================================================================================

               SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
                                   20549-1004
--------------------------------------------------------------------------------

                                    FORM 10-Q

(Mark One)

[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended September 30, 1997

                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                       Commission File Number 000 - 19462
                                 ARTISOFT, INC.
                                 --------------
             (Exact name of registrant as specified in its charter)
<TABLE>
<S>                                                                      <C>       
                  Delaware                                               86-0446453
-------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)              (IRS employer identification number)
</TABLE>

                       One South Church Avenue, Suite 2200
                              Tucson, Arizona 85701
                                 (520) 670-7100
                      -------------------------------------
               (Address, including zip code, and telephone number,
                      including area code, of registrant's
                          principal executive offices)

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

                                  Yes x   No
                                     ---    ---

       Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (November 14, 1997).

                 Common stock, $.01 par value: 14,528,964 shares

================================================================================
<PAGE>
                         Artisoft Inc. and Subsidiaries
                                      INDEX




                                                                           Page
PART I.    FINANCIAL INFORMATION

     Item 1.  Financial Statements

                Consolidated Balance Sheets-
                   September 30, 1997 and June 30, 1997                      3

                Consolidated Statements of Operations-
                   Three Months Ended
                   September 30, 1997 and 1996                               4

                Consolidated Statements of Cash Flows-
                   Three Months Ended September 30, 1997
                   and 1996                                                  5

                Notes to Consolidated Financial Statements                  6-8

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


PART II.   OTHER INFORMATION

     Item 1.  Legal Proceedings                                              19

     Item 2. Changes in Securities                                           19

     Item 3. Defaults Upon Senior Securities                                 19

     Item 4. Submission of Matters to a Vote by Security Holders             19

     Item 5. Other Information                                               19

     Item 6.  Exhibits and Reports on Form 8-K                               19



SIGNATURES                                                                   20



EXHIBITS

     11       Computation of Net Income Per Share                            21

     27       Financial Data Schedule                                        22

                                       2
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                                  September 30,  June 30,
ASSETS                                                                                1997         1997
                                                                                      ----         ----
                                                                                   (unaudited)
<S>                                                                                 <C>         <C>     
Current assets:
     Cash and cash equivalents                                                      $ 13,337    $ 14,673
     Receivables:
       Trade accounts, net                                                             3,844       5,011
       Income taxes                                                                    4,300       4,300
       Notes and other                                                                   518         580
     Inventories                                                                       1,786       1,860
     Prepaid expenses                                                                    689         833
     Property and equipment held for sale                                              2,499       2,543
                                                                                    --------    --------
         Total current assets                                                         26,973      29,800
                                                                                    --------    --------


Property and equipment                                                                 7,895       7,883
     Less accumulated depreciation and amortization                                   (5,322)     (5,060)
                                                                                    --------    --------
         Net property and equipment                                                    2,573       2,823
                                                                                    --------    --------

Other assets                                                                           2,565       2,748
                                                                                    --------    --------
                                                                                    $ 32,111    $ 35,371
                                                                                    ========    ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                               $    925    $  1,345
     Accrued liabilities                                                               2,574       3,118
     Accrued restructuring costs                                                       2,539       4,950
     Mortgage note payable                                                             2,181       2,182
     Current portion of capital lease obligations                                        468         458
                                                                                    --------    --------
         Total current liabilities                                                     8,687      12,053
                                                                                    --------    --------

Capital lease obligations,
     net of current portion                                                              582         714

Commitments and contingencies                                                           --          --

Shareholders' equity:
     Preferred stock, $1.00  par value. Authorized 11,433,600 shares; none issued       --          --
     Common stock, $.01 par value.  Authorized 50,000,000 shares;
       issued  27,849,464 shares at September 30,
       1997 and June 30, 1997                                                            278         278
     Additional paid-in capital                                                       96,227      96,227
     Retained accumulated deficit                                                     (3,879)     (4,117)
     Less treasury stock, at cost, 13,320,500 shares at September 30,
       1997 and June 30, 1997                                                        (69,784)    (69,784)
                                                                                    --------    --------
         Total shareholders' equity                                                   22,842      22,604
                                                                                    --------    --------
                                                                                    $ 32,111    $ 35,371
                                                                                    ========    ========
</TABLE>
          See accompanying notes to consolidated financial statements.
                                       3
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 Three Months Ended September 30, 1997 and 1996
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                      September 30,
                                                                     1997      1996
                                                                     ----      ----
                                                                
<S>                                                               <C>        <C>     
Net sales                                                         $  6,725   $ 11,120
Cost of sales                                                        1,454      3,930
                                                                  --------   --------
                                                                  
         Gross profit                                                5,271      7,190
                                                                  --------   --------
                                                                  
Operating expenses:                                               
         Sales and marketing                                         2,698      7,005
         Product development                                         1,791      2,390
         General and administrative                                    657      1,438
         Restructuring costs                                          --        1,805
                                                                  --------   --------
                  Total operating expenses                           5,146     12,638
                                                                  --------   --------
                                                                  
Income (loss) from operations                                          125     (5,448)
                                                                  
Other income, net                                                      113        192
                                                                  --------   --------
                                                                  
         Income (loss) before income taxes                             238     (5,256)
                                                                  
Income tax provision (benefit)                                        --       (1,871)
                                                                  --------   --------
                                                                  
Net income (loss)                                                      238     (3,385)
                                                                  --------   --------
                                                                  
Net income (loss) per common and common                           
         equivalent share                                         $    .02   $   (.23)
                                                                  --------   --------
                                                                  
Shares used in per share calculation                                14,555     14,524
                                                                  --------   --------
</TABLE>
          See accompanying notes to consolidated financial statements.
                                       4
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                                          September 30,
                                                               -----------------------------------
                                                                      1997          1996
                                                                      ----          -----
                                                                   (unaudited)
<S>                                                                 <C>           <C>      
Cash flows from operating activities:
     Net income (loss):                                             $    238      $ (3,385)
     Adjustments to reconcile net income (loss) to net
       cash provided by (used in) operating activities:
         Depreciation and amortization                                   499           718
         Deferred income taxes                                          --          (1,871)
         (Gain) Loss from disposition of property, net                    12            (1)
         Change in accounts receivable and inventory allowances       (1,982)       (1,718)
         Tax benefit of disqualifying dispositions                      --              14
      Changes in assets and liabilities,
         Receivables
             Trade accounts                                            2,776         4,482
             Income taxes                                               --             929
             Notes and other                                              62           530
         Inventories                                                     447           206
         Prepaid expenses                                                144          (504)
         Accounts payable and accrued liabilities                       (964)        1,861
         Accrued restructuring costs                                  (2,411)         --
         Income taxes payable                                           --            (127)
         Other assets                                                   --             (67)
                                                                    --------      --------
            Total adjustments                                         (1,417)        4,452
                                                                    --------      --------

            Net cash provided by (used in) operating activities       (1,179)        1,067
                                                                    --------      --------

Cash flows from investing activities:
     Proceeds from sale of property and equipment                         26            13
     Purchases of property and equipment                                 (61)         (550)
                                                                    --------      --------

            Net cash (used in) investing activities                      (35)         (537)
                                                                    --------      --------

Cash flows from financing activities:
     Proceeds from exercise of stock options                            --              23
     Principal payments on long term debt                               (122)          (26)
                                                                    --------      --------

            Net cash (used in) financing activities                     (122)           (3)
                                                                    --------      --------
Net increase (decrease) in cash and cash equivalents                  (1,336)          527
Cash and cash equivalents at beginning of period                      14,673        15,325
                                                                    --------      --------

Cash and cash equivalents at end of period                            13,337        15,852
                                                                    --------      --------
</TABLE>
           See accompanying notes to consolidated financial statements
                                       5
<PAGE>
                         Artisoft, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)      Basis of Presentation

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

         The accompanying  unaudited consolidated financial statements have been
prepared  by the  Company  in  accordance  with  generally  accepted  accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management,  the accompanying financial statements
include all adjustments (of a normal recurring nature) which are necessary for a
fair  presentation of the financial  results for the interim periods  presented.
Certain  information  and footnote  disclosures  normally  included in financial
statements   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations.  Although the Company believes that the disclosures are adequate to
make the  information  presented  not  misleading,  it is  suggested  that these
financial  statements be read in  conjunction  with the  consolidated  financial
statements and the notes thereto included in the Company's 1997 Annual Report on
Form 10-K.  The results of operations  for the three months ended  September 30,
1997 are not  necessarily  indicative of the results to be expected for the full
year.


(2)      Computation of Net Income Per Share

         Net income per common and common equivalent share is computed using the
weighted average number of common shares and dilutive common  equivalent  shares
outstanding during the period.



(3)      Restructuring Cost

         The  accrued  restructuring  costs  in  the  accompanying  consolidated
balance sheet at September 30, 1997 include the costs of:  involuntary  employee
termination  benefits,  international  sales and  support  office  closures  and
related costs  associated  with the  restructuring  actions  effected during the
fiscal  year  ended  June  30,  1997.  Employee   termination  benefits  include
severance,  wage continuation,  notice pay and medical and other benefits. Other
costs associated with the restructuring  include international sales and support
office closures and related costs of premise and other lease terminations, legal
and other professional fees.

The accrued restructuring costs at September 30, 1997 principally consist of the
following:
                                       6
<PAGE>
<TABLE>
<CAPTION>
                              Employee Termination                                     Total Accrued
                                    Benefits            Office Closure Costs        Restructuring Costs
                                    --------            --------------------        -------------------
<S>                                <C>                        <C>                       <C>       
Balance at June 30, 1997           $4,200,000                 $750,000                  $4,950,000

Cash paid for employee
termination benefits               (1,859,000)                     -                    (1,859,000)

Cash paid for office closure costs        -                   (415,000)                   (415,000)

Reduction in estimate of
future restructuring costs           (137,000)                     -                      (137,000)
                                   ----------                 --------                  ----------
        
Balance at September 30, 1997      $2,204,000                 $335,000                  $2,539,000
                                   ----------                 --------                  ----------
</TABLE>


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



(5)      Inventories

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


                                              September 30,    June 30,
                                                  1997           1997
                                                  ----           ----

              Raw materials                     $  1,024       $  1,088
              Work-in-process                        233            261
              Finished goods                         880          1,236
                                                --------       --------
                                                   2,137          2,585
              Inventory allowances                  (351)          (725)
                                                --------       --------
                                                $  1,786       $  1,860
                                                ========       ========
                                             
                                       7
<PAGE>
(6)      Property and Equipment

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

                                            September 30,          June 30,
                                               1997                 1997
                                               ----                 ----

Land                                         $    -              $     -
Buildings and improvements                        -                    -
Furniture and fixtures                           892                  892
Computers and other equipment                  6,941                6,929
Leasehold improvements                            62                   62
                                             -------              -------
                                               7,895                7,883
Accumulated depreciation and
amortization                                  (5,322)              (5,060)
                                             -------              -------
                                             $ 2,573              $ 2,823
                                             =======              =======


         As more fully described in Note 3, the restructuring  actions commenced
in June 1997  included a relocation  of the  Company's  Tucson  operations  to a
smaller  facility in October  1997 and the closure of a number of  international
sales  and  support  offices.  Property  and  equipment  held  for  sale  in the
accompanying  September 30, 1997 consolidated  balance sheet is comprised of the
expected net realizable value of excess furniture and equipment and the net book
values of the Tucson land and buildings and improvements.

On October  31,  1997 the escrow on the sale of the  Company's  Tucson  land and
buildings and  improvements  closed.  The Company  realized net cash proceeds of
$1.6 million and an associated net gain of approximately $1.3 million.

(7)      Other Assets

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

                                                         September 30,  June 30,
                                                             1997         1997
                                                             ----         ----

         Trademarks and patents, net of
             accumulated amortization of $50 and $44       $    75      $    80
         Purchased technology, net of
             accumulated amortization of $1,157 and $984     2,298        2,471
         Recoverable deposits and other                        192          197
                                                           -------      -------
                                                           $ 2,565      $ 2,748
                                                           =======      =======


(8)      Subsequent Event

         On  September  30, 1997 William C. Keiper  resigned as Chief  Executive
Officer  of the  Company.  The  Company  paid Mr.  Keiper  severance  and  other
performance related benefits of $681,000 on October 1, 1997.
                                       8
<PAGE>
                         Artisoft, Inc. and Subsidiaries

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

Results of Operations


                  Net  Sales.  The  Company's  net sales for the  quarter  ended
September 30, 1997 were $6.7 million,  a decrease of 40% from net sales of $11.1
million for the corresponding  quarter of fiscal 1997. Net sales for the quarter
ended September 30, 1997 increased 56% from the previous  quarter's net sales of
$4.3 million. The decrease in net sales as compared to the corresponding quarter
in fiscal  1997 was  principally  due to the  decline in sales of the  Company's
LANtastic network operating system(NOS) products. The sequential increase in net
sales as compared to the previous quarter's net sales was principally the result
of the effect of channel  inventory  reserves  recorded during the quarter ended
June 30, 1997. Also contributing to the increase in net sales was the release of
Visual Voice Pro 4.0 in August 1997.

         The Company distributes its products in both the U.S. and international
markets.  U.S.  sales  decreased  35% to $5.1 million (76% of net sales) for the
quarter ended September 30, 1997, from $7.9 million (71% of net sales),  for the
same quarter a year ago.  The  decrease in U.S. net sales for the quarter  ended
September  30,  1997,  as compared to the  corresponding  period in fiscal 1997,
primarily  resulted  from the decline in sales of LANtastic  NOS products in the
U.S.  distribution channels and actions taken during the quarter ended September
30,  1997  to  maintain  U.S.   distribution  channel  inventories  at  a  level
commensurate with U.S. sell through levels partially offset by increases in U.S.
sales of the Company's computer telephony products.

         International  sales  decreased 50% to $1.6 million (24% of net sales),
for the quarter ended  September 30, 1997, from $3.2 million (29% of net sales),
for the same quarter a year ago. The decrease in international net sales for the
quarter ended  September 30, 1997,  as compared to the  corresponding  period in
fiscal  1997,  primarily  resulted  from the decline in sales of  LANtastic  NOS
products  in Europe,  offset to a minor  extent by sales of new  products.  Also
contributing to the decline in international sales was the closure of several of
the  Company's  international  sales  and  support  offices  and  the  attendant
disruption to customer relationships.

         Gross  Profit.  The  Company's  gross  profit was $5.3 million and $7.2
million for the quarters ended  September 30, 1997 and 1996,  respectively  (79%
and 65% of net sales,  respectively).  The net decrease in aggregate  dollars of
gross profit margin for the quarter ended September 30, 1997, as compared to the
corresponding  period in fiscal 1997, was primarily the result of the decline in
net  sales.  The  increase  in gross  profit  margin  percentage  was due to the
following  factors:  cost  efficiencies  achieved at the Company's  distribution
center due to the restructuring  actions taken during the quarter ended June 30,
1997,  decreased  software  licensing  fees and  product  translation  costs and
increased  sales of higher  margin  software-only  content  products  during the
quarter  ended  September  30, 1997.  Gross profit  margins may  fluctuate  from
quarter to quarter due to changes in net sales, product mix, pricing actions and
changes in sales and inventory allowances.

         Sales and Marketing. Sales and marketing expenses were $2.7 million and
$7.0 million for the quarters ended  September 30, 1997 and 1996,  respectively,
(40% and 63% of net sales,  respectively).  The decrease in sales and  marketing
expenses  in both  aggregate  dollars and as a  percentage  of net sales for the
quarter  ended  September 30, 1997 as compared to the  corresponding  quarter in
fiscal 1997, is principally due to the cost efficiencies  achieved following the
termination of sales,  marketing and support  personnel during the quarter ended
June  30,  1997.   In  addition,   the  closure  of  several  of  the  Company's
international sales and support offices contributed to the decrease in sales and
marketing expenses.
                                       9
<PAGE>
         Product Development. Product development expenses were $1.8 million and
$2.4 million for the quarters ended  September 30, 1997 and 1996,  respectively,
(27% and 21% of net sales, respectively).  The decrease in aggregate dollars for
product  development  expenses  for the  quarter  ended  September  30,  1997 as
compared to the corresponding quarter in fiscal 1997 is principally attributable
to certain  restructuring  actions  taken during the quarter ended June 30, 1997
which reduced  product  development  staffing  levels at the  Company's  Tucson,
Arizona  headquarters.  The  increase  in  product  development  expenses  as  a
percentage of net sales for the quarter ended  September 30, 1997 as compared to
the  corresponding  quarter in fiscal 1997 is due principally to the addition of
product  development  personnel in the computer  telephony and PC communications
segments,  both in  connection  with  the  acquisitions  of the  three  software
companies in fiscal 1996 and subsequent  thereto the expansion and  acceleration
of  development  efforts in those  segments.  The reduction in net sales for the
quarter  ended  September 30, 1997 as compared to the  corresponding  quarter in
fiscal 1997 also contributed to the increase in product development  expenses as
a percentage of net sales.

         General and  Administrative.  General and administrative  expenses were
$.7 million and $1.4 million for the quarters ended September 30, 1997 and 1996,
respectively,  (10%  and  13% of  net  sales,  respectively).  The  decrease  in
aggregate dollars for general and administrative  expenses for the quarter ended
September 30, 1997, as compared to the  corresponding  quarter in fiscal 1997 is
principally  attributable to reductions in personnel effected during the quarter
ended September 30, 1996 and additional cost reductions achieved in the quarters
ended March 31, 1997 and June 30, 1997  resulting  from  further  administrative
staff  reductions  The  decrease  in general  and  administrative  expenses as a
percentage of net sales for the quarter ended September 30, 1997, as compared to
the  corresponding  quarter in fiscal  1997,  is  principally  the result of the
aforementioned  administrative  staffing  reductions  partially  offset  by  the
reduction in net sales.

         Restructuring  Cost.  During the  quarter  ended  September  30,  1996,
primarily in response to lower than  expected  sales of  LANtastic  NOS products
during the quarter and  attendant  uncertainty  as to future sales levels of NOS
products,  the Company elected to take two principal actions;  first, to realign
the  resources  of the  Company to  accelerate  the  development,  delivery  and
customer  adoption of new computer  telephony and  communications  products and,
second,  to  reduce  the  Company's  operating  expenses.   The  effect  of  the
realignment  was to increase the Company's  investment  in product  development,
marketing  and channel  development  in the high growth  computer  telephony and
communications  segments of the  business  and  thereby  bring more focus to the
delivery  of  products  in  these  areas,  as  well  as  to  support  continuing
differentiation  for LANtastic in the future.  The restructuring  costs recorded
for the quarter ended September 30, 1996 was $1.8 million.

         Other  Income,  Net. For the quarter ended  September  30, 1997,  other
income, net, decreased to $113,000,  from $192,000 in the corresponding  quarter
of fiscal 1997. The decrease for the quarter ended September 30, 1997,  resulted
principally  from interest  expense  incurred during the quarter ended September
30, 1997 due primarily to a $1.4 million  sale-leaseback  of computer  equipment
and related software in December 1996. Additionally,  the Company entered into a
$2.2 million mortgage loan transaction in February 1997.

         Income Tax Provision (Benefit). The Company's effective income tax rate
for the quarter ended  September 30, 1997,  was 0% compared to an effective rate
of (36%) in the  corresponding  quarter  of fiscal  1997.  The  Company  did not
recognize  tax  expense  for the  quarter  ended  September  30, 1997 due to the
carryforward of federal and state net operating losses.


Liquidity and Capital Resources

         The Company had cash and cash equivalents of $13.3 million at September
30, 1997,  compared to $14.7  million at June 30, 1997,  and working  capital of
$18.3  million at September 30, 1997 compared to $17.7 million at June 30,
                                       10
<PAGE>
1997. The decrease in cash and cash  equivalents  was  principally the result of
severance payments associated with the Company's  restructuring actions effected
during the quarter ended June 30, 1997.

         The Company funds its working capital  requirements  primarily  through
cash flows  from  operations  and  existing  cash  balances.  While the  Company
anticipates  that existing cash balances and cash flows from  operations will be
adequate to meet the  Company's  current and expected cash  requirements  for at
least the next year,  additional  investments  by the  Company  to  acquire  new
technologies  and products may necessitate that the Company seek additional debt
or equity capital.


Recent Accounting Pronouncements

     In February 1997, the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting  Standards No. 128, "Earnings per Share"(SFAS
No. 128).  This  statement  establishes  standards for computing and  presenting
earnings per share  ("EPS"),  and  supersedes  APB Opinion No. 15. The Statement
replaces  primary EPS with basic EPS and requires a dual  presentation  of basic
and diluted EPS. The Statement is effective for both interim and annual  periods
ending after December 15, 1997.  Earlier  application  is not  permitted.  After
adoption,  all prior  period EPS data shall be restated to conform to  Statement
128. The proforma effect of the Company adopting Statement 128 is that basic and
diluted EPS would have been $ .02 and $ .02 for the quarter ended  September 30,
1997 and $ (.23) and $ (.23) for the quarter ended September 30, 1996.

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

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

Risk Factors

     Competition.  The  computer  software  and  telephony  industry  is  highly
competitive and is  characterized  by rapidly  changing  technology and evolving
industry standards.  The Company's products compete with products available from
numerous  companies,   many  of  which  have  substantially  greater  financial,
technological,  production,  sales and marketing and other resources, as well as
greater name  recognition  and larger  customer  bases,  than the Company.  As a
result, these competitors may be able to respond more quickly and effectively to
new or emerging  technologies and changes in customer  requirements or to devote
greater  resources  to the  development,  promotion,  sales and support of their
products than the Company. Competition in the PC industry is likely to intensify
as current competitors expand their product lines, more features are included in
operating  systems  (e.g.,   Windows  95  and  Windows  NT),   motherboards  and
microprocessors, and as new companies enter the markets or segments in which the
Company currently competes.  The industry is also characterized by a high degree
of consolidation which favors companies with greater resources than those of the
Company.  Consequently,  the Company expects to continue to experience increased
competition,  which could result in significant price reductions, loss of market
share and lack of acceptance of new products, any of which could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  There can be no 
                                       11
<PAGE>
assurance that the Company's products will be able to compete  successfully with
other products offered presently or in the future by other vendors.

Networking

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

     Management believes that the inclusion of networking capabilities (printer,
file and  application  sharing)  in  Microsoft's  Windows  95  operating  system
(released in August 1995) has had a detrimental impact on sales of the Company's
LANtastic  NOS  products.  Windows 95 is  pre-loaded  on  virtually  all Pentium
processor-based  personal  computers  currently  sold  worldwide.  The impact of
Windows 95 has been  compounded by the dominance and  visibility of Microsoft in
the personal  computer  software market and the more rapid than expected upgrade
by small businesses to Pentium PC's. In August 1996,  Microsoft released Windows
NT 4.0,  a client  server  network  version  of the  Windows  operating  system.
Management  believes that the workstation  version of Windows NT 4.0 which, like
Windows 95, includes peer-to-peer  networking  capabilities and is pre-loaded on
Pentium PC's, has provided  significant  direct competition to the LANtastic NOS
in the small business networking market. Further, business applications software
vendors appear to be rapidly  adapting their products to Windows NT.  Management
believes  that this  trend  combined  with the fact that  DOS,  Windows  3.x and
Windows 95 clients  are  compatible  with the NT server  has  provided  and will
continue to provide substantial  competitive  pressure on sales of LANtastic NOS
products. In the spring of 1997, Microsoft released a small business server that
runs on  Microsoft NT 4.0.  This client  server  network  version of the Windows
operating system is designed to meet the buying requirements of small businesses
and could further substantially reduce opportunities for LANtastic  technologies
to add value for small business  customers.  This small business  solution could
further diminish demand for LANtastic.

     The Company expects  Microsoft to launch the Windows 98 operating system in
May 1998.  Windows  98 may have  additional  networking  features  that  further
undermine the future sales of the Company's LANtastic NOS products. In addition,
press reports  suggest that  Microsoft  will be releasing  Windows NT 5.0 in the
next 9 to 15 months.  Management  believes  that the features and  functionality
included  in the  Windows NT 5.0 client  server  network  version of the Windows
operating system,  could detrimentally impact the future sales of LANtastic NOS,
i.Share and ModemShare product lines.

     In February 1997,  Novell released a new version of its  IntranetWare  NOS,
aimed  at the  small  business  market.  The  product,  IntranetWare  for  Small
Business,  is targeted toward businesses with 25 or fewer users and priced lower
than previous NetWare versions.  There can be no assurance that the introduction
of IntranetWare  for Small Business,  along with other new products from Novell,
may not adversely affect the Company's competitive positioning and its financial
results.

     Finally,  the movement of the networking industry toward the uniform use of
Internet  technologies  in the  construction  of local area  networks (so called
Intranets)  constitutes a risk that demand for more proprietary networks such as
LANtastic,  will decline  further,  and that  competition will emerge from a new
class of players, such as Netscape Communications, Sun Microsystems, and others.
Due to the negative  impact of competition on sales of the LANtastic NOS product
line to date,  and the likely  further  decline in the  future,  the  Company is
evaluating the strategic  alternatives  which might be available to optimize the
asset value attendant to such product line.


PC Communications.
                                       12
<PAGE>
     The  principal  distribution  channel  for  the  Company's  remote  control
product,  CoSession  Remote,  is through OEM arrangements with PC manufacturers.
The Company has announced the November 1997 release of the 32-bit retail version
of  CoSession  Remote  8.1, a product  supporting  the Windows 95 and Windows NT
operating  systems.  As the Company's major  competitors  currently offer 32-bit
remote control  products,  it is critical,  for the continuance of the Company's
current OEM relationships,  that the Company successfully introduce this product
to the  marketplace.  The loss of one or more of these OEM  relationships  could
have a significant  impact on the  Company's  net sales and  operating  results.
Microsoft,  because of its  dominant  position in the PC  operating  systems and
business  applications markets,  frequently offers value-added  functionality to
its products in the form of enhancements to its Windows operating systems, which
are  pre-loaded  on new PC's, or by offering free products for download from its
World Wide Web site.  Microsoft has announced its intention to release a version
of Windows NT Server with modem  sharing  capabilities.  The  inclusion of modem
sharing  capabilities  in Windows  NT could  result in  substantially  increased
competition for the Company's  ModemShare product which could have a significant
impact on the Company's sales and operating results (see caption above entitled,
"Networking" for further discussion of Windows NT). Microsoft has also announced
its intention to include remote control components in future versions of Windows
operating systems,  and currently  distributes Net Meeting at no charge from its
Web site.  These  actions  could lead to  diminished  demand  for the  Company's
CoSession  remote  control  product,  and  consequently  decreased net sales and
operating results.

Computer Telephony.

     The market for open,  standards-based  telephony  tools,  applications  and
system-level  products is relatively new, and rapidly evolving.  There can be no
assurances  that these markets will continue to expand,  or if they do, that the
Company's products will receive widespread  acceptance.  Further, the market for
the Company's  telephony  products is  characterized  by the rapid  evolution of
telephony hardware and software  standards,  by changing customer  requirements,
and is highly  competitive  with respect to timely product  introduction.  These
characteristics   may  render  the  Company's  telephony  products  obsolete  or
unmarketable.  The Company is currently investing  significant  resources in the
development  of telephony  products.  Due to the  complexity  of these tools and
system level  products,  and the  difficulty in gauging the  engineering  effort
required to develop and bring these products to market,  the Company's  computer
telephony  product line is subject to  significant  risk.  Software  products as
complex as those  currently  under  development  by the  Company  are subject to
frequent and unpredictable delays during development.  There can be no assurance
that the Company will not encounter difficulties that could delay or prevent the
successful and timely development, introduction and marketing of these products.
Furthermore,  the  successful  development of the Company's  computer  telephony
products is dependent  to a  significant  extent upon a number of key  technical
employees and technical contractors,  the loss of one or more of whom could have
a material adverse effect upon the Company's  development  schedule.  The future
success of the Company's  computer  telephony products will depend in large part
on its ability to attract and retain talented and qualified technical personnel.

     Other  Competitive   Factors.  The  Company  believes  that  the  principal
competitive  factors  affecting the markets it serves include vendor and product
reputation, product architecture,  functionality and features, scalability, ease
of  use,  quality  of  product  and  support,  performance,  price,  brand  name
recognition and  effectiveness of sales and marketing  efforts.  There can be no
assurances  that the Company can maintain and grow its market  position  against
current and potential  competitors,  especially those with significantly greater
financial,   marketing,   service,  support,  technical  and  other  competitive
resources.  Additionally,  an integral part of the Company's  sales strategy for
the computer telephony products is the expansion into new distribution channels,
including the recruitment of new value-added  resellers and  interconnects.  Any
failure by the Company to expand its distribution channel for telephony products
or any  failure  to  maintain  and grow its  competitive  position  would have a
material adverse effect upon the Company's revenues and anticipated contribution
from its telephony product line.

     Customers.  The Company relies on a network of distributors and value-added
resellers   (VARs)  for  a   significant   portion  of  both  its  domestic  and
international  networking and PC communications product revenues. In addition, a
majority of the sales of CoSession Remote, the Company's remote control product,
are to PC OEM's. Generally, there
                                       13
<PAGE>
are no minimum purchase  requirements for the Company's  distributors,  VARs and
OEMs and many of the Company's  distributors and VARs sell competitive products.
There  can be no  assurance  that  these  customers  will give  priority  to the
marketing  of the  Company's  products  as  compared  to  competing  products or
alternative  solutions  or that  such  customers  will  continue  to  offer  the
Company's  products.  Further,  in light  of the  significant  decline  in sales
experienced  in fiscal year 1997,  there can be no assurance  that the Company's
major  domestic and  international  distributors  will  continue to purchase the
Company's products at the same levels (relative to rates of resale) or under the
same terms and conditions as in the past. In the event of the termination of the
Company's  relationship with one or more major  distributors,  the Company would
have to find suitable alternative channels of distribution.  The absence of such
alternatives  could have a material  adverse  effect on the Company's  business,
financial  condition and results of operations.  Certain of the Company's PC OEM
relationships  require  the  scheduled  delivery  of product  revisions  and new
products.  The failure to adhere to agreed-upon product delivery schedules could
result in the  termination  of key  relationships  with major PC  manufacturers,
which could have a significant  adverse impact on current and future revenues in
the PC OEM channel.

     The Company is exposed to the risk of product  returns and  rotations  from
its distributors and other volume  purchasers,  which are estimated and recorded
by the Company as a reduction in sales. Although the Company attempts to monitor
and manage the volume of its sales to distributors and other volume  purchasers,
overstocking  by these  customers  or changes  in their  inventory  policies  or
practices may require the Company to accept returns above historical  levels. In
addition,  the risk of product  returns and rotations may increase if the demand
for existing  products or new products  introduced  by the Company  proves to be
lower than anticipated.  Although the Company believes that it provides adequate
allowances  for product  returns and  rotations,  there can be no assurance that
actual product  returns and rotations will not exceed the Company's  allowances.
Any product returns and rotations in excess of recorded  allowances could result
in a material adverse effect on net sales and operating results.  As the Company
introduces  more new  products,  the  predictability  and timing of sales to end
users and the  management  of  returns  to the  Company  of unsold  products  by
distributors  and volume  purchasers  becomes  more  complex and could result in
material fluctuations in quarterly sales and operating results.

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

     Substantially  all of the Company's  revenue in each fiscal quarter results
from orders  booked in that quarter.  A significant  percentage of the Company's
bookings and sales to distributors and other volume purchasers  historically has
occurred during the last month of the quarter and are concentrated in the latter
half of that month.  Orders placed by major  customers are typically  based upon
customers'  recent  historical and forecasted  sales levels for Company products
and inventory levels of Company products desired to be maintained by those major
customers  at the time of the  orders.  Moreover,  orders may also be based upon
financial  practices  by major  customers  designed  to  increase  the return on
investment or yield on the sales of the Company's products to VARs or end-users.
Major  distribution  customers receive market development funds from the Company
for  purchasing  Company  products  and  from  time to  time  may  also  receive
negotiated cash rebates or extended terms, in accordance with industry practice,
depending upon competitive conditions.  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 rebates,  or otherwise,  or in the  Company's  ability to
anticipate  in advance  the product  mix of  customer  orders,  or to ship large
quantities  of  products  near the end of a quarter,  could  result in  material
fluctuations in quarterly operating results. Expedited outsourcing of production
and component  parts to meet  unanticipated  demand could also adversely  affect
gross margins.
                                       14
<PAGE>
     Product Concentration.  The Company has in the past derived, and may in the
future  derive,  a significant  portion of its revenues from a relatively  small
number of  products.  Declines in the  revenues  from these  software  products,
whether as a result of  competition,  technological  change,  price pressures or
other factors,  would have a material adverse effect on the Company's  business,
results of  operations  and  financial  condition.  Further,  life cycles of the
Company's products are difficult to estimate due in part to the recent emergence
of certain  of the  Company's  market,  the  effect of new  products  or product
enhancements,  technological  changes in the communication  software industry in
which  the  Company  operates  and  future  competition.  The  Company's  future
financial  performance  will  depend  in  part  on the  successful  development,
introduction  and market  acceptance  of new products and product  enhancements.
There can be no assurance  that the Company will  continue to be  successful  in
marketing its current products or any new products or product enhancements.

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

     Technological  Change.  The  communication  software  market  for  personal
computers is  characterized by rapid  technological  change,  changing  customer
needs,  frequent product  introductions  and evolving  industry  standards.  The
introduction of products incorporating new technologies and the emergence of new
industry  standards could render the Company's  existing  products  obsolete and
unmarketable.  The  Company's  future  success  will  depend upon its ability to
develop  and  introduce  new  software  products  (including  new  releases  and
enhancements) on a timely basis that keep pace with  technological  developments
and emerging industry standards and address the increasingly sophisticated needs
of its customers.  There can be no assurance that the Company will be successful
in developing and marketing new products that respond to  technological  changes
or  evolving   industry   standards,   that  the  Company  will  not  experience
difficulties   that  could   delay  or  prevent  the   successful   development,
introduction and marketing of these new products,  or that its new products will
adequately  meet  the   requirements  of  the  marketplace  and  achieve  market
acceptance.  If the Company is unable,  for  technological or other reasons,  to
develop and  introduce  new products in a timely  manner in response to changing
market conditions or customer requirements,  the Company's business,  results of
operations and financial condition would be materially adversely affected.

     Potential  for  Undetected  Errors.  Software  products as complex as those
offered by the Company may contain undetected errors.  There can be no assurance
that,  despite  testing by the Company and by current and  potential  customers,
errors  will not be found in new or  existing  products  after  commencement  of
commercial shipments,  resulting in loss of or delay in market acceptance or the
recall of such  products,  which could have a material  adverse  effect upon the
Company's business,  results of operations and financial condition.  The Company
provides  customer  support for most of its  products.  The Company  will in the
future offer new products.  If these products are flawed,  or are more difficult
to use than traditional Company products,  customer support costs could rise and
customer satisfaction levels could fall.

     Duplication of Software.  The Company duplicates nearly all of its software
at its  Tucson,  Arizona  facility.  The  Company  believes  that  its  internal
duplication  capability is economically  advantageous  because it eliminates the
profit margin required by outside  duplication sources and enables a high degree
of scheduling and other control. This concentration of production does, however,
expose the Company to the risk that  production  could be  disrupted  by natural
disaster  or other  events,  such as the  presence  of a virus in the  Company's
duplicators. The Company believes that it
                                       15
<PAGE>
could retain outside duplication alternatives quickly, but there is no assurance
that it could do so or, if such  arrangements  could be made,  that  duplication
could take place in an economical or timely manner.

     Pre-Load  Software  Market.  The Company  primarily sells its software in a
form  that  includes  a disk  or  disks  and a  manual.  Some  of its  customers
"pre-load" the Company's software onto a hard disk. These arrangements eliminate
the need for a disk and may  eliminate  the  need  for a  manual.  The  pre-load
arrangements  produce  smaller unit  revenues for the Company and  eliminate the
Company's  ability  to  generate   revenues  from  its  production   facilities.
Currently,  the Company has the capability to produce its products in-house on 3
1/2-inch  diskettes.  The Company  does not  currently  have the  capability  to
produce  CD-ROMs  and the cost to  develop  such  production  capability  may be
prohibitive.  As the size of software  programs grow,  CD-ROM is becoming a more
prominent  medium.   The  Company  currently   contracts  CD-ROM  production  to
specialized CD-ROM facilities. In the event of a shift of this kind, more of the
Company's  relationships  would involve product  pre-loads and CD-ROM production
and the Company's business,  results of operations and financial condition could
be adversely affected.

     Intellectual  Property Rights.  The Company's success is dependent upon its
software  code  base,  its  programming  methodologies  and  other  intellectual
properties.  To protect its  proprietary  technology,  the  Company  relies on a
combination of trade secret, nondisclosure and copyright and trademark law which
may afford only limited  protection.  The Company owns United  States  trademark
registrations for certain of its trademarks.  There can be no assurance that the
steps taken by the Company  will be  adequate to deter  misappropriation  of its
proprietary  information,  will 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.  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 do not protect the  Company's  proprietary  rights to as
great an extent as do the laws of the United  States.  There can be no assurance
that the Company's means of protecting its  proprietary  rights will be adequate
or that  the  Company's  competitors  will  not  independently  develop  similar
technology.  Further,  although  the  Company  believes  that its  services  and
products do not infringe on the  intellectual  property rights of others,  there
can be no assurance  that such a claim will not be asserted  against the Company
in the future. The failure of the Company to protect its proprietary information
could have a  material  adverse  effect on the  Company's  business,  results of
operations and financial condition.

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

     Litigation in the software  development industry has increasingly been used
as a competitive  tactic both by established  companies seeking to protect their
existing  position in the market and by emerging  companies  attempting  to gain
access to the market.  If the Company is  required  to defend  itself  against a
claim, whether or not meritorious, the
                                       16
<PAGE>
Company could be forced to incur substantial expense and diversion of management
attention,  and may encounter  market  confusion and  reluctance of customers to
purchase the Company's software products.

     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
communication  software  products and introduce  enhanced future  products.  The
industry is  characterized  by a high level of employee  mobility and aggressive
recruiting of skilled  personnel.  There can be no assurance  that the Company's
current employees will continue to work for the Company. Loss of services of key
employees  could  have a  material  adverse  effect on the  Company's  business,
results of operations and financial condition. In addition, the Company may need
to grant additional options and provide other forms of incentive compensation to
attract and retain key personnel.

     International Sales. The Company presently operates in foreign markets. For
the three months ended  September  30, 1997,  the Company  generated  29% of its
revenue outside of the United States. International business is subject to risks
in addition to those inherent in the Company's United States business, including
substantially  different  regulatory  requirements  in different  jurisdictions,
varying technical standards,  tariffs and trade barriers, political and economic
instability,  reduced  protection for  intellectual  property  rights in certain
countries,   difficulties  in  staffing  and  maintaining   foreign  operations,
difficulties in managing  distributors,  potentially  adverse tax  consequences,
foreign  currency  exchange  fluctuations,  the burden of complying  with a wide
variety of complex foreign laws and treaties and the possibility of difficulties
in collecting  accounts  receivable.  There can be no assurance that the Company
will be able to continue to generate significant  international sales. While the
Company does not currently accept payment in foreign currencies and invoices all
of its sales in U.S. Dollars, there can be no assurance that the Company will be
able to  continue  this  policy.  If the  Company  begins to receive  payment in
foreign  currencies,  it is  likely  to be  subjected  to the  risks of  foreign
currency  losses due to  fluctuations  in foreign  currency  exchange  rates. In
addition,  in the event the Company is successful in doing  business  outside of
the United  States,  the Company may also face  economic,  political and foreign
currency  situations  that are  substantially  more volatile than those commonly
experienced  in the United  States.  There can be no assurance that any of these
factors  will not have a  material  adverse  effect on the  Company's  business,
results of operations and financial condition.

     Potential Effect of Anti-Takeover Provisions.  The Company's Certificate of
Incorporation  and Bylaws  contain  provisions  that may  discourage  or prevent
certain types of transactions involving an actual or potential change in control
of the Company, including transactions in which the stockholders might otherwise
receive a premium for their  shares over then  current  market  prices,  and may
limit the ability of the stockholders to approve transactions that they may deem
to be in their  best  interest.  In  addition,  the Board of  Directors  has the
authority to fix the rights and preferences of shares of the Company's Preferred
Stock and to issue  such  shares,  which  may have the  effect  of  delaying  or
preventing a change in control of the Company,  without  action by the Company's
stockholders.  Certain  provisions  of Delaware law  applicable  to the Company,
including  Section 203 of the Delaware General  Corporation Law, could also have
the  effect of  delaying,  deferring  or  preventing  a change of control of the
Company.  It is possible that the  provisions in the  Company's  Certificate  of
Incorporation  and Bylaws,  the ability of the Board of  Directors  to issue the
Company's  Preferred Stock, and Section 203 of the Delaware General  Corporation
Law may have the effect of delaying, deferring or preventing a change of control
of the Company without further action by the  stockholders,  may discourage bids
for the Company's  Common Stock at a premium over the market price of the Common
Stock and may  adversely  affect  the market  price of the Common  Stock and the
voting and other rights of the holders of Common Stock.

     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
                                       17
<PAGE>
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 on orders  booked and shipped in that quarter and are
not predictable with any degree of certainty. In addition, the Company's expense
levels are based, in part, on its expectations as to future revenues. If revenue
levels are below  expectations,  operating  results  are likely to be  adversely
affected.  The  Company's  net income may be  disproportionately  affected  by a
reduction in revenues because of fixed costs related to generating its revenues.
Quarterly results in the future may be influenced by these or other factors and,
accordingly,  there may be  significant  variations in the  Company's  quarterly
operating results.  Further,  the Company's historical operating results are not
necessarily  indicative of future  performance for any particular period. Due to
all of the foregoing  factors,  it is possible  that in some future  quarter the
Company's  operating  results  may be below the  expectations  of public  market
analysts and investors.  In such event,  the price of the Company's Common Stock
would likely be materially adversely affected.

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



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

         This Form 10-Q may  contain  forward-looking  statements  that  involve
risks  and  uncertainties,   including,  but  not  limited  to,  the  impact  of
competitive  products and pricing,  product demand and market  acceptance risks,
the  presence  of  competitors  with  greater   financial   resources,   product
development and  commercialization  risks, costs associated with the integration
and  administration of acquired  operations,  capacity and supply constraints or
difficulties,  the results of financing  efforts and other risks  detailed  from
time to time in the Company's Securities and Exchange Commission filings.
                                       18
<PAGE>
                         Artisoft, Inc. and Subsidiaries
                           PART II. OTHER INFORMATION


Item 1.     LEGAL PROCEEDINGS


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

Item 2.     CHANGES IN SECURITIES

            None

Item 3.     DEFAULTS UPON SENIOR SECURITIES

            None

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

            None

Item 5.     OTHER INFORMATION

            None

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K

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

            No. 27 - Financial Data Schedule for  Form 10-Q  dated  November 14,
                     1997

(c)   Reports on Form 8-K
            The  Company  filed a report  on Form 8-K  dated  August  27,  1997,
            announcing  the  departure  of Gary R. Acord as Vice  President  and
            Chief  Financial   Officer   effective   August  28,  1997  and  the
            appointment  of the  Company's  Controller  Kirk D.  Mayes as Acting
            Principal Financial Officer.

            The Company  filed a report on Form 8-K dated  September  17,  1997,
            announcing  the  resignation of William C. Keiper as Chairman of the
            Board of Directors  effective  September 12, 1997 and resignation as
            Chief Executive  Officer  effective  September 30, 1997. The Company
            appointed  Jerry  Goldress as Chairman of the Board of Directors and
            Principal Executive Officer.
                                       19
<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:  November 14, 1997                By /s/ Jerry E. Goldress
                                          -------------------------------------
                                            Jerry E. Goldress
                                            Chairman and Principal Executive
                                            Officer






                                        By /s/ Kirk D. Mayes
                                          -------------------------------------
                                            Kirk D. Mayes
                                            Corporate Controller, Principal
                                            Accounting Officer
                                            (Acting Principal Financial Officer)
                                       20