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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, 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 (February 11, 2000).

                 Common Stock, $.01 par value: 15,154,056 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, 1999 and June 30, 1999                       3

                Condensed Consolidated Statements of Operations-
                  Three Months and Six Months Ended
                  December 31, 1999 and 1998                                4

                Condensed Consolidated Statements of Cash Flows-
                  Six Months Ended December 31, 1999 and 1998               5

                Notes to Condensed Consolidated
                  Financial Statements                                     6-8

        Item 2. Management's Discussion and Analysis of
                Financial Condition and Results of Operations              9-20


PART II. OTHER INFORMATION

        Item 1. Legal Proceedings                                           21

        Item 2. Changes in Securities                                       21

        Item 3. Defaults Upon Senior Securities                             21

        Item 4. Submission of Matters to a Vote by Security Holders         21

        Item 5. Other Information                                           22

        Item 6. Exhibits and Reports on Form 8-K                            22


SIGNATURES                                                                  23

EXHIBITS

   11   Computation of Net Income (Loss) Per Share

   27   Financial Data Schedule

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


                                                        December 31,   June 30,
ASSETS                                                      1999         1999
                                                        ------------   --------
                                                        (unaudited)
Current assets:
 Cash and cash equivalents                               $ 17,064      $ 16,148
Receivables:
 Trade accounts, net                                        2,875         2,267
 Other receivables                                            136            66
 Inventories                                                1,620         1,214
 Prepaid expenses                                             295           335
                                                         --------      --------
       Total current assets                                21,990        20,030
                                                         --------      --------

Property and equipment                                      6,546         6,349
Less accumulated depreciation and amortization             (5,399)       (4,984)
                                                         --------      --------
       Net property and equipment                           1,147         1,365
                                                         --------      --------

Other assets                                                  837         1,163
                                                         --------      --------
                                                         $ 23,974      $ 22,558
                                                         ========      ========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
 Accounts payable                                        $  1,487      $  1,229
 Accrued liabilities                                        1,705         2,383
 Deferred revenue                                           1,939            83
 Current portion of capital lease obligations                  --           289
                                                         --------      --------
      Total current liabilities                             5,131         3,984
                                                         --------      --------
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 28,352,702 shares at
  December 31, 1999 and 28,144,477 shares at
  June 30, 1999                                               283           281
 Additional paid-in capital                                97,507        96,869
 Accumulated deficit                                       (9,163)       (8,792)
 Less treasury stock, at cost, 13,320,500 shares at
  December 31, 1999 and June 30, 1999                     (69,784)      (69,784)
                                                         --------      --------
       Total shareholders' equity                          18,843        18,574
                                                         --------      --------
                                                         $ 23,974      $ 22,558
                                                         ========      ========

     See accompanying notes to condensed consolidated financial statements.

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

                                 Three Months Ended         Six Months Ended
                                     December 31,              December 31,
                                ---------------------     ----------------------
                                  1999         1998         1999         1998
                                --------     --------     --------     --------
                                     (unaudited)               (unaudited)

Net sales                       $  6,727     $  5,402     $ 13,128     $ 10,496
Cost of sales                      1,849        1,608        4,071        2,964
                                --------     --------     --------     --------
    Gross profit                   4,878        3,794        9,057        7,532
                                --------     --------     --------     --------

Operating Expenses:
  Sales and marketing              2,567        2,014        4,922        4,144
  Product development              1,439        1,199        2,907        2,441
  General and administrative       1,023        1,049        2,048        1,928
                                --------     --------     --------     --------
    Total operating expenses       5,029        4,262        9,877        8,513
                                --------     --------     --------     --------

Loss from operations                (151)        (468)        (820)        (981)

Other income, net                    262          238          449          419
                                --------     --------     --------     --------

    Net income (loss)           $    111     $   (230)    $   (371)    $   (562)
                                --------     --------     --------     --------

Net income (loss) per common
  share -- basic and diluted    $    .01     $   (.02)    $   (.02)    $   (.04)
                                --------     --------     --------     --------

Weighted average common shares
  outstanding:
    Basic                         14,933       14,686       14,956       14,711
                                --------     --------     --------     --------

    Diluted                       16,228       14,686       14,956       14,711
                                --------     --------     --------     --------

     See accompanying notes to condensed consolidated financial statements.

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

                                                             Six Months Ended
                                                               December 31,
                                                         -----------------------
                                                            1999         1998
                                                          --------     --------
                                                         (unaudited)
Cash flows from operating activities:
  Net loss                                                $   (371)    $   (562)
Adjustments to reconcile net loss to net
 cash provided by operating activities:
  Depreciation and amortization                                745          713
  Loss from disposition of property, net                        30            1
  Change in accounts receivable and
   inventory allowances                                       (134)        (327)
  Changes in assets and liabilities:
     Receivables
     Trade accounts                                           (449)       1,097
     Notes and other                                           (70)         100
     Inventories                                              (431)         276
     Prepaid expenses                                           40         (111)
     Accounts payable and accrued liabilities                 (421)        (423)
     Deferred revenue                                        1,856           (3)
     Accrued restructuring costs                                --       (1,102)
     Other assets                                               --          (43)
                                                          --------     --------
       Net cash provided by (used in)
         operating activities                                  795         (384)
                                                          --------     --------

Cash flows from investing activities:
  Proceeds from sale of property and equipment                  --            9
  Purchases of property and equipment                         (230)        (635)
                                                          --------     --------
       Net cash used in investing activities                  (230)        (626)
                                                          --------     --------

Cash flows from financing activities:
  Proceeds from issuance of common stock                       640          230
  Principal payments on long term debt                        (289)        (243)
                                                          --------     --------
       Net cash provided by (used in)
         financing activities                                  351          (13)
                                                          --------     --------

Net (decrease) increase in cash and cash equivalents           916       (1,023)
Cash and cash equivalents at beginning of period            16,148       18,514
                                                          --------     --------
Cash and cash equivalents at end of period                $ 17,064     $ 17,491
                                                          ========     ========

     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(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   condensed
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  condensed  consolidated  financial  statements be read in
conjunction with the condensed  consolidated  financial statements and the notes
thereto  included in the Company's 1999 Annual Report to Shareholders and report
on Form 10-K. The results of operations for the three or six month periods ended
December 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  net  income  (loss)  per  share  is  computed  by  dividing   income
attributable  to common  shareholders  by the weighted  average number of common
shares outstanding for the period.  Diluted net income (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 net loss per common
share for the six months  ended  December  31,  1999 and the three and six month
periods  ended  December 31,  1998,  1,115,067,  85,769 and 46,096  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 six month  periods  ended
December 31, 1999 and 1998 are summarized below by product group:

                                             Three Months        Three Months
                                                 Ended               Ended
                                           December 31, 1999   December 31, 1998
                                           -----------------   -----------------
COMPUTER TELEPHONY GROUP:
Net sales                                       $3,653              $ 1,595
Gross profit                                    $2,413              $   849
Gross profit margin                                 66%                  53%
Operating loss                                  $ (932)             $(1,604)
Net loss                                        $ (670)             $(1,604)
Capital expenditures                            $   83              $   283
Depreciation and amortization expense           $  144              $   112

COMMUNICATIONS SOFTWARE GROUP:
Net sales                                       $3,074              $ 3,807
Gross profit                                    $2,465              $ 2,945
Gross profit margin                                 80%                  76%
Operating income                                $  781              $ 1,136
Net income                                      $  781              $ 1,374
Capital expenditures                            $   29              $   130
Depreciation and amortization expense           $  209              $   259

                                       6
<PAGE>
                                               Six Months          Six Months
                                                 Ended               Ended
                                           December 31, 1999   December 31, 1998
                                           -----------------   -----------------
COMPUTER TELEPHONY GROUP:
Net sales                                       $ 6,374             $ 2,952
Gross profit                                    $ 3,866             $ 1,686
Gross profit margin                                  61%                 57%
Operating loss                                  $(2,588)            $(3,165)
Net loss                                        $(2,139)            $(3,165)
Capital expenditures                            $   166             $   500
Depreciation and amortization expense           $   301             $   195

COMMUNICATIONS SOFTWARE GROUP:
Net sales                                       $ 6,754             $ 7,544
Gross profit                                    $ 5,191             $ 5,846
Gross profit margin                                  77%                 78%
Operating income                                $ 1,768             $ 2,184
Net income                                      $ 1,768             $ 2,602
Capital expenditures                            $    64             $   135
Depreciation and amortization expense           $   444             $   518

     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 BizFax,  CoSession
Remote, i.Share, LANtastic NOS, ModemShare and WinBeep product lines.

(4) INVENTORIES

     Inventories  at  December  31,  1999  and  June  30,  1999  consist  of the
following:

                                               December 31,         June 30,
                                                  1999                1999
                                                -------             -------
                                               (unaudited)

     Raw materials                              $   871             $ 1,177
     Work-in-process                                  3                   7
     Finished goods                                 914                 173
                                                -------             -------
                                                  1,788               1,357
     Inventory allowances                          (168)               (143)
                                                -------             -------
                                                $ 1,620             $ 1,214
                                                =======             =======

                                       7
<PAGE>
(6) PROPERTY AND EQUIPMENT

     Property  and  equipment  at December 31, 1999 and June 30, 1999 consist of
the following:

                                                    December 31,  June 30,
                                                       1999         1999
                                                      -------      -------
                                                    (unaudited)

     Furniture and fixtures                           $    39      $    36
     Computers and other equipment                      6,240        6,046
     Leasehold improvements                               267          267
                                                      -------      -------
                                                        6,546        6,349
     Accumulated depreciation and amortization         (5,399)      (4,984)
                                                      -------      -------
                                                      $ 1,147      $ 1,365
                                                      =======      =======
(7) OTHER ASSETS

     Other  assets  at  December  31,  1999  and June 30,  1999  consist  of the
following:

                                                    December 31,  June 30,
                                                       1999         1999
                                                      -------      -------
                                                    (unaudited)

     Trademarks and patents, net of
     accumulated amortization of $106 and $95          $   18      $   29
     Purchased technology, net of accumulated
       amortization of $2,195 and $1,451                  694       1,009
     Recoverable deposits and other                       125         125
                                                       ------      ------
                                                       $  837      $1,163
                                                       ======      ======
(8) ACCRUED LIABILITIES

     Accrued  liabilities  at December 31, 1999 and June 30, 1999 consist of the
following:

                                                   December 31,    June 30,
                                                       1999          1999
                                                      -------      -------
                                                    (unaudited)

     Compensation and benefits                        $  923        $1,183
     Payroll, sales and property taxes                   122           258
     Marketing                                           386           427
     Royalties                                           117           216
     Other                                               157           299
                                                      ------        ------
                                                      $1,705        $2,383
                                                      ======        ======

                                       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 for the Company's  Computer  Telephony  Product Group
increased 129% to $3.7 million for the quarter ended December 31, 1999 from $1.6
million for the quarter ended  December 31, 1998.  Net sales  increased  116% to
$6.4 million from $3.0 million for the six month period ended December 31, 1999.
The  increase  in net  sales for both the  three  and six  month  periods  ended
December 31, 1999 was principally due to two factors:  First, an increase in the
sales of the  Company's  TeleVantage  product  line and second,  the sale of the
Company's Visual Voice source code to Intel Corporation during the quarter ended
December 31, 1999. During the quarter ended December 31, 1999, Intel Corporation
purchased  the  Company's  Visual  Voice  product line 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 and the existing
Visual Voice  customers  between  October 1, 1999 and June 30, 2000. The Company
recognized  $.9 million of revenue on the sale of the Visual  Voice  source code
and $.5  million in  professional  services  revenue  during the  quarter  ended
December 31, 1999.

     Net sales for the Company's Communications Software Product Group decreased
19% to $3.1  million for the quarter  ended  December 31, 1999 from $3.8 million
for the quarter ended December 31, 1998. Net sales decreased 10% to $6.8 million
from $7.5 million for the six month period ended December 31, 1999. The decrease
in net sales for both the three and six month  periods  ended  December 31, 1999
was  principally  due to a  decline  in the  sales of the  Company's  ConfigSafe
product  line  (licensed  from a third  party) and lower sales of the  Company's
Lantastic network operating system (NOS) products.

     The  Company's  overall  net sales  increased  25% to $6.7  million for the
quarter ended December 31, 1999 from $5.4 million for the quarter ended December
31, 1998.  The Company's  overall net sales also  increased 25% to $13.1 million
for the six month period ended  December 31, 1999 from $10.5 million for the six
month period ended  December 31, 1998. The increase for both the quarter and six
month period ended  December 31, 1999 compared to the  corresponding  periods in
the prior year is principally due to substantially higher sales of the Company's
Computer Telephony Product,  TeleVantage and the sale of the Visual Voice source
code to Intel  Corporation.  These increases were offset to a significant degree
by  lower  sales of  certain  of the  Company's  Communications  Software  Group
products.

     The Company  distributes its products  internationally  and tracks sales by
major geographic area.  Non-U.S.  sales decreased 9% to $1.0 million (15% of net
sales) for the quarter  ended  December  31, 1999 from $1.1  million (20% of net
sales) for the same quarter a year ago.  International  sales remained unchanged
at $2.0 million  (15% of net sales) for the six month period ended  December 31,
1999 from $2.0  million  (19% of net sales) for the same period in fiscal  1999.
The  percentage  decrease in  international  sales and the decrease in aggregate
dollars  for  the  quarter   ended   December  31,  1999,  as  compared  to  the
corresponding period in fiscal 1999, primarily resulted from a continued decline
in worldwide sales of the Company's  LANtastic NOS products offset  partially by
increased  international sales of the Company's TeleVantage product. The Company
has recently entered into new international distribution relationships with Data
Link  Telecommunications,  Olivetti  Ricerca,  Midia,  Ltd.,  iKON,  ALR AG and
Affinity LAC.

     GROSS PROFIT.  The Company's  gross profit was $4.9 million for the quarter
ended December 31, 1999 and $3.8 million for the quarter ended December 31, 1998
or 73% and 70% of net sales,  respectively.  The Company's gross profit was $9.1
million for the six month  period  ended  December 31, 1999 and $7.5 million for
the six  month  period  ended  December  31,  1998 or 69% and 72% of net  sales,
respectively.  The increase in gross  profit  percentage  for the quarter  ended
December  31, 1999 was due to a number of factors  including:  a shift to higher
margin  TeleVantage  software sales instead of lower margin  TeleVantage Not For
Resale kits (NFR's);  second,  lower royalty expenses incurred on certain of the
Company's Communication Software Group products and; third, the receipt of funds
for the sale of Visual Voice source code. The net increase in aggregate  dollars
of gross profit margin for the quarter and six month periods ended December 31,

                                       9
<PAGE>
1999 as  compared to the  corresponding  periods in fiscal 1999 is due to higher
net sales from the Company's  Computer  Telephony Product Group. The decrease in
gross  profit  percentage  for the six month  period  ended  December  31,  1999
compared  to the  corresponding  six  month  period in  fiscal  1999,  is due to
Computer  Telephony  net sales  being a higher  percentage  of overall net sales
during the first  quarter of fiscal  2000 as  compared  to the first  quarter of
fiscal 1999.

     SALES AND MARKETING. Sales and marketing expenses were $2.6 million for the
quarter ended  December 31, 1999 and $2.0 million for the quarter ended December
31,  1998,  representing  38%  and 37% of net  sales,  respectively.  Sales  and
marketing  expenses were $4.9 million and $4.1 million for the six-month periods
ended  December  31,  1999 and  1998,  respectively  (37% and 39% of net  sales,
respectively). The increase in sales and marketing expenses in aggregate dollars
for the quarter and six month  periods  ended  December 31, 1999 compared to the
same periods in fiscal 1999 was due principally to increased expenditures on the
sales and  marketing  personnel in the  Company's  Computer  Telephony  Products
Group,  offset by decreased  expenditures  on such  personnel  in the  Company's
Communications Software Group. The increase in sales and marketing expenses as a
percentage of sales for the quarter ended December 31, 1999 compared to the same
period in fiscal 1999 is due to the same increase in  expenditures  on sales and
marketing  personnel.  The  decrease  in  sales  and  marketing  expenses  as  a
percentage of sales for the six month period ended December 31, 1999 compared to
the same period in fiscal 1999 was  principally  attributable to the increase in
the Company's net sales.

     PRODUCT DEVELOPMENT. Product development expenses were $1.4 million for the
quarter ended  December 31, 1999 and $1.2 million for the quarter ended December
31,  1998,  representing  21%  and  22%  of  net  sales,  respectively.  Product
development  expenses were $2.9 million for the six month period ended  December
31, 1999 and $2.4  million for the six month  period  ended  December  31, 1998,
representing 22% and 23% of net sales,  respectively.  The increase in aggregate
product  development  expenses  for the  quarter  and six  month  periods  ended
December  31, 1999  compared  to the same  period in fiscal 1999 is  principally
attributable to the addition of product  development  resources in the Company's
Computer  Telephony  Group.  The  addition of new  development  personnel to the
Computer Telephony Group during the quarter ended December 31, 1999 was required
to meet  planned  future  product  introduction  timetables.  Specifically,  the
Company has added development and distribution  personnel in anticipation of the
Company's entry into two development and distribution agreements, one with Intel
Corporation,  pursuant to which the company will port  TeleVantage to Intel's CT
Media  Server,  and  the  second  with  Toshiba  America   Information   Systems
("Toshiba"),  pursuant  to which the Company  will be  required to meet  certain
development milestones.  The decrease in development expenses as a percentage of
net sales for both the quarter and six month periods ended December 31, 1999, is
principally  due  to  higher  overall  net  sales.   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 $1.0
million for the quarter ended December 31, 1999 and 1998,  representing  15% and
19% of net sales,  respectively.  General and administrative  expenses were $2.0
million and $1.9 million for the six month  period  ended  December 31, 1999 and
1998,  representing  16% and 18% of net sales,  respectively.  The  decrease  in
general and  administrative  expenses as a percentage  of net sales for both the
quarter and six month  periods  ended  December  31,  1999  compared to the same
period in fiscal 1999 is  principally  the result of the increase in overall net
sales. The increase in general and administrative  expenses in aggregate dollars
for the six month period ended  December 31, 1999 is  principally  due to higher
occupancy costs and depreciation and amortization  expenses  associated with the
Company's Cambridge, Massachusetts-based headquarters facilities and equipment.

     OTHER INCOME,  NET. For the quarter ended December 31, 1999,  other income,
net, increased to $262,000, from $238,000 in the corresponding quarter of fiscal
1999.  For the six month period ended  December 31,  1999,  other  income,  net,
increased to $449,000 from $419,000. The increase for the quarter and six months
ended  December  31, 1999  resulted  principally  from the receipt of  increased
interest  income on the Company's cash and  investment  balances and to a lesser
extent by reduced  interest  expense on certain of the  Company's  capital lease
arrangements.

                                       10
<PAGE>
FUTURE RESULTS

     The  Company   intends  to  continue  to  increase  its   investments   and
expenditures  in sales,  marketing  and  development  of its  flagship  product,
TeleVantage.   The  Company  likewise  intends  to  limit  or  even  reduce  its
investments in its  Communications  Software Group.  The Company will likely see
increased operating  expenditures over the next several quarters as it completes
planned  development,  marketing and sales  personnel  expansion  efforts in its
Computer  Telephony Product Group. With these planned headcount  increases,  the
Company may also see increased occupancy expenses associated with its Cambridge,
Massachusetts corporate headquarters.

     In  September  1999,  the  Company  announced  that  it  would  investigate
alternatives for a possible division of its business units,  which could involve
the  sale or  other  disposition  of all or a  portion  of one of the  Company's
business units.  The Company has retained the services of an investment  banking
firm to assist it in evaluating its options. There can be no assurances that the
Company will be successful in the separation of its business units.  The Company
may also choose to pursue  alternatives  that do not include a separation of the
two product groups. If the Company's  investigation of its alternatives leads to
some form of a divestiture of one of the Company's  business units, there can be
no  assurances  that the Company  will remain  profitable  in the future or that
revenues will remain at current levels. In the three and six month periods ended
December 31, 1999, the  Communications  Software Group has had net income of $.8
million  and $1.8  million,  respectively,  compared to the  Computer  Telephony
Group's net losses of $.7 and $2.1 million during the same  respective  periods.
In addition, the Communications  Software Group has accounted for 46% and 51% of
the  Company's  net sales for the three and six month period ended  December 31,
1999, respectively.  On the other hand, if the Company does not divest itself of
the Communications  Software Group, it is unlikely that, with the reduced sales,
marketing and development  expenditures on its communications software products,
profit and revenue levels for communications  software products will continue at
their current levels in the future.

     In December  1999,  the  Company  executed an  Intellectual  Property  (IP)
Purchase Agreement with Intel Corporation. The Company agreed to sell its Visual
Voice software code to Intel Corporation for consideration of $2.7 million.  The
$2.7 million was paid to Artisoft  upon  execution of the  agreement on December
30, 1999.  Intel also agreed to allow the Company to continue to sell its Visual
Voice  software until June 30, 2000 royalty free up to a maximum of $1.4 million
in sales per quarter.  Subsequent  to June 30, 2000 the Company will be required
to pay a royalty  to Intel on all sales of Visual  Voice  software.  Intel  also
agreed to pay the Company $1.5 million in  professional  services  revenue.  The
Company  recognized  $1.4  million  of this  revenue  during the  quarter  ended
December 31, 1999 and anticipates it will recognize $1.4 million of this revenue
during the quarter  ended March 31, 2000 and  another  $1.4  million  during the
quarter ended June 30, 2000.

     In December 1999, the Company  executed a strategic  partnership with Intel
to deliver a jointly developed  software-based  phone system. Under the terms of
the  agreement,  the Company will be required to port  TeleVantage to Intel's CT
Media software platform.

     In January 2000, the Company executed a strategic  partnership with Toshiba
America  Information  Systems  ("Toshiba")  intended  to allow the  Company  and
Toshiba to deliver an integrated communications server and software-PBX solution
for small and midsized  businesses.  Under the terms of the  agreement,  Toshiba
will invest in licenses of TeleVantage  for customized  versions of the software
product to be integrated with its computer  telephony systems and communications
server  product  offerings.  The  Company  will  be  required  to  meet  certain
development  milestones in providing  the  customized  software to Toshiba.  The
Company also  announced  that Toshiba  will acquire  100,000  shares of Artisoft
common  stock at a price of $6.994  per share and have the right to  acquire  an
additional  50,000 shares  pursuant to a warrant  agreement.  Additionally,  the
Company has authorized Toshiba to purchase up to an additional  1,350,000 shares
of Artisoft common stock on the open market.  The Company will incur a charge of
approximately  $2.2 million dollars on the issuance of these  securities,  which
will be  recognized  as expense over the three year life of the  agreement.  The
recognition of this expense will begin in the third quarter of fiscal year 2000.
The Company does not anticipate  that this expense  recognition  will materially
affect its operating results.

                                       11
<PAGE>
     The failure of the Company to successfully meet its development  milestones
on either one of these key strategic agreements may have a adverse effect on the
Company's anticipated future revenues from TeleVantage. The Company's ability to
significantly  expand  its  selling  and  marketing  of  TeleVantage  to a broad
customer  base may depend on its ability to  successfully  execute these two key
strategic  agreements.  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.

     During the  quarter  ended  December  31,  1999,  the  Company  experienced
shortages of several of its key  Dialogic  hardware  components  utilized in the
TeleVantage  software-based  PBX phone systems.  While the Company believes that
these quality  problems and supply  constraints  have been remedied  should such
failures or  shortages  recur they could have a material  adverse  impact on the
Company's future 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:  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. These and other
risk factors are outlined below.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

     The Company had cash and cash  equivalents of $17.1 million at December 31,
1999  compared to $16.1  million at June 30,  1999 and working  capital of $16.9
million at December 31, 1999  compared to $16.0  million at June 30,  1999.  The
increase  in cash and cash  equivalents  of $1.0  million  was the result of the
following factors:  the receipt of a $2.7 million payment from Intel Corporation
for the sale of the Visual  Voice source  code.  The  increase in the  Company's
working capital of $.9 million was primarily the result of the Company's receipt
of the $2.7 million  payment from Intel  Corporation  (of which only $.9 million
was recognized as revenue during the quarter ended December 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 or loss of revenues from disposed  business  segments could necessitate
that the Company  seek  additional  debt or equity  capital.  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, if  available,  will be on  satisfactory  terms.  The issuance of additional
equity securities may result in substantial dilution.

                                       12
<PAGE>

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

     This Form 10-Q may contain  forward-looking  statements  that involve risks
and  uncertainties.  Among the important factors that could cause actual results
to differ  materially from forward looking  statements  contained herein are 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 15, 1999.

                                       13
<PAGE>
                                  RISK FACTORS

GENERAL

     COMPETITION.  The computer telephony and communications software 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.
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  PBX market.  Software-based  PBX
products  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 the Company's  computer  telephony  products,
including TeleVantage.  The Company's software-based PBX solution,  TeleVantage,
competes  directly with other  software-based  PBX solutions as well as existing
traditional,  proprietary hardware solutions offered by companies such as Lucent
and  Nortel.   While  the  Company   anticipates  a  gradual   migration  toward
software-based PBX solutions, there can be no assurances that this will actually
occur or will occur at the rate that the Company anticipates.

     RETURNS AND PRICE PROTECTION. 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.  Although  the
Company  attempts to monitor its  reseller  and  distributor  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.

                                       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 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 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,  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 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
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.

                                       15
<PAGE>
     INTEL HARDWARE  AVAILABILITY  AND QUALITY.  Most of the Company's  computer
telephony  software  requires the availability of Intel hardware.  Specifically,
the TeleVantage  software-based PBX operates on Intel boards. 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 the Intel hardware that
its  software-based  phone  system  operates  on. To the  extent  that the Intel
hardware has defects, 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.  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 and relevant  foreign  authorities.  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.  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.

     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  or that  the  Company  will be able to hire
additional  employees  on a timely  basis.  Loss of  services  of  existing  key
employees  or failure  to timely  hire new key  employees  could have a material
adverse  effect 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  effect 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 effect the Company's future results of operations.

                                       16
<PAGE>
     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.   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.  The Company may also consider the  divestiture of certain of its product
segments and operating groups, should conditions warrant,  particularly in light
of the Company's  strategy of focusing its  resources on its Computer  Telephony
Group. Although the Company may periodically discuss such potential transactions
with a number of companies, there can be no assurance that suitable acquisition,
alliance or purchase  candidates  can be  identified,  or that,  if  identified,
acceptable terms can be agreed upon or adequate and acceptable 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.
Divestitures  of product lines or operating  groups could  adversely  affect the
Company's   profitability   by  reducing  the  Company's   revenues   without  a

                                       17
<PAGE>
corresponding  reduction in expenses.  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 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   TeleVantage  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 software-based PBX solutions and subsequently adversely affect
the  Company's  ability  to  market  or sell its  software-based  PBX  solution,
TeleVantage.

     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
software-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  and
software based telephony solutions.  These developments could put the Company at
a competitive  disadvantage and adversely  affect the Company's  ability to sell
and  market its own  software-based  PBX  solution,  TeleVantage.  Although  the
Company has recently  partnered  with Toshiba  America  Information  Systems and
Intel to deliver its  software-based  PBX 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 and may form further  partnerships that will put the Company
at a competitive  disadvantage.  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.

     COMPUTER   TELEPHONY   HARDWARE   SUPPLIER   DEPENDENCIES.   The  Company's
software-based PBX product,  TeleVantage,  is designed to operate in conjunction
with voice processing boards  manufactured by Intel  Corporation.  Additionally,
Intel is currently the Company's  only supplier of the voice  processing  boards
that are necessary for the operation of TeleVantage.  If Intel becomes unable to

                                       18
<PAGE>
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  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 and will continue to invest significant  resources in the development,
marketing  and  sales of  TeleVantage,  a  software-based  PBX.  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 Lucent 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.  The Company's success in selling these products will likely
be  influenced  by  its  ability  to  attract  and  inform  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 a gradual 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.  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.

     TeleVantage  currently  runs  only on  Microsoft  Windows  NT  servers.  In
addition,  the Company's products use other Microsoft Corporation  technologies,
including  Microsoft  Exchange  Server and  Microsoft  SQL Server.  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.

     Additionally,  since the  operation  of the  Company's  software-based  PBX
solution is  dependent  upon  certain  Microsoft  technologies,  there can be no
assurances  that in the event of a price increase by Microsoft on its SQL Server
licenses  or other  technologies  that the  Company  will be able to continue to
successfully sell and market its software- based PBX. Furthermore, Microsoft has
not yet signaled  whether they intend to offer a competing  software-based  PBX.
Should  Microsoft or any other  operating  system  provider  with  substantially
greater financial resources than that of the Company introduce competing product
offerings, the Company could be put at a competitive disadvantage.

                                       19
<PAGE>
ITEM 2(a). QUANITATIVE 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  cash
equivalents may be 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,
          1999.

     (b)  At the Annual Shareholders' Meeting, proposals were considered for (1)
          the  election of Kathryn B. Lewis as a Class I director to serve until
          the annual meeting of  shareholders in 2002, (2) the election of James
          L. Zucco, Jr., as a Class I director to serve until the annual meeting
          of shareholders in 2002, (3) the approval of certain amendments to the
          Artisoft,  Inc. Employee Stock Purchase Plan, and (4) the ratification
          of the selection of KPMG LLP as the independent  public accountants of
          the Company for the 2000 fiscal year.

          The director-nominees were elected, the proposal of certain amendments
          to the Artisoft,  Inc.  Employee  Stock Purchase Plan was approved and
          the  ratification  of KPMG LLP was approved with the voting results as
          follows:

                            Votes       Votes     Votes                  Not
Proposal                     For       Against   Withheld   Abstained    Voted
--------                     ---       -------   --------   ---------    -----
Election of
Kathryn B. Lewis
as a Class I Director     11,190,300        --   2,640,166     --      1,011,339

Election of
James L. Zucco, Jr.
as a Class I Director     13,691,839        --     138,627     --      1,011,339

Amendment to the
Artisoft, Inc. Employee
Stock Purchase Plan       12,975,039   130,582      76,348     --      1,659,836

Ratification of selection
KPMG LLP as independent
public accountants of
the Company for fiscal
year 2000                 13,755,111    38,105      37,250     --      1,011,339


                                       21
<PAGE>
ITEM 5. OTHER INFORMATION

     On February  11,  2000,  the Company  announced  that T. Paul Thomas  would
resign as President and Chief Executive Officer of the Company,  effective as of
March 1, 2000.  Michael P. Downey,  Chairman of the Artisoft board will serve as
interim President and Chief Executive Officer of the Company commencing March 1,
2000 and until Mr.  Thomas'  replacement  has been selected and  appointed.  Mr.
Thomas  intends to continue as a Director of the Company to assist in the search
for and the transition to his replacement.

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 February 14, 2000

     (b)  Reports on Form 8-K

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

                                       22
<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, 2000                By: /s/ T. Paul Thomas
                                           -------------------------------------
                                           T. Paul Thomas
                                           President and Chief Executive Officer


                                       By: /s/ Kirk D. Mayes
                                           -------------------------------------
                                           Kirk D. Mayes
                                           Controller and Acting Chief
                                           Financial Officer

                                       22