $ 1,651          $ 1,213
                                                      =======          =======

(6)  OTHER ASSETS

     Other  assets  at  December  31,  2000  and June 30,  2000  consist  of the
following:

                                                     December 31,      June 30,
                                                        2000             2000
                                                       -------         -------
                                                     (Unaudited)
      Purchased technology, net of
        accumulated amortization of $418 and $374      $    20         $    63
      Recoverable deposits and other                       175             116
                                                       -------         -------
                                                       $   195         $   179
                                                       =======         =======

(7)  ACCRUED LIABILITIES

     Accrued  liabilities  at December 31, 2000 and June 30, 2000 consist of the
following:

                                                      December 31,     June 30,
                                                         2000           2000
                                                        -------        -------
                                                      (Unaudited)

      Compensation and benefits                         $   800        $ 1,032
      Payroll, sales and property taxes                      91             33
      Marketing                                             682            374
      Royalties                                             102            334
      Other                                                 331            164
                                                        -------        -------
                                                        $ 2,006        $ 1,937
                                                        =======        =======

                                       8
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES

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

RESULTS OF OPERATIONS

     NET SALES.  Net sales  decreased  45% to $2.0 million for the quarter ended
December 31, 2000 from $3.7 million for the quarter ended December 31, 1999. Net
sales  decreased 33% to $4.2 million for the six month period ended December 31,
2000 from $6.4  million for the six month period  ended  December 31, 1999.  The
decrease in net sales for the quarter and six month  period  ended  December 31,
2000 as compared to the quarter and six month period ended December 31, 1999 was
due to the  discontinuation  of sales of the  Company's  Visual  Voice  software
product  line.  Additionally,  prior to June  30,  2000 the  Company  also  sold
assorted Dialogic  hardware to be used with its Visual Voice software.  Sales of
these Dialogic voice processing boards  discontinued upon the termination of the
Visual Voice software sales.  During the quarter ended December 31, 1999,  Intel
Corporation  purchased the Company's  Visual Voice source code for $2.7 million.
Intel  Corporation  also agreed to pay the Company $1.5 million in  professional
service fees associated with support and services  provided to Intel Corporation
and the existing  Visual Voice  customers  between  October 1, 1999 and June 30,
2000.  These revenues were  recognized  ratably between October 1, 1999 and June
30, 2000.  The Company  agreed to  discontinue  selling the Visual Voice product
line as of June  30,  2000.  Although  net  sales of the  Company's  TeleVantage
product  were  sequentially  relatively  unchanged  between the  quarters  ended
September  30, 2000 and  December  31, 2000,  TeleVantage  Sales have  gradually
accelerated since the beginning of fiscal year 1999.

     The Company  distributes its products both domestically and internationally
through distributors and OEM's and tracks sales by customer and major geographic
area.  International  net sales represented 9% and 5% of total net sales for the
quarters ended December 31, 2000 and 1999, respectively. Aggregate international
net sales for each of the quarters ended December 31, 2000 and December 31, 1999
was $.2 million.  International  net sales  decreased to $.5 million for the six
month period  ended  December 31, 2000 from $.6 million for the six month period
ended  December 31, 1999.  International  net sales as a percentage of total net
sales  increased from 9% for the six month period ended December 31, 1999 to 13%
for the six month period ended  December 31, 2000.  The  percentages of U.S. and
international net sales can be expected to change as the Company's  distribution
of its TeleVantage products develops.

     GROSS PROFIT.  The Company's  gross profit was $1.5 million for the quarter
ended December 31, 2000 and $2.4 million for the quarter ended December 31, 1999
or 77% and 66% of net sales,  respectively.  The Company's gross profit was $3.3
million for the six month  period  ended  December 31, 2000 and $3.9 million for
the  six-month  period  ended  December  31,  1999 or 77% and 61% of net  sales,
respectively.  The increase in gross profit  percentage  for the quarter and six
months  ended  December 31, 2000 as compared to the quarter and six months ended
December 31, 1999 was due to the  discontinuation of Visual Voice hardware sales
and lower sales as a percentage of total sales of the TeleVantage Not For Resale
Kits  (NFR's)  associated  with the  Company's  development  of its  TeleVantage
reseller  channel.  The net decrease in aggregate dollars of gross profit margin
for the quarter and six month periods ended December 31, 2000 as compared to the
corresponding  periods in fiscal 2000 is due to lower  overall net sales  caused
principally  by the  discontinuation  of sales  of the  Company's  Visual  Voice
product line. Gross profit may fluctuate on a quarterly basis because of product
mix, pricing actions and changes in sales and inventory allowances.

     SALES AND MARKETING. Sales and marketing expenses were $2.7 million for the
quarter ended  December 31, 2000 and $1.7 million for the quarter ended December
31,  1999,  representing  135% and 47% of net  sales,  respectively.  Sales  and
marketing  expenses were $5.2 million and $3.2 million for the six month periods
ended  December  31,  2000 and 1999,  respectively  (122% and 50% of net  sales,

                                        9
<PAGE>
respectively). The increase in sales and marketing expenses in aggregate dollars
for the  quarter and six months  ended  December  31, 2000  compared to the same
period in fiscal 2000 was due principally to increased expenditures on the sales
and  marketing  infrastructure  (in  particular  an  upgrade  of  the  Company's
field-based sales professionals) for the Company's TeleVantage product line. The
increase  in sales  and  marketing  expenses  as a  percentage  of sales for the
quarter and six month  periods  ended  December  31,  2000  compared to the same
periods  in  fiscal  2000 is due to the  overall  decrease  in net sales for the
quarter and six months ended September 30, 2000 and the aforementioned  increase
in sales and marketing infrastructure expense.

     PRODUCT DEVELOPMENT. Product development expenses were $1.4 million for the
quarter ended  December 31, 2000 and $.7 million for the quarter ended  December
31,  1999,  representing  70%  and  19%  of  net  sales,  respectively.  Product
development  expenses were $2.7 million for the six-month  period ended December
31, 2000 and $1.5  million for the  six-month  period  ended  December 31, 1999,
representing 63% and 23% of net sales,  respectively.  The increase in aggregate
product  development  expenses for the quarter and six months ended December 31,
2000 compared to the same periods in fiscal 2000 is principally  attributable to
the addition of product development  resources.  The addition of new development
personnel  during the quarter  ended  September  30,  2000 was  required to meet
planned future product introduction  timetables.  Specifically,  the Company has
added  development  personnel  in  advance  of the  expected  future  release of
TeleVantage  4.0,  its  flagship  product,   and  current   development  efforts
associated  with the anticipated  future release of TeleVantage  CTM Suite.  The
increase in product  development  expenses as a percentage  of net sales for the
quarter and six month  periods  ended  December  31,  2000  compared to the same
periods in fiscal 2000 is principally  due to the overall  decrease in net sales
from Visual  Voice  products  between  the two  periods  and the  aforementioned
increase in expenses  associated  with the  addition of new product  development
personnel  for the  TeleVantage  products  for which  sales have been  gradually
increasing.  The Company believes the introduction of new products to the market
in a timely manner is critical to its future success.

     GENERAL AND ADMINISTRATIVE.  General and administrative  expenses were $1.3
million for the quarter ended December 31, 2000 and $ .9 million for the quarter
ended December 30, 1999,  representing  65% and 25% of net sales,  respectively.
General and  administrative  expenses were $2.6 million and $1.8 million for the
six-month  period ended December 31, 2000 and 1999,  representing 61% and 29% of
net sales,  respectively.  The increase in aggregate general and  administrative
expenses for the quarter and six month periods ended  December 31, 2000 compared
to the same  periods in fiscal  2000 is  principally  the  result of  additional
occupancy costs incurred subsequent to the expansion of the Company's Cambridge,
Massachusetts-based  headquarters  and  increased  depreciation  expense  on the
Company's  fixed  assets  in  its  Cambridge,  Massachusetts  headquarters.  The
increase in general and  administrative  costs as a percentage  of net sales for
the quarter and six month periods ended  September 30, 2000 compared to the same
periods in fiscal 2000 is principally  due to the overall  decrease in net sales
from Visual  Voice  products  between  the two  periods  and the  aforementioned
increase in occupancy costs.

     OTHER INCOME,  NET. For the quarter ended December 31, 2000,  other income,
net, decreased to $136,000, from $263,000 in the corresponding quarter of fiscal
2000.  For the six-month  period ended  December 31, 2000,  other  income,  net,
decreased to $325,000 from $450,000.  The decrease for the quarter and six month
periods ended  December 31, 2000 resulted  principally  from the  liquidation of
higher  yielding   long-term   corporate  bonds  into  short-term  money  market
securities and the overall  decrease in cash and investment  balances due to the
operating losses incurred.

                                       10
<PAGE>
FUTURE RESULTS

     The  Company  intends to continue  investing  in the sales,  marketing  and
development of its software-based  phone system,  TeleVantage.  The Company will
likely see operating expenditures over the next several quarters consistent with
operating expenses as reported for the quarter ended December 31, 2000.

     In December  1999,  the  Company  executed an  Intellectual  Property  (IP)
Purchase  Agreement with  Dialogic.  The Company agreed to sell its Visual Voice
source code to Dialogic (an Intel  Company) for  consideration  of $2.7 million.
The $2.7  million  was paid to  Artisoft  upon  execution  of the  agreement  on
December 30, 1999. Dialogic also agreed to allow the Company to continue to sell
its Visual  Voice  software  until June 30, 2000 on a royalty free basis up to a
maximum of $1.4  million  in sales per  quarter.  Intel  also  agreed to pay the
Company $1.5 million in professional  services revenue.  The Company  recognized
$1.4 million of Visual Voice source code sale and professional  services revenue
during each of the  quarters  ended  December  31,  March 31 and June 30,  2000.
Effective June 30, 2000, Dialogic has formally discontinued Visual Voice and the
Company is no longer  authorized  to sell,  market or support the product  line.
Approximately 50% of the Company's  revenues in fiscal 2000 were attributable to
Visual  Voice sales or Visual Voice  source code  acquisition  revenue or Visual
Voice  professional  fees.  The  loss of this  revenue  stream  along  with  the
increases in operating expenses to support the TeleVantage  product will lead to
continued  operating  losses  during  the next  several  quarters.  The  Company
anticipates  that future  TeleVantage  revenues will increase and thereby reduce
future operating losses,  however, in the event that TeleVantage revenues do not
increase as anticipated  the Company may be required to seek  additional debt or
equity  financing  in order to fund  future  operations.  The  Company  may seek
additional  debt or  equity  financing  regardless  of future  operating  losses
incurred or cash and  investment  levels in order to pursue  strategic  business
opportunities.

     Also in December 1999, the Company  executed a strategic  partnership  with
Dialogic.  Under the terms of the agreement,  the Company is required to provide
Dialogic  with a  software-based  phone  switch  that is  compatible  with Intel
Corporation's CT Media Platform. The Company anticipates delivery of this source
code to Intel prior to the end of fiscal year 2001.  The Company has  recognized
revenues  associated with this development  arrangement  since January 2000. The
Company  anticipates  completing  the  recognition  of this  revenue  during the
quarter ended March 31, 2001.

     In January 2000,  the Company  executed a strategic  partnership  agreement
with Toshiba America  Information Systems ("TAIS") intended to allow the Company
and  TAIS to  deliver  an  integrated  communications  server  and  software-PBX
solution for small and midsized  businesses.  Under the terms of the  agreement,
TAIS will  purchase  licenses  of  TeleVantage  for  customized  versions of the
software  product to be  integrated  with its  computer  telephony  systems  and
communications  server product  offerings.  All the costs  associated  with this
customization have been substantially  incurred. TAIS acquired 100,000 shares of
Artisoft  common  stock at a price of  $6.994  per  share  and has the  right to
acquire  an  additional   50,000  shares   pursuant  to  a  warrant   agreement.
Additionally,  the Company  authorized TAIS to purchase an additional  1,350,000
shares  of the  Company's  common  stock  on the  open  market.  Toshiba  is not
contractually  or in any  other  way  required  to  purchase  shares on the open
market.  The Company  incurred a non-cash charge of  approximately  $2.3 million
dollars on the issuance of these  securities,  which was  recognized  as selling
expense during the quarter ended March 31, 2000.

                                       11
<PAGE>
     The Company's ability to significantly  expand its selling and marketing of
TeleVantage  to a broad  customer  base may  depend on the  success of these two
strategic relationships. The failure of one or both of these partnerships or the
Company's  inability to continue to develop future strategic  partnerships could
adversely effect the Company's operating results.

     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:  the extent to which the
Company is able to increase its sales of TeleVantage and the times at which such
increases  occur;  business  conditions  and the general  economy;  business and
technological  developments in the emerging and rapidly changing  software-based
PBX  market;  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.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

     CASH AND CASH  EQUIVALENTS.  The Company had cash and cash  equivalents  of
$8.5 million at December 31, 2000  compared to $5.1 million at June 30, 2000 and
working capital of $9.9 million at December 31, 2000 compared to $7.5 million at
June 30, 2000. The increase in cash and cash equivalents of $3.4 million was the
result of the  liquidation  of certain short and long-term  investments  and the
conversion of a portion of these  proceeds into cash and cash  equivalents  less
cash used in operations.  The increase in the Company's  working capital of $2.3
million was primarily the result of the aforementioned  liquidation of long-term
investments and the conversion of a portion of these proceeds into cash and cash
equivalents during the period ended December 31, 2000.

     The  increases  in the  Company's  cash and cash  equivalents  and  working
capital at December 31, 2000 compared to June 30, 2000 should be viewed together
with the decreases in the Company's short and long-term  investments at December
31,  2000,  discussed  below.  The total  amount  of the  Company's  cash,  cash
equivalents  and short and long-term  investments  was $10.7 million at December
31, 2000 compared to $15.4 million at June 30, 2000, a decrease of $4.7 million,
or 31%. Of this $4.7 million decrease,  $4.0 million occurred during the quarter
ended  December 31, 2000. The cash reduction in the first quarter of fiscal year
2001 was offset by the receipt of proceeds of $3.0 million  (including  accounts
receivable)  on the  sale  of the  Company's  Communication  Software  Group  to
Prologue Software.  The Company expects its cash, cash equivalents and short and
long-term  investments  to  decrease  in  the  future  as it  incurs  additional
operating losses.

     The Company funds its working capital  requirements  primarily  through its
existing  cash  balances  and the issuance of common  shares.  While the Company
anticipates  that  existing cash balances will be adequate to fund the Company's
current and expected cash  requirements for the next twelve months,  industry or
general economic conditions,  could necessitate that the Company seek additional
debt  or  equity  capital.  If the  Company  needs  to but is  unable  to  raise
additional debt or equity capital, it may need to reduce its operating expenses,
including  its sales and marketing and product  development  expenses.  Doing so
could materially and adversely affect the Company's  ability to increase its net
sales and gross  profit and its future  success.  In the event that the  Company
seeks and  successfully  receives  additional  equity  capital  such  additional
financing  may result in  significant  shareholder  dilution.  In addition,  the
Company  may also  from  time to time  seek debt  financing  or  solicit  equity
investments  for various  business  reasons.  There can be no assurance that any
such  additional  debt financing or equity capital will be available when needed
or on  acceptable  terms  to allow  the  Company  to  successfully  achieve  its
operating plan and fund future investments in its TeleVantage product line.

                                       12
<PAGE>
     SHORT TERM AND LONG TERM  INVESTMENTS.  The Company had short and long-term
investment  balances  of $2.2  million at December  31,  2000  compared to $10.3
million at June 30,  2000.  The  decrease  in  overall  investment  balances  at
December 31, 2000 compared to June 30, 2000 is due to the liquidation of some of
these  securities  into cash and cash  equivalents.  As a result,  all remaining
investment  securities have been  reclassified as available for sale at December
31, 2000. The Company purchased  various AAA rated  intermediate term securities
during  fiscal  2000.  All of these  securities  mature by  December  31,  2005.
Securities  with  maturities  between 91 days and 1 year are classified as short
term.  Those securities with maturities of 366 days or greater are classified as
long term investments at December 31, 2000 and June 30, 2000.

RECENT ACCOUNTING PRONOUNCEMENTS

     In March  2000,  the  Financial  Accounting  Standards  Board  issued  FASB
Interpretation  No. 44,  Accounting  for Certain  Transactions  involving  Stock
Compensation  (an  interpretation  of APB Opinion No. 25).  This  interpretation
provides  guidance  regarding  the  application  of  APB  Opinion  25  to  Stock
Compensation  involving  employees.  This  interpretation  was effective July 1,
2000, except for certain  provisions which were effective as of an earlier date,
and did not have a material effect on the Company's financial statements.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  Accounting  for  Derivative
Instruments and Hedging Activities.  SFAS No. 133 as amended by SFAS No. 137, is
effective for fiscal years  beginning after June 15, 2000. SFAS No. 133 requires
that all  derivative  instruments be recorded on the balance sheet at their fair
value.  Changes in the fair value of  derivatives  are  recorded  each period in
current  earnings or other  comprehensive  income (loss)  depending on whether a
derivative  is designed as part of a hedge  transaction  and, if so, the type of
hedge  transaction  involved.  The Company does not expect that adoption of SFAS
No. 133 will have a material impact on its  consolidated  financial  position or
results of  operations  as the Company does not  currently  hold any  derivative
financial instruments.

"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 timing of increased sales
of its  products,  the need and  ability of the Company to obtain debt or equity
financing or to reduce expenses, 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. The Company filed its first quarter fiscal 2000
form 10-Q on November 13, 2000

RISK FACTORS

GENERAL

     DEVELOPMENT OF NEW PRODUCT.  The Company's  sales are derived from a single
product,  TeleVantage.  TeleVantage  is a  relatively  new  product in the newly
emerging market for software-based phone systems.  Accordingly,  there currently
are  relatively low sales of both  TeleVantage  and other  software-based  phone
systems  and it is  difficult  to predict  when or if such  sales will  increase
substantially.  At the same time,  the  Company  must incur  operating  expenses
related to, amongst other things,  the marketing,  sales and  development of its

                                       13
<PAGE>
TeleVantage  products.  Thus, like other companies competing in newly developing
product  markets,  the Company faces a substantial  risk that its sales will not
increase quickly enough to cover its operating expenses during the time in which
it lacks capital resources to fund continuing operating losses.

     COMPETITION.  The computer  telephony industry is highly competitive and is
characterized by rapidly evolving industry standards.  The Company competes with
other  phone  system  companies,   many  of  which  have  substantially  greater
financial,  technological,  production, sales and marketing and other resources,
as well as greater name recognition and larger customer bases, than 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. 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.

     NEW INDUSTRY  DEVELOPMENT.  The Company's  principal product,  TeleVantage,
competes   in  the  newly   emerging   software-based   phone   system   market.
Software-based  phone systems  operate in  conjunction  with and are affected by
developments  in other  related  industries.  These  industries  include  highly
developed  product  markets,  such as PCs, PC  operating  systems  and  servers,
proprietary  PBX and related  telephone  hardware  and  software  products,  and
telephone, data and cable transmission systems, as well as new emerging products
and industries,  such as Internet  communications  and Internet  Protocol ("IP")
telephony.  All of these industries and product markets are currently undergoing
rapid changes,  market  evolution and  consolidation.  The manner in which these
industries and products  evolve,  including the  engineering-  and  market-based
decisions  that are made  regarding  the  interconnection  of the  products  and
industries,  will  affect  the  opportunities  and  prospects  for  TeleVantage.
TeleVantage  competes directly with other  software-based phone system solutions
as well as  existing  traditional,  proprietary  hardware  solutions  offered by
companies such as Avaya  Communications,  Nortel and Siemens.  While the Company
anticipates a migration toward software-based phone system solutions,  there can
be no  assurances  that this will  occur,  or occur at the rate that the Company
anticipates.

     PRODUCT RETURNS AND ROTATIONS;DISTRIBUTOR  INVENTORY LEVELS. The Company is
exposed to the risk of product returns and rotations from its  distributors  and
value added  resellers,  which are  estimated  and  recorded by the Company as a
reduction  in  sales.  In  addition,  the  Company  is  exposed  to the  risk of
fluctuations in quarterly sales if resellers and distributors  purchase and hold
excessive  amounts of  inventory at any time.  Although the Company  attempts to
monitor its  reseller  and  distributor  inventories  and current and  projected
levels of sell through, localized overstocking may occur with TeleVantage 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. All of these
risks tend to be increased for companies,  like the Company,  that rely on sales
of a single product in a newly emerging  market.  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 overstocking by resellers or distributors or 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 may become more complex and could result in
material fluctuations in quarterly sales and operating results.

                                       14
<PAGE>
     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 value added
resellers  historically  have occurred  during the last month of the quarter and
are concentrated in the latter half of that month. Orders placed by distributors
are typically based upon  distributors'  recent  historical and forecasted sales
levels for Company  products and inventory levels of Company products desired to
be maintained by those distributors at the time of the orders. Moreover,  orders
may also be based upon financial practices by distributors  designed to increase
the return on  investment  or yield on the sales of the  Company's  products  to
value-added resellers 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  distributors,  changes in  distributor
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  distributor  orders  could  result in
material fluctuations in quarterly operating results.

     PRODUCT CONCENTRATION. The Company has in the past derived, and anticipates
that it will in the future  derive,  a significant  portion of its revenues from
one product line.  Declines in the revenues from this software product,  whether
as a result of  competition,  technological  change,  price  pressures  or other
factors, could 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
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 key current
products or any new products or product enhancements.

     TECHNOLOGICAL  CHANGE.  The markets for computer  telephony  solutions  are
characterized by rapid technological  change,  changing customer needs, frequent
product  introductions  and evolving  industry  standards.  The  introduction of
products  incorporating  new  technologies  and the  emergence  of new  industry
standards   could  render  the   Company's   existing   products   obsolete  and
unmarketable.  The  Company's  future  success  will  depend upon its ability to
develop and introduce new computer  telephony  products  (including new releases
and  enhancements)  on  a  timely  basis  that  keep  pace  with   technological
developments  and  emerging  industry  standards  and address  the  increasingly
sophisticated needs of its customers. There can be no assurance that the Company
will be successful in developing and marketing new computer  telephony  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 computer  telephony  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

                                       15
<PAGE>
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.

     HARDWARE   AVAILABILITY  AND  QUALITY.  The  Company's  computer  telephony
software  requires  the  availability  of certain  hardware.  Specifically,  the
TeleVantage  software-based  phone system  operates on certain voice  processing
boards  manufactured  by Dialogic (an Intel  Company).  To the extent that these
boards become unavailable or in short supply the Company could experience delays
in shipping  software-based  phone  systems to its  customers,  which may have a
material adverse affect on the Company's future operating results.  In addition,
the Company is dependent on the  reliability  of this hardware and to the extent
the   hardware  has  defects  it  will  impact  the   performance   of  its  own
software-based phone system. To the extent, that the hardware becomes unreliable
or does not perform in a manner that is acceptable  to the Company's  customers,
the Company could  experience a material  adverse impact on its future operating
results.  Such delays or quality problems if encountered could also cause damage
to the Company's  reputation  for  delivering  high quality,  reliable  computer
telephony solutions.

     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 and  foreign
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.  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.  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
negative impact on the Company's  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.  A high level of  employee
mobility  and  aggressive  recruiting  of  skilled  personnel  characterize  the
industry.  There can be no assurance that the Company's  current  employees will
continue  to work  for the  Company  or that  the  Company  will be able to hire
additional  employees  on a timely  basis.  Loss of  services  of  existing  key

                                       16
<PAGE>
employees  or failure  to timely  hire new key  employees  could have a negative
impact on the Company's business, results of operations and financial condition.
The Company expects to grant additional stock options and provide other forms of
incentive  compensation  to  attract  and  retain key  technical  and  executive
personnel. These additional incentives will lead to higher compensation costs in
the future and may adversely  affect the Company's future results of operations.
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 affect
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, the extent and timing of sales and operating  expense  increases and
decreases, 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.  Sales may also be  affected  by the level of  returns  beyond  those
estimated  and provided for at any point in time.  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.  These or other factors may influence  quarterly results in the future
and, accordingly, there may be significant variations in the Company's quarterly
operating  results.   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.  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  strategic
partnerships  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.

     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. Although the Company may periodically discuss such potential transactions

                                       17
<PAGE>
with a number of companies, there can be no assurance that suitable acquisition,
alliance or purchase  candidates  can be  identified,  or that,  if  identified,
acceptable terms can be agreed upon or adequate and acceptable financing sources
will be  available  to the  Company  or  purchasers  that would  enable  them to
consummate such transactions. Even if an acquisition or alliance 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,  certain  acquisitions  by the  Company  could  result in
potentially   dilutive  issuances  of  equity  securities,   the  incurrence  of
additional debt and  amortization of expenses related to goodwill and intangible
assets,  all of  which  could  adversely  affect  the  Company's  profitability.
Acquisitions,  alliances and divestitures  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, unforeseen consequences of exiting from product markets
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 products is relatively new and is characterized by the rapid
evolution of 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   TeleVantage  offers
functionality  superior to that of a traditional standalone PBX. There can be no
assurances that competitors with substantially  greater financial resources than
that of the  Company  will not develop  their own  software-based  phone  system
solutions and subsequently  adversely affect the Company's  ability to market or
sell its software-based phone system solution, TeleVantage.

     TeleVantage  could  also  face  direct   competition  from  companies  with
significantly  greater  financial,  marketing,  service,  support and  technical
resources.  Although the Company has recently partnered with TAIS,  Dialogic (an
Intel Company),  Compaq,  Hewlett Packard, CDW and IBM amongst others to deliver
its  software-based  phone system to small and medium sized businesses there can
be no  assurances  these  partnerships  will  substantially  expand  the  market
presence  of  the  Company's   software-based  PBX,  TeleVantage.   The  Company
anticipates  certain  competitors with greater financial resources will continue
to make  substantial  new  investments in developing IP based and software based
telephony  solutions.  Thus there can be no  assurance  that the Company will be
able to successfully market or sell its own competing IP based or software-based
telephony solutions.

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<PAGE>
     COMPUTER   TELEPHONY   HARDWARE   SUPPLIER   DEPENDENCIES.   The  Company's
software-based phone system,  TeleVantage, is designed to operate in conjunction
with  voice  processing  boards  manufactured  by  Dialogic,  an Intel  Company.
Additionally,  Dialogic,  an Intel  Company  is  currently  the  Company's  only
supplier of the voice processing  boards that are necessary for the operation of
TeleVantage.  If Intel Corporation becomes unable to continue to manufacture and
supply  these  boards in the  volume,  price and  technical  specifications  the
Company  requires,  then the  Company  would  have to adapt  its  products  to a
substitute supplier. Introducing a new supplier of voice processing boards could
result in unforeseen  additional product  development or customization costs and
could introduce hardware and software operating or compatibility problems. These
problems  could  affect  product  shipments,  be costly to correct or damage the
Company's  reputation  in the  markets  in which it  operates,  and could have a
material  adverse  affect on its  business,  financial  condition  or results of
operations.

     Additionally, Dialogic (an Intel Company) hardware failures could adversely
affect the Company's ability to ship and sell its own software products,  damage
its  reputation  in the markets in which it operates,  and could have a material
adverse affect on its business, financial condition or results of operations.

     COMPUTER  TELEPHONY  CUSTOMERS  AND  MARKET  ACCEPTANCE.   The  Company  is
currently  investing  and will continue to invest  significant  resources in the
development,  marketing and sales of TeleVantage, a software-based phone system.
There can be no assurance  that the Company will achieve  market  acceptance  of
these products whose PBX and related  telephone  needs have  traditionally  been
served through  proprietary PBX and key system  distributors and  interconnects.
The Company's potential customer base for its TeleVantage product, small, medium
sized businesses and branch offices,  have well established  histories of buying
existing  telecommunications  products,  including  proprietary PBXs and related
products, and have found such products to be generally reliable. Moreover, large
companies  such as Avaya  Communications  and Nortel have  invested  substantial
resources in the  development  and  marketing of existing  proprietary  PBXs and
related products and maintain well-developed distribution channels. Accordingly,
the Company will face substantial  market barriers and competitive  pressures in
achieving market acceptance of its new software based PBX products. There can be
no assurance that the Company will be successful in establishing a critical mass
of qualified computer telephony resellers or that such resellers will be able to
successfully market TeleVantage in the volumes that the Company anticipates. The
Company's  success in selling  these  products  will likely be influenced by its
ability to attract and inform the highest  qualified VARs and  distributors  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 an evolution toward open server-based telephony enabled applications from the
traditional  proprietary PBX  environment  and that, in such a new  environment,
software-based  PBX systems will be widely  accepted.  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.

     TeleVantage  currently  runs  only on  Microsoft  Windows  NT  servers.  In
addition,  the Company's products use other Microsoft Corporation  technologies,
including the Microsoft Data Engine (MSDE).  A decline in market  acceptance for
Microsoft  technologies or the increased acceptance of other server technologies
could cause the Company to incur significant  development costs and could have a
material adverse effect on our ability to market our current products. Although,
the Company believes  Microsoft  technologies will continue to be widely used by
businesses,  there  nonetheless  can be no assurance that  businesses will adopt
these  technologies  as  anticipated  or will not  migrate  to  other  competing
technologies that the Company's telephony products do not currently support.

                                       19
<PAGE>
     Additionally,  since the  operation of the Company's  software-based  phone
system solution is dependent upon certain Microsoft  technologies,  there can be
no  assurances  that in the  event of a price  increase  by  Microsoft  that the
Company  will  be  able  to  continue  to  successfully   sell  and  market  its
software-based phone system.

ITEM 2(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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

                                       20
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES

     None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

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

     (a)  The  Company's  Annual  Shareholders'  Meeting was held on November 2,
          2000.

     (b)  At the Annual Shareholders' Meeting, proposals were considered for (1)
          the  election of Steven G. Manson as a Class 1 director to serve until
          the annual meeting of  shareholders  in 2003, (2) the  ratification of
          the selection of KPMG LLP as  independent  public  accountants  of the
          Company for the 2001 fiscal year.

          The  director-nominee was elected and the ratification of KPMG LLP was
          approved with the voting results as follows:

<TABLE>
<CAPTION>
Proposal                   Votes For     Votes Against    Votes Withheld    Abstained    Not voted
--------                   ----------    -------------    --------------    ---------    ---------
<S>                        <C>           <C>              <C>               <C>          <C>
Election of
Steven G. Manson
as a Class I Director      10,766,444           --              --          3,495,358    1,299,335

Ratification of selection
Of KPMG LLP as
independent public
accountants of the
Company for fiscal
year 2000                  14,107,801       61,615              --             92,386    1,299,335
</TABLE>

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

          No. 11 - Computation of Net Loss Per Share

     (b)  Reports on Form 8-K

          None

                                       21
<PAGE>
                                   SIGNATURES

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


                                        ARTISOFT, INC.


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


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

                                       22