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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, 2001

                                       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 of                               (IRS employer
        incorporation)                                    identification number)


                               5 CAMBRIDGE CENTER
                               CAMBRIDGE, MA 02142
                                 (617) 354-0600
               (Address, including zip code, and telephone number,
                      including area code, of registrant's
                          principal executive offices)

     INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO THE
FILING REQUIREMENTS FOR AT LEAST THE PAST 90 DAYS.

                                 YES [X] NO [ ]

     INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE (FEBRUARY 14, 2001)

                 COMMON STOCK, $.01 PAR VALUE: 15,782,420 SHARES

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<PAGE>
                           FORWARD-LOOKING STATEMENTS

     This Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 that are subject to a number of risks and
uncertainties. All statements, other than statements of historical fact,
included in this Quarterly Report on Form 10-Q, including statements regarding
our strategy, future operations, financial position, estimated revenues,
projected costs, prospects, plans and objectives of management, are
forward-looking statements. When used in this Quarterly Report on Form 10-Q, the
words "will", "believe", "anticipate", "intend", "estimate", "expect", "project"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. We
cannot guarantee future results, levels of activity, performance or
achievements, and you should not place undue reliance on our forward-looking
statements. Our forward-looking statements do not reflect the potential impact
of any future acquisitions, mergers, dispositions, joint ventures or strategic
alliances. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including the
risks described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Factors Affecting Operating Results, Business
Prospects and Market Price of Stock" and elsewhere in this Quarterly Report on
Form 10-Q. The forward-looking statements provided by Artisoft in this Quarterly
Report on Form 10-Q represent Artisoft's estimates as of the date this report is
filed with the SEC. We anticipate that subsequent events and developments will
cause our estimates to change. However, while we may elect to update our
forward-looking statements in the future, we specifically disclaim any
obligation to do so. Our forward-looking statements should not be relied upon as
representing our estimates as of any date subsequent to the date this report is
filed with the SEC.

                                       2
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES

                                      INDEX

                                                                            PAGE
                                                                            ----
PART I. FINANCIAL INFORMATION

  Item 1. Financial Statements

          Condensed Consolidated Balance Sheets -
            as of December 31, 2001 (Unaudited) and June 30, 2001              4

          Unaudited Condensed Consolidated Statements of Operations -
            Three and Six Months Ended December 31, 2001 and 2000              5

          Unaudited Condensed Consolidated Statements of Cash Flows -
            Six Months Ended December 31, 2001 and 2000                        6

          Notes to Unaudited Condensed Consolidated Financial Statements    7-10

  Item 2. Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                      10-20

  Item 3. Quantitative and Qualitative Disclosures about Market Risk          20

PART II. OTHER INFORMATION

  Item 1. Legal Proceedings                                                   21

  Item 2. Changes in Securities and Use of Proceeds                        21-22

  Item 3. Submission of Matters to a Vote by Security Holders                 23

  Item 4. Exhibits and Reports on Form 8-K                                    23

SIGNATURES                                                                    24

                                       3
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1. -- FINANCIAL STATEMENTS

                        ARTISOFT, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (in thousands, except per share amounts)

                                                        DECEMBER 31,   JUNE 30,
                                                           2001          2001
                                                         ---------    ---------
                                                        (UNAUDITED)
ASSETS
Current Assets:
  Cash and cash equivalents                              $   8,781    $   5,801
  Receivables:
    Trade accounts, net of allowances of $362 and $733       1,381          488
    at December 2001 and June 2001, respectively
    Other receivables                                            7           27
  Inventories                                                   93          674
  Prepaid expenses                                             226          500
                                                         ---------    ---------
     Total current assets                                   10,488        7,490
                                                         ---------    ---------
Property and equipment                                       3,371        3,331
  Less accumulated depreciation and amortization            (2,334)      (1,943)
                                                         ---------    ---------
     Net property and equipment                              1,037        1,388
                                                         ---------    ---------
Other assets                                                   254          187
                                                         ---------    ---------
                                                         $  11,779    $   9,065
                                                         =========    =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                       $     405    $     682
  Accrued liabilities                                        1,499        1,424
  Deferred revenue                                             227          168
                                                         ---------    ---------
     Total current liabilities                               2,131        2,274
                                                         ---------    ---------
Commitments and contingencies                                   --           --
Shareholders' equity:
  Preferred stock, $1.00 par value. Authorized
   11,433,600 shares; issued 2,800,000 shares
   of Series B Convertible Preferred Stock at
   December 31, 2001 and none at June 30, 2001
   (liquidation preference, subject to adjustment,
   $2.50 per share)                                          2,800           --
  Common stock, $.01 par value. Authorized
   50,000,000 shares; issued 29,102,920 shares at
   December 31, 2001 and 29,051,168 at June 30, 2001           291          291
  Additional paid-in capital                               106,377      102,318
  Accumulated deficit                                      (30,036)     (26,034)
  Less treasury stock, at cost, 13,320,500 shares at
   December 31, 2001 and June 30, 2001                     (69,784)     (69,784)
                                                         ---------    ---------
     Net Shareholders' equity                                9,648        6,791
                                                         ---------    ---------
                                                         $  11,779    $   9,065
                                                         =========    =========

          The accompanying notes are an integral part of the condensed
                       consolidated financial statements.

                                       4
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED       SIX MONTHS ENDED
                                           DECEMBER 31,            DECEMBER 31,
                                         2001        2000        2001        2000
                                       --------    --------    --------    --------
<S>                                    <C>         <C>         <C>         <C>
Net revenue:
  Product                              $  2,499    $  1,286    $  3,897    $  2,945
  Services                                   --         736          20       1,298
                                       --------    --------    --------    --------
     Total net revenue                    2,499       2,022       3,917       4,243

Cost of sales:
  Product                                   451         473         672         972
  Services                                   --         465          12         891
                                       --------    --------    --------    --------
     Total cost of sales                    451         938         684       1,863

Gross profit:
  Product                                 2,048         813       3,225       1,973
  Services                                   --         271           8         407
                                       --------    --------    --------    --------
     Total gross profit                   2,048       1,084       3,233       2,380

Operating expenses:
  Sales and marketing                     1,442       2,724       3,012       5,157
  Product development                       827         948       1,968       1,783
  General and administrative              1,136       1,320       2,380       2,585
                                       --------    --------    --------    --------
     Total operating expenses             3,405       4,992       7,360       9,525
                                       --------    --------    --------    --------

Loss from operations                     (1,357)     (3,908)     (4,127)     (7,145)

Other income, net                            67         136         125         325
                                       --------    --------    --------    --------
     Net loss                            (1,290)     (3,772)     (4,002)     (6,820)
                                       --------    --------    --------    --------
Dividend to Series B preferred stock       (387)         --      (2,766)         --

Loss applicable to common stock        $ (1,677)   $ (3,772)   $ (6,768)   $ (6,820)
                                       ========    ========    ========    ========
Net loss applicable to common
 stock-Basic and Diluted               $  (0.11)   $  (0.24)   $  (0.43)   $  (0.44)
                                       ========    ========    ========    ========
Weighted average common shares
 outstanding-Basic and Diluted           15,738      15,674      15,731      15,513
                                       ========    ========    ========    ========
</TABLE>

               The accompanying notes are an integral part of the
                  condensed consolidated financial statements.

                                       5
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)
                                   Unaudited

                                                               Six Months Ended
                                                               ----------------
                                                                 December 31,
                                                                2001      2000
                                                               ------    ------

Cash flows from operating activities:
  Net loss                                                     (4,002)   (6,820)
  Adjustments to reconcile net loss to net
   cash provided by operating activities:
   Depreciation and amortization                                  395       369
   Non-Cash changes in accounts receivable
    and inventory allowances
    Additions                                                     133        85
    Reductions                                                    (25)     (104)
   Changes in assets and liabilities:
    Receivables
    Trade accounts receivable                                    (868)      193
    Other receivables                                              20        95
     Inventories                                                  448      (340)
     Prepaid expenses                                             274      (272)
     Accounts Payable                                            (277)      (63)
     Accrued Liabilities                                           75       209
     Deferred Revenue                                              59        --
     Net assets from discontinued operations                       --     1,864
     Other assets                                                 (67)      (16)
                                                               ------    ------
       Net cash used in operating activities                   (3,835)   (4,800)
                                                               ------    ------
Cash flows from investing activities:
  Proceeds from sale of investment securities                      --     8,048
  Purchases of property and equipment                             (44)     (807)
                                                               ------    ------
       Net cash provided by (used in)
        investing activities                                      (44)    7,241
                                                               ------    ------
Cash flows from financing activities:
  Proceeds from issuance of preferred
   stock (net of issuance cost)                                 6,773        --
  Proceeds from issuance of common stock                           86       935
                                                               ------    ------
       Net cash provided by financing activities                6,859       935
                                                               ------    ------
Net increase in cash and cash equivalents                       2,980     3,376
Cash and cash equivalents at beginning of period                5,801     5,120
                                                               ------    ------
Cash and cash equivalents at end of period                      8,781     8,496
                                                               ------    ------

               The accompanying notes are an integral part of the
                  condensed consolidated financial statements.

                                       6
<PAGE>
                         ARTISOFT, INC. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        (in thousands, except percentages, shares and per share amounts)


(1) BASIS OF PRESENTATION

     Artisoft, Inc., ("Artisoft", the "Company" or the Registrant") develops,
markets and sells computer telephony software application products and
associated services.

     The Company's principal executive offices are located at 5 Cambridge
Center, Cambridge, Massachusetts 02142. The telephone number at that address is
(617) 354-0600. The Company was incorporated in November 1982 and reincorporated
by merger in Delaware in July 1991.

     The condensed consolidated financial statements include the accounts of
Artisoft, Inc., and its three wholly-owned subsidiaries. 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 accounting principles generally
accepted in the United States of America and pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). 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 Annual Report on Form 10-K for the fiscal year
ended June 30, 2001, on file with the SEC. The results of operations for the
three- and six-months ended December 31, 2001 are not necessarily indicative of
the results to be expected for the full year or any other future periods.

(2) RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, FASB issued SFAS 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS ("SFAS 143)" which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 requires an enterprise to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of a tangible
long-lived asset. SFAS 143 also requires the enterprise to record the contra to
the initial obligation as an increase to the carrying amount of the related
long-lived asset and to depreciate that cost over the remaining useful life of
the asset. The liability is changed at the end of each period to reflect the
passage of time and changes in the estimated future cash flows underlying the
initial fair value measurement. SFAS 143 is effective for fiscal years beginning
after June 15, 2002. The Company is currently examining the effect of this
pronouncement on the results of operations and financial position of the
Company, but currently believes the effect will not be material.

     In August 2001, FASB issued SFAS 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS ("SFAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS 144 retains many of the
fundamental provisions of that Statement. SFAS 144 also supersedes the
accounting and reporting provisions of Accounting Principle Board Opinion 30,
REPORTING THE RESULTS OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A
SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING
EVENTS AND TRANSACTIONS ("ABP 30"), for the disposal of a segment of a business.
However, it retains the requirement in APB 30 to report separately discontinued

                                       7
<PAGE>
operations and extends that reporting to a component of an entity that either
has been disposed of (by sale, abandonment, or in a distribution to owners) or
is classified as held for sale. SFAS 144 is effective for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years. The
Company is currently examining the effect of this pronouncement on the results
of operations and financial position of the Company, but currently believes the
effect will not be material.

(3) REVENUE RECOGNITION

     The Company follows the provisions of SOP 97-2, SOFTWARE REVENUE
RECOGNITION as amended by SOP 98-9, Modification of SOP 97-2 SOFTWARE REVENUE
RECOGNITION, with Respect to Certain Transactions. Generally, the Company
recognizes revenue when it is realized or realizable and earned. The Company
considers revenue realized or realizable and earned when persuasive evidence of
an arrangement exists, the product has been shipped or the services have been
provided to the customer, the sales price is fixed or determinable and
collectibility is reasonably assured. The Company reduces revenue for estimated
customer returns, rotations and sales rebates. Revenue from software license
agreements that have significant customizations and modifications of the
software product is deferred and recognized in a manner that approximates the
percentage of completion method. In addition to the aforementioned general
policy, the following are the specific revenue recognition policies for each
major category of revenue.

     SERVICES. Revenue from time and material service contracts is recognized as
the services are provided. Revenue from fixed price, long-term service or
development contracts is recognized over the contract term based on the
percentage of the cost of services that are provided during the period compared
with the total estimated cost of services to be provided over the entire
contract. Losses on fixed price contracts are recognized during the period in
which the loss first becomes apparent.

     PRODUCTS-SOFTWARE, NOT-FOR-RESALE KITS (NFR'S) AND HARDWARE. Revenue from
delivered elements of one-time charge licensed software is recognized at the
inception of the license term, provided the Company has vendor-specific
objective evidence of the fair value of each undelivered element. Revenue is
deferred for undelivered elements. Revenue is also deferred for the entire
arrangement if vendor-specific objective evidence does not exist for each
undelivered contract element. Examples of undelivered elements in which the
timing of delivery is uncertain include contractual elements that give customers
rights to any future upgrades at no additional charge or future maintenance that
is provided within the overall price. The revenue that is deferred for any
contract element is recognized when all of the revenue recognition criteria have
been met for that element. Revenue for annual software subscriptions is
recognized ratably over the length of the software subscription as product
revenue.

     In December 1999, the Company executed a strategic partnership with Intel
Corporation ("Intel"). Under the terms of the agreement, the Company was
required to provide Intel with a software-based phone switch, voice mail and
auto attendant applications that are compatible with Intel's softswitch
framework and CT Media platform. In May 2001, Artisoft announced the release of
these applications, called TeleVantage CTM Suite. TeleVantage CTM Suite is being
loaded on certain configurations of the Intel Converged Communications Platform,
an open standards-based application ready platform that will support a broad
range of compatible telephone and business applications, peripherals, and
services from multiple vendors on a single system. The Company delivered this
product to Intel in May 2001, and Intel began shipping the applications in
August 2001. The Company completed the recognition of revenue associated with
this fixed price arrangement in the quarter ended September 30, 2001.

     In January 2000, the Company executed a strategic partnership agreement
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. TeleVantage 4.0
represents the results of a 1-1/2 year joint-engineering project with TOSHIBA to
integrate TeleVantage with TOSHIBA digital handsets. Through an Original
Equipment Manufacturer "OEM" arrangement with Artisoft, TOSHIBA is marketing
TeleVantage 4.0 under the Strata CS brand, which is being distributed and
supported through TOSHIBA's established dealer channel. Under the terms of the

                                       8
<PAGE>
agreement, TOSHIBA will purchase licenses of TeleVantage for customized versions
of the software product to be integrated with its digital handsets and
communications server product offerings. The costs associated with this
customization have been incurred and reported as an element of cost of sales as
part of this development agreement. At the end of September 2001 and upon
completion of the development portion of this arrangement, we began to account
for product shipped to TOSHIBA as product sales.

(4) COMPUTATION OF NET LOSS PER SHARE

     Net loss per share-basic and diluted are based upon the weighted average
number of common shares outstanding. Common equivalent shares, consisting of
outstanding stock options, convertible preferred shares and warrants to purchase
common stock are included in the diluted per share calculations where the effect
of their inclusion would be dilutive.

     A reconciliation of basic and diluted weighted average common shares is as
follows: (in thousands)

<TABLE>
<CAPTION>
                                                           Three Months ended      Six Months ended
                                                              December 31,            December 31,
                                                             2001     2000           2001     2000
                                                            ------   ------         ------   ------
<S>                                                         <C>      <C>            <C>      <C>
Weighted average shares-basic                               15,738   15,674         15,731   15,513

Net effect of dilutive potential common shares
outstanding based on Treasury stock method using
average market price                                            --       --             --       --
                                                            ------   ------         ------   ------
Weighted average common shares diluted                      15,738   15,674         15,731   15,513
                                                            ======   ======         ======   ======
Antidilutive potential common shares
excluded from the computation above                          4,360      198          3,001      381
                                                            ======   ======         ======   ======
</TABLE>

(5) SERIES B CONVERTIBLE PREFERRED STOCK

     On August 8, 2001, the Company entered into a definitive agreement for a $7
million private placement financing to issue an aggregate of 2,800,000 shares of
its Series B Convertible Preferred Stock ("Series B Preferred"). $3.9 million of
the financing, or 1,560,000 shares of Series B Preferred was received on August
8, 2001. The remaining $3.1 million or 1,240,000 shares of Series B Preferred
received shareholder approval at the Annual Meeting of Shareholders held on
November 8, 2001 and the net proceeds were received on November 14, 2001. Under
the terms of the agreement, the Company issued 1,560,000 shares and 1,240,000
shares of Series B Preferred at a per share price of $2.50 on August 8, 2001 and
November 14, 2001 respectively. At the election at any time of the holder
thereof, each share of Series B Preferred can initially be converted into one
share of the Company's common stock, subject to adjustment in certain events.
Under certain circumstances, the Company has the right to effect the automatic
conversion of the Series B Preferred to common stock in the event the closing
per share bid price of the common stock exceeds $5.00 per share for 30
consecutive trading days. The holders of the Series B Preferred, as a class, are
entitled to elect up to two directors of the Company and have a preference in
liquidation over the common shareholders. The shares of Series B Preferred are
entitled to receive dividends only when and if declared by the Board of
Directors of the Company.

     In addition, pursuant to agreement for the financing, the Company issued to
the holders of the Series B Preferred, warrants to purchase up to 1,560,000 and
1,240,000 shares of the Company's common stock on August 8, 2001 and November
14, 2001, respectively. The warrants expire on September 30, 2006 and are
exercisable at a per share price of $3.75. The warrants have a call provision
that provides that if the closing per share bid price of the common stock
exceeds $7.50 per share for 30 consecutive trading days and certain other
conditions are met, the Company has the right to require the warrant holders to

                                       9
<PAGE>
exercise their warrants for common stock. Both the per share exercise price and
the number of shares issuable upon exercise of the warrants are subject to
adjustment in certain events.

     The fair market value of the warrants issued on August 8, 2001, as
calculated using a Black Sholes pricing model, was estimated at $3.7 million and
was recorded as a credit to additional paid-in capital. The value of the
beneficial conversion feature embedded in the outstanding shares of Series B
Preferred was estimated to be $2.4 million and was recorded as an immediate
non-cash dividend to the Series B Preferred stockholders with a corresponding
credit to additional paid-in-capital. This dividend, which represents a purchase
discount to the Series B Preferred stockholders for shares that may be converted
into common shares, was included in the computation of the loss available to
common stockholders and in the loss per share in the quarter ended September 30,
2001. The excess of the aggregate fair value of the beneficial conversion
feature over the proceeds received amounted to $1 million and it was not
reflected in the results of operations or financial position of the Company at
September 30, 2001.

     The fair market value of the warrants issued on November 14, 2001, as
calculated using a Black Sholes pricing model, was estimated at $1.2 million and
was recorded as a credit to additional paid-in capital. The value of the
beneficial conversion feature embedded in the outstanding shares of Series B
Preferred was estimated to be $.4 million and was recorded as an immediate
non-cash dividend to the Series B Preferred Stockholders with a corresponding a
credit to additional paid-in-capital. The dividend, which represents a purchase
discount to the preferred shareholders for shares that may be converted into
common shares, was included in the computation of the loss available to common
stockholders and in the loss per share in the quarter ended December 31, 2001.

ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

     You should read the following discussion together with the condensed
consolidated financial statements and related notes appearing elsewhere in this
Quarterly Report on Form 10-Q. This Item contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities and Exchange Act of 1934 that involve risks and uncertainties.
Actual results may differ materially from those included in such forward-looking
statements. Factors which could cause actual results to differ materially
include those set forth under "Factors Affecting Operating Results, Business
Prospects and Market Price of Stock" commencing on page 15, as well as those
otherwise discussed in this section and elsewhere in this Quarterly Report on
Form 10-Q. See "Forward-Looking Statements".

RESULTS OF OPERATIONS

NET REVENUES

TOTAL. Total net revenue increased 23.6% to $2.5 million for the quarter ended
December 31, 2001 from $2.0 million for the quarter ended December 31, 2000.
Total net revenue decreased 7.7% to $3.9 million for the six months ended
December 31, 2001 from $4.2 million for the six months ended December 31, 2000.

PRODUCT. Net product revenue increased 94.3% to $2.5 million for the quarter
ended December 31, 2001 from $1.3 million for the quarter ended December 31,
2000. The increase in net product revenues for the quarter ended December 31,
2001 as compared to the quarter ended December 31, 2000 was due primarily to
revenue of $.9 million from an OEM customer (Toshiba) in fulfillment of their
semiannual commitment under the OEM agreement and a 30.6% increase from $1.2
million to $1.6 million in TeleVantage revenue sold through our VAR channel. Net
product revenue increased 32.3% to $3.9 million from $2.9 million for the six
months ended December 31, 2001 and 2000 respectively. The increase was primarily
due to $1.0 million of revenue received from the OEM customer referred to above
and a 9.4% increase from $2.6 million to $2.9 million in TeleVantage revenue
sold through our VAR channel. In addition for the three and six month periods
ending December 31, 2001 there was a 75,000 and $.3 million decrease

                                       10
<PAGE>
respectively in net product revenue related primarily to discontinued sales of
the Company's Visual Voice product line.

On January 24, 2002 the Company announced that it would no longer sell Dialogic
voice processing hardware, which was sold primarily as part of Not For Resale
Kits purchased by new dealers. The dealers will now purchase this hardware
through distributors. Revenue for the quarter ended December 31, 2001 included
approximately $.3 million attributable to hardware. The Company has experienced
nominal gross profit margins on these products and we expect that there will be
no material effect on gross profit and a positive impact on the gross margin
percentage as a result of discontinuing these sales. The quarterly revenue from
these hardware sales have fluctuated in the range of $.2 million to $.4 million.

     SERVICES. The Company recorded no service revenue for the quarter ended
December 31, 2001 compared with revenue of $.7 million for the quarter ended
December 31, 2000. The decrease was primarily the result of the completion of
the Company's development obligations under its agreement with Intel Corporation
at the end of September 2001 whereby the Company was required to provide Intel
with a software-based phone switch that is compatible with Intel's CT Media
Platform. The Company recognized service revenue associated with this
development project of $.3 million during the quarter ended December 31, 2000.
Additionally, the Company recognized $.4 in service revenue from its OEM
agreement with Toshiba America Information Systems during the quarter ended
December 31, 2000. The Toshiba customer agreement shifted from a development
services to a product contract at the end of September 30, 2001. For the
six-month period ended December 31, 2001 the Company recorded $20,000 of service
revenue from Intel and zero service revenue from Toshiba. For the comparable
period last year, total service revenue was $1.3 million including $.7 million
from Intel and $.6 million from Toshiba.

     The Company distributes its products internationally. International product
sales represented 8.8% and 10.1% of net revenue for the quarters ended December
31, 2001 and 2000, respectively. International net revenue was $.2 million for
the quarter ended December 31, 2001and 2000 respectively. For the six-month
periods ending December 31, 2001 and 2000 international sales were 6.1% and
13.9% of net revenue respectively. International revenue decreased 59.0% to $.2
million in the six month period ended December 31, 2001 from $.6 million for the
six-month period ended December 31, 2000. Aggregate international net sales can
be expected to change as the Company's distribution of its TeleVantage products
develops.

GROSS PROFIT

     PRODUCT. The Company's gross profit from net product revenue was $2.0
million and $.8 million for the quarters ended December 31, 2001 and 2000 or
82.0% and 63.2% of net product revenue, respectively. Gross profit for the
quarter ended December 31, 2001 includes a charge of $125,000 for the write-
down of inventory associated with the discontinuance of the sale of hardware
referred to above. The Company's gross profit from net product revenue was $3.2
million and $2.0 million for the six-month periods ended December 31, 2001 and
2000 or 82.8% and 67.0% of product net revenue respectively. The increase in
gross profit percentage and aggregate dollars in the quarter and six months
ended December 31, 2001 compared with the quarter and six months ended December
31, 2000 was due primarily to higher TeleVantage revenue coupled with a decrease
in the percentage of revenue derived from lower margin Not for Resale Kits
(NFR'S) and Dialogic add-on hardware. Also, gross margins were favorably
impacted for the quarter and six months ended December 31, 2001 because of the
discontinuation of a Microsoft SQL server licensing agreement effective December
31, 2000. Gross profit may fluctuate on a quarterly basis because of sales mix,
pricing actions and changes in sales allowances.

     SERVICES. The Company had no service revenues for the quarter ended
December 31, 2001. Gross profit from net service revenue for the quarter ended
December 31, 2000 was $ .3 million or 37.0%. The Company's gross profit from net
services revenue was $8,000 and $.4 million for the six month periods ended
December 31,2001 and 2000 or 40% and 31.4% respectively. The level of gross
profit dollars and percentage is related to the development effort necessary to
complete the project. (see above discussion of decrease in net service revenue)

                                       11
<PAGE>
SALES AND MARKETING

     Sales and marketing expenses were $1.4 million and $2.7 million for the
quarters ended December 31, 2001 and 2000, respectively, representing 57.7% and
134.7% of net revenue, respectively. Sales and marketing expenses were $3.0
million and $5.2 million for the six months ended December 31, 2001 and 2000
respectively, representing 76.9% and 121.5% of net revenue respectively. The
decrease in sales and marketing expenses in aggregate dollars and as a
percentage of net revenue for the quarter and six month period ended December
31, 2001 as compared to the quarter and six month period ended December 31, 2000
was due primarily to a restructuring in personnel costs as a result of workforce
reductions implemented in April 2001 and September 2001 and a reduction in
marketing program expenses.

PRODUCT DEVELOPMENT

     Product development expenses were $.8 million and $.9 million for the
quarters ended December 31, 2001 and 2000, respectively, representing 33.1% and
46.9% of net revenue, respectively. Product development expense were $2.0
million and $1.8 million for the six months ended December 31, 2001 and 2000
respectively, representing 50.2% and 42.0% of net revenue respectively. For the
quarter ended December 31, 2000 approximately $.5 million of development costs
were classified to cost of sales. These costs were associated with the Intel and
Toshiba development projects which were completed in the September 2001 quarter,
therefore, no development expense is reflected in cost of sales for the quarter
ended December 31, 2001. Development costs classified to cost of sales were
$12,000 and $.9 million for the six months ended December 31, 2001 and 2000
respectively. The Company reduced its development personnel headcount in
September 2001 to reflect the completion of the Intel and Toshiba developments
referred to above. The Company believes that continued development and
introduction of new versions of TeleVantage to the market in a timely manner is
critical to its future success.

GENERAL AND ADMINISTRATIVE

     General and administrative expenses were $1.1 million and $1.3 million for
the quarters ended December 31, 2001 and 2000, respectively, representing 45.5%
and 65.3% of net revenue, respectively. General and administrative expenses were
$2.4 million and $2.6 million for the six months ended December 31, 2001 and
2000, respectively, representing 60.8% and 60.9% of net revenue respectively.
The decrease in general and administrative expenses in aggregate dollars for the
quarter and six month ended December 31, 2001 as compared to the quarter and six
month ended December 31, 2000 is principally the result of reduced headcount for
administrative personnel. The decrease in general and administrative expenses as
a percentage of total net sales for the quarter ended December 31, 2001 compared
to the quarter ended December 31, 2000 is principally attributable to the
decline in expenses and an increase in net revenue. The decrease in general and
administrative expenses as a percentage of net revenue for the six month period
ended December 31, 2001 compared to the same period in 2000 is attributable to a
reduction in expenses that was greater than the reduction in net revenue.

OTHER INCOME, NET

     For the quarter ended December 31, 2001 other income net decreased to
$67,000 from $136,000 in the corresponding quarter in 2000. For the six-month
period ended December 31, 2001, other income, net decreased to $125,000 from
$325,000 in the corresponding period last year. The decrease for the quarter and
six month periods ended December 31, 2001 resulted principally from lower level
interest rates combined with lower cash and investment balances due to funding
of the operating losses incurred.

                                       12
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

     The Company had cash and cash equivalents of $8.8 million December 31, 2001
compared to $5.8 million at June 30, 2001, an increase of $3.0 million. Working
capital was $8.4 million at December 31, 2001 compared to $5.2 million at June
30, 2001, an increase of $3.2 million. The increase in cash and equivalents is
primarily a result of the gross receipt of $7 million of equity financing
received on August 8 2001 and on November 14 2001 (as discussed below) less
cashed used in operations during the quarter and six month period ended December
31, 2001. The increase in trade accounts receivable is attributable primarily to
higher revenue primarily relating to the OEM agreement with Toshiba

The Company used $3.8 million in cash balances to fund operating activities
during the six months ended December 31, 2001. The cash used in operating
activities was principally the result of the operating loss incurred, an
increase in accounts receivable due to higher revenue in the quarter ended
December 31, 2001 offset by a decrease in inventory related to the
discontinuation of sales of add-on Dialogic hardware. Cash provided by investing
activities was $6.9 million and resulted primarily from the financing discussed
below.

     On August 8, 2001, the Company entered into a definitive agreement for a $7
million private placement financing to issue an aggregate of 2,800,000 shares of
its Series B Convertible Preferred Stock ("Series B Preferred"). $3.9 million of
the financing, or 1,560,000 shares of Series B Preferred was received on August
8, 2001. The remaining $3.1 million or 1,240,000 shares of Series B Preferred
received shareholder approval at the Annual Meeting of Shareholders held on
November 8, 2001 and the net proceeds were received on November 14, 2001. Under
the terms of the agreement, the Company issued 1,560,000 shares and 1,240,000
shares of Series B Preferred at a per share price of $2.50 on August 8, 2001 and
November 14, 2001 respectively. At the election at any time of the holder
thereof, each share of Series B Preferred can initially be converted into one
share of the Company's common stock, subject to adjustment in certain events.
Under certain circumstances, the Company has the right to effect the automatic
conversion of the Series B Preferred to common stock in the event the closing
per share bid price of the common stock exceeds $5.00 per share for 30
consecutive trading days. The holders of the Series B Preferred, as a class, are
entitled to elect up to two directors of the Company and have a preference in
liquidation over the common shareholders. The shares of Series B Preferred are
entitled to receive dividends only when and if declared by the Board of
Directors of the Company.

     In addition, pursuant to agreement for the financing, the Company issued to
the holders of the Series B Preferred, warrants to purchase up to 1,560,000 and
1,240,000 shares of the Company's common stock on August 8, 2001 and November
14, 2001, respectively. The warrants expire on September 30, 2006 and are
exercisable at a per share price of $3.75. The warrants have a call provision
that provides that if the closing per share bid price of the common stock
exceeds $7.50 per share for 30 consecutive trading days and certain other
conditions are met, the Company has the right to require the warrant holders to
exercise their warrants for common stock. Both the per share exercise price and
the number of shares issuable upon exercise of the warrants are subject to
adjustment in certain events.

     The fair market value of the warrants issued on August 8, 2001, as
calculated using a Black Sholes pricing model, was estimated at $3.7 million and
was recorded as a credit to additional paid-in capital. The value of the
beneficial conversion feature embedded in the outstanding shares of Series B
Preferred was estimated to be$2.4 million and was recorded as an immediate
non-cash dividend to the Series B Preferred stockholders with a corresponding
credit to additional paid-in-capital. This dividend, which represents a purchase
discount to the Series B Preferred stockholders for shares that may be converted
into common shares, was included in the loss available to common stockholders
and in the loss per share in the quarter ended September 30, 2001. The excess of
the aggregate fair value of the beneficial conversion feature over the proceeds
received amounted to $1.0 million was not reflected in the results of operations
or financial position of the Company at September 30, 2001.

     The fair market value of the warrants issued on November 14, 2001, as
calculated using a Black Sholes pricing model, was estimated at $1.2 million and
was recorded as a credit to additional paid-in capital. The value of the
beneficial conversion feature embedded in the outstanding shares of Series B

                                       13
<PAGE>
Preferred was estimated to be $.4 million and was recorded as an immediate
non-cash dividend to the Series B Preferred Stockholders with a corresponding a
credit to additional paid-in-capital. The dividend, which represents a purchase
discount to the preferred shareholders for shares that may be converted into
common shares, was included in the loss available to common stockholders and in
the loss per share in the quarter ended December 31, 2001.

     The Company anticipates that existing cash balances will be adequate to
fund the Company's expected cash requirements for the next twelve months,
however, industry or general economic conditions could necessitate that the
Company seek additional debt or equity capital. In addition the Company may also
from time to time seek debt or equity financing for various business reasons. In
the event the Company seeks and successfully received additional equity capital
such additional financing may result in significant shareholder dilution. There
can be no assurance that any such additional financing will be available when
needed or on acceptable terms to allow the Company to successfully achieve its
operating plan or fund future investments in its TeleVantage product line.

FUTURE RESULTS

     The Company intends to continue investing in the sales, marketing and
development of its software-based phone system, TeleVantage. The Company expects
operating expenditures for the remainder of fiscal year 2002 will be comparable
to the level of expenses incurred for the six month period ended December 31,
2001.

     The Company believes that future TeleVantage revenues will increase and
together with the reduction in operating expenses previously implemented, future
operating losses will be reduced. However, the rate at which these revenues may
increase and future operating losses may decrease will be highly dependent on
the overall telecommunications industry, the capital spending environment, the
rate of market acceptance of TeleVantage 4.0 and the success of the Company's
strategic relationships with Toshiba and Intel. The Company also anticipates
gross margin percentages to increase as its TeleVantage software revenues grow.

     Specifically, through an OEM development arrangement with Artisoft, Toshiba
is marketing TeleVantage 4.0 under the Strata CS brand, which is being
distributed and supported through Toshiba's established dealer channel. Under
the terms of the agreement, Toshiba will purchase licenses of TeleVantage for
customized versions of the software product to be integrated with its digital
handsets and communications server product offerings. Any significant delay,
cancellation, or termination of this arrangement with Toshiba will have a
material adverse effect on the Company's future results of operations. However,
any such events will be mitigated due to minimum revenue guarantees over the
life of the Company's OEM agreement with Toshiba, which expires in December
2002.

     In May 2001, Artisoft announced the first release of TeleVantage CTM Suite,
which delivers on the Company's joint engineering relationship with Intel.
TeleVantage CTM Suite is being pre-loaded on certain configurations of the Intel
Converged Communications Platform, an open, standards-based, application-ready
platform that supports a broad range of compatible telephony and business
applications, peripherals, and services from multiple vendors on a single
system. The Company delivered a final version of this product to Intel in May
2001 and has completed its development obligations under this agreement.
Although TeleVantage CTM Suite began shipping in August 2001, due to changes in
Intel release schedules, the Company expects that significant revenues from the
CTM Suite will occur in calendar year 2002. Any significant further delay or
cancellation or termination of this arrangement with Intel will have a material
adverse effect on the Company's future results of operations.

                                       14
<PAGE>
FACTORS AFFECTING OPERATING RESULTS, BUSINESS PROSPECTS AND MARKET PRICE
OF STOCK

     We caution you that the following important factors, among others, in the
future could cause our actual results to differ materially from those expressed
in forward-looking statements made by or on behalf of us in filings with the
Securities and Exchange Commission, press releases, communications with
investors and oral statements. Any or all of our forward-looking statements in
this Quarterly Report on Form 10-Q, and in any other public statements we make
may turn out to be wrong. They can be affected by inaccurate assumptions we
might make or by known or unknown risks and uncertainties. Many factors
mentioned in the discussion below are important in determining future results.
We undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make in our reports
filed with the Securities and Exchange Commission.

OUR REVENUES ARE DEPENDENT UPON SALES OF A SINGLE PRODUCT.

     Our revenues are derived from sales of a single product, TeleVantage.
TeleVantage is a relatively new product in the emerging market for
software-based phone systems and it is difficult to predict when or if sales of
TeleVantage will increase substantially or at all. We face a substantial risk
that our sales will not cover our operating expenses and that we will continue
to incur operating losses. Our business will fail if we are unable to
substantially increase our revenues from sales of TeleVantage, whether as a
result of competition, technological change, price pressures or other factors.

WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FUTURE LOSSES.

     We had operating losses for the quarter ended December 31, 2001 and in each
of the last six years, and negative cash flow from operating activities in five
out of the last six fiscal years including the quarter and six months ended
December 31, 2001. The Company intends to continue investing in the sales,
marketing and development of its software-based phone system, TeleVantage. The
Company expects operating expenditures for the remainder of fiscal year 2002 to
be lower than operating expenses incurred in the corresponding periods in fiscal
year 2001 due to headcount reductions implemented in April 2001 and September
2001. In particular, the Company anticipates reduced research and product
development expenses primarily as the result of headcount reductions implemented
in September 2001 following completion of the Company's joint development
project with Intel and Toshiba.

     However, we still expect to incur significant future operating losses and
negative cash flows. If our revenues do not increase significantly or the
reduction in our expenses is not as significant as expected, we may not achieve
profitability, on a sustained basis or at all, or generate positive cash flow in
the future and as a result our business will fail.

OUR OPERATING RESULTS VARY, MAKING FUTURE OPERATING RESULTS DIFFICULT TO
PREDICT.

     Our operating results have in the past fluctuated, and may in the future
fluctuate, from quarter to quarter, as a result of a number of factors
including, but not limited to:

*    the extent and timing of sales and operating expense increases and
     decreases;

*    changes in pricing policies or price reductions by us or our competitors;

*    variations in our sales channels or the mix of product sales;

*    the timing of new product announcements and introductions by us or our
     competitors;

*    the availability and cost of supplies;

                                       15
<PAGE>
*    the financial stability of major customers;

*    market acceptance of new products and product enhancements;

*    our ability to develop, introduce and market new products, applications and
     product enhancements;

*    our ability to control costs;

*    possible delays in the shipment of new products;

*    our success in expanding our sales and marketing programs;

*    deferrals of customer orders in anticipation of new products, product
     enhancements or operating systems;

*    changes in our strategy;

*    personnel changes; and

*    general economic factors.

     Our software products are generally shipped as orders are received and
accordingly, we have historically operated with little backlog. As a result,
sales in any quarter are dependent primarily on orders booked and shipped in
that quarter and are not predictable with any degree of certainty. Sales may
also be affected by the level of returns beyond those estimated and provided for
at any point in time. In addition, our expense levels are based, in part, on our
expectations as to future revenues. If revenue levels are below expectations,
operating results are likely to be adversely affected. Our net loss may be
disproportionately affected by a reduction in revenues because of fixed costs
related to generating our revenues. These or other factors may influence
quarterly results in the future and, accordingly, there may be significant
variations in our quarterly operating results. Our 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
our operating results may be below the expectations of public market analysts
and investors. In such event, the price of our common stock could be adversely
affected.

     The Company delivered a final version of TeleVantage CTM Suite to Intel in
May 2001 and has completed its development obligations under our agreement with
them. Although TeleVantage CTM Suite began shipping in August 2001, the Company
expects that significant revenues from the CTM Suite will occur in calendar year
2002. In addition, the Company's pricing of TeleVantage CTM Suite varies based
on configuration. There can be no guarantee that sales of Intel's Converged
Communication Platform will ship in sufficient volume or produce revenues that
meet the Company's expectations. Any significant delay or, cancellation or
termination of this arrangement with Intel will have a material adverse affect
on the Company's future results of operations.

RECENT TERRORIST ACTIVITIES AND RESULTING MILITARY AND OTHER ACTIONS COULD
ADVERSELY AFFECT OUR BUSINESS.

     Terrorist attacks in New York and Washington, D.C. in September 2001 have
disrupted commerce throughout the United States and Europe. The continued threat
of terrorism within the United States and Europe and the potential for military
action and heightened security measures in response to such threat may cause
significant disruption to commerce throughout the world. To the extent that such
disruptions result in delays or cancellations of customer orders, a general
decrease in corporate spending on information technology, or our inability to
effectively market and ship our products, our business and results of operations
could be materially and adversely affected. We are unable to predict whether the
threat of terrorism or the responses thereto will result in any long term
commercial disruptions or if such activities or responses will have any long
term material adverse effect on our business, results of operations or financial
condition.

                                       16
<PAGE>
WE MAY HAVE A NEED TO PROCURE ADDITIONAL THIRD PARTY FINANCING, BUT FINANCING
MAY NOT BE AVAILABLE WHEN NEEDED OR UPON TERMS ACCEPTABLE TO US. IF A FINANCING
IS CONSUMMATED, CURRENT STOCKHOLDERS MAY EXPERIENCE SUBSTANTIAL DILUTION OF
THEIR OWNERSHIP IN ARTISOFT.

     In the past, we have funded our continuing operations and working capital
requirements primarily through cash from operations and the sale of our
securities. In order to obtain the funds to continue our operations and meet our
working capital requirements, we may require additional equity financing or debt
financing. On August 8, 2001, we entered into a definitive agreement for a $7
million private placement financing to be conducted in two closings. $3.9
million of the financing closed on August 8, 2001 and the remaining $3.1 million
closed on November 14, 2001. We may also from time to time seek additional
equity financing or debt financing in order to fund other business initiatives,
including the acquisition of other businesses. Additional financing may place
significant limits on our financial and operating flexibility, and any future
financing could result in substantial dilution to our stockholders. There can be
no assurance that any such additional equity financing or debt financing will be
available to us when needed or on terms acceptable to us. If we are not able to
successfully obtain additional equity financing or debt financing, if needed,
the business, financial condition and results of operations of Artisoft will be
materially and adversely affected.

OUR MARKET IS HIGHLY COMPETITIVE, AND WE MAY NOT HAVE THE RESOURCES TO COMPETE
ADEQUATELY.

     The computer telephony industry is highly competitive and is characterized
by rapidly evolving industry standards. We believe that the principal
competitive factors affecting the markets we serve include:

*    vendor and product reputation;

*    product architecture, functionality and features;

*    scalability, ease of use and performance;

*    quality of product and support;

*    price;

*    brand name recognition; and

*    effectiveness of sales and marketing efforts.

     We compete with other phone system companies, many of which have
substantially greater financial, technological, production, sales and marketing
and other resources, as well as greater name recognition and larger customer
bases, than does Artisoft. As a result, these competitors may be able to respond
more quickly and effectively than can Artisoft to new or emerging technologies
and changes in customer requirements or to devote greater resources than can
Artisoft to the development, promotion, sales and support of their products. In
addition, our competitors could develop products compatible with the Intel
SoftSwitch Framework that could displace TeleVantage CTM Suite. Also, any new
product introductions by Artisoft may be subject to severe price and other
competitive pressures. Given the greater financial resources of many of our
competitors, there can be no assurance that our products will be successful or
even accepted. There can be no assurance that our products will be able to
compete successfully with other products offered presently or in the future by
other vendors.

                                       17
<PAGE>
IF SOFTWARE-BASED PHONE SYSTEMS DO NOT ACHIEVE WIDESPREAD ACCEPTANCE, WE MAY NOT
BE ABLE TO CONTINUE OUR OPERATIONS.

     Our sole product, TeleVantage, competes in the newly emerging
software-based phone system market. Software-based phone systems operate in
conjunction with and are affected by developments in other related industries.
These industries include highly developed product markets, such as personal
computers, personal computer operating systems and servers, proprietary private
branch exchanges 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 telephony.
These industries and product markets are currently undergoing rapid changes,
market evolution and consolidation. The manner, in which these industries and
products evolve, including the engineering- and market-based decisions that are
made regarding the interconnection of the products and industries, will affect
the opportunities and prospects for TeleVantage. TeleVantage competes directly
with other software-based phone system solutions as well as existing
traditional, proprietary hardware solutions offered by companies such as Avaya
Communications, Nortel Networks Corporation and Siemens Corporation. There can
be no assurance that the markets will migrate toward software-based phone system
solutions. If software-based phone systems do not achieve widespread acceptance,
sales of TeleVantage will not increase and may decline and our revenues will
suffer.

WE SELL OUR PRODUCTS THROUGH DISTRIBUTORS AND VALUE-ADDED RESELLERS, WHICH LIMIT
OUR ABILITY TO CONTROL THE TIMING OF OUR SALES, AND THIS MAKES IT DIFFICULT TO
PREDICT OUR REVENUE.

     We are exposed to the risk of product returns from our distributors and
value-added resellers, which are estimated and recorded by us as a reduction in
sales. In addition, we are exposed to the risk of fluctuations in quarterly
sales if resellers and distributors purchase and hold excessive amounts of
inventory at any time or otherwise change there purchasing patterns. Although we
monitor our reseller and distributor inventories and current and projected
levels of sales, localized overstocking may occur with TeleVantage because of
rapidly evolving market conditions. In addition, the risk of product returns may
increase if the demand for TeleVantage were to rapidly decline due to regional
economic troubles or increased competition. All of these risks are exacerbated
as TeleVantage is our sole product and the market for TeleVantage and similar
products is newly emerging. There can be no assurance that actual product
returns will not exceed our allowances for these returns. Any overstocking by
resellers or distributors or any product returns in excess of recorded
allowances could adversely affect our revenues. To the extent we may, in the
future, introduce new products, the predictability and timing of sales to end
users and the management of returns to us of unsold products by distributors and
volume purchasers may become more complex and could result in material
fluctuations in quarterly sales and operating results.

OUR MARKET IS SUBJECT TO CHANGING PREFERENCES AND TECHNOLOGICAL CHANGE; FAILURE
TO KEEP UP WITH THESE CHANGES WOULD RESULT IN OUR LOSING MARKET SHARE.

     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 our
existing products obsolete and unmarketable. Our future success will depend upon
our 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 our customers. There can be no assurance
that we will be successful in developing and marketing new computer telephony
products that respond to technological changes or evolving industry standards,
that we will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these new products, or
that our new products will adequately meet the requirements of the marketplace
and achieve market acceptance. If we were 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, our
market share would likely be reduced.

                                       18
<PAGE>
SOFTWARE ERRORS MAY SERIOUSLY HARM OUR BUSINESS AND DAMAGE OUR REPUTATION,
CAUSING LOSS OF CUSTOMERS AND REVENUES.

     Software products as complex as TeleVantage 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 TeleVantage or any new
products after commencement of commercial shipments, resulting in loss of or
delay in market acceptance or the recall of such products. We provide customer
support for most of our products. We may in the future offer new products. If
these products are flawed, or are more difficult to use than TeleVantage,
customer support costs could rise and customer satisfaction levels could fall.

WE RELY ON THIRD-PARTY TECHNOLOGY AND HARDWARE PRODUCTS; IF THIS TECHNOLOGY IS
NOT AVAILABLE OR CONTAINS UNDETECTED ERRORS, OUR BUSINESS MAY SUFFER.

     Our computer telephony software requires the availability of certain
hardware. Specifically, the TeleVantage software-based phone system operates on
voice processing boards manufactured by Intel. To the extent that these boards
become unavailable or in short supply we could experience delays in shipping
software-based phone systems to our customers, which may have a material adverse
affect on our future operating results. In addition, we are dependent on the
reliability of this hardware and to the extent the hardware has defects it will
affect the performance of our own software-based phone system. If the hardware
becomes unreliable or does not perform in a manner that is acceptable to our
customers, sales of TeleVantage could fall. Such delays or quality problems if
encountered could also cause damage to our reputation.

     TeleVantage currently runs only on Microsoft Windows NT servers. In
addition, our products use other Microsoft Corporation technologies, including
the Microsoft Data Engine (MSDE). A decline in market acceptance for Microsoft
technologies or the increased acceptance of other server technologies could
cause us to incur significant development costs and could have a material
adverse effect on our ability to market our current products. There can be no
assurance that businesses will adopt Microsoft technologies as anticipated or
will not migrate to other competing technologies that our telephony products do
not currently support. Additionally, since the operation of our software-based
phone system solution is dependent upon Microsoft technologies, there can be no
assurances that, in the event of a price increase by Microsoft, we will be able
to sell and market our software-based phone system.

     Our TeleVantage CTM Suite software operates on voice processing hardware,
computer hardware, CT Media software, and SoftSwitch Framework software
manufactured by Intel. To the extent that these technologies become unavailable
or in short supply we could experience delays in shipping TeleVantage CTM Suite
to our customers, which may have a material adverse affect on our future
operating results. In addition, we are dependent on the reliability of these
technologies and to the extent they have defects it will affect the performance
of our own software. If the Intel technologies become unreliable or do not
perform in a manner that is acceptable to our customers, sales of TeleVantage
CTM Suite could fall. Such delays or quality problems if encountered could also
cause damage to our reputation. Additionally, there can be no assurances that,
in the event of a price increase by Intel, we will be able to sell and market
our software-based phone system.

ANY FAILURE BY US TO PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OUR BUSINESS
AND COMPETITIVE POSITION.

     Our success is dependent upon our software code base, our programming
methodologies and other intellectual properties. To protect our proprietary
technology, we rely 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 us will be
adequate to deter misappropriation of our proprietary information, or to prevent
the successful assertion of an adverse claim to software utilized by us, or that
we will be able to detect unauthorized use and take effective steps to enforce
our intellectual property rights. We own United States and foreign trademark
registrations for certain of our trademarks. In selling our products, we rely
primarily on "shrink wrap" licenses that are not signed by licensees and,
therefore, may be unenforceable under the laws of some jurisdictions. In
addition, the laws of some foreign countries provide substantially less
protection to our proprietary rights than do the laws of the United States.
Trademark or patent challenges in these foreign countries could, if successful,

                                       19
<PAGE>
materially disrupt or even terminate our ability to sell our products in those
markets. There can be no assurance that our means of protecting our proprietary
rights will be adequate or that our competitors will not independently develop
similar technology. Although we believe that our services and products do not
infringe on the intellectual property rights of others, claims to that effect
have been and in the future may be asserted against us. The failure of Artisoft
to protect its proprietary property, or the infringement of its proprietary
property on the rights of others, could harm its business and competitive
position.

WE NEED QUALIFIED PERSONNEL TO MAINTAIN AND EXPAND OUR BUSINESS.

     Our future performance depends in significant part upon key technical and
senior management personnel. We are dependent on our 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 our software products and introduce enhanced future products. A high
level of employee mobility and aggressive recruiting of skilled personnel
characterize our industry. There can be no assurance that our current employees
will continue to work for us or that we will be able to hire additional
employees on a timely basis or at all. We expect to grant additional stock
options and provide other forms of incentive compensation to attract and retain
key technical and executive personnel. These additional incentives will lead to
higher compensation costs in the future and may adversely affect our future
results of operations. These difficulties could lead to higher compensation
costs and may adversely affect our future results of operations.

POSSIBLE ACQUISITIONS OR DIVESTITURES BY US INVOLVE RISKS THAT MAY HARM OUR
BUSINESS.

     From time to time, we may consider acquisitions of or alliances with other
companies that could complement our existing business, including acquisitions of
complementary product lines. Although we may periodically discuss 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
sources will be available to finance these transactions. Even if an acquisition
or alliance is consummated, there can be no assurance that we will be able to
integrate successfully acquired companies or product lines into our existing
operations, which could increase our operating expenses in the short-term.
Moreover, acquisitions by Artisoft 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 our ability to achieve profitability. Acquisitions,
alliances and divestitures involve numerous risks, such as the diversion of the
attention of our management from other business concerns, the entrance of
Artisoft 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.

ITEM 3. -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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                           PART II. OTHER INFORMATION

ITEM 1. -- LEGAL PROCEEDINGS

     Artisoft is not currently subject to any material legal proceedings. From
time to time, Artisoft is subject to various legal proceedings incidental to the
conduct of its business.

ITEM 2. -- CHANGES IN SECURITIES AND USE OF PROCEEDS

     On November 14, 2001, the Company issued to entities affiliated with
Special Situations Funds and entities affiliated with Gruber & McBaine Capital
Management, LLC an aggregate of 1,240,000 shares of Series B Convertible
Preferred Stock and warrants to purchase an aggregate of 1,240,000 shares of
Common Stock at a per share exercise price of $3.75. The aggregate offering
price for the sale of these securities was $3,100,000. No underwriters were
involved in the foregoing sale of securities. Such sale was made in reliance
upon an exemption from the registration provisions of the Securities Act set
forth in Section 4(2) thereof, relative to sales by an issuer not involving any
public offering, and the rules and regulations thereunder.

     The Company issued the above-referenced securities pursuant to a Purchase
Agreement which it entered into on August 8, 2001 with entities affiliated with
Special Situations Funds and entities affiliated with Gruber & McBaine Capital
Management, LLC. Under the Purchase Agreement, the Company agreed to issue to
such investors, in two separate closings, an aggregate of up to 2,800,000 shares
of Series B Convertible Preferred Stock at a per share purchase price of $2.50
and warrants to purchase an aggregate of up to 2,800,000 shares of Common Stock
at a per share exercise price of $3.75. On August 8, 2001, at the first closing
under the Purchase Agreement, the Company issued and sold an aggregate of
1,560,000 shares of Series B Convertible Preferred Stock and warrants to
purchase up to 1,560,0000 shares of Common Stock to entities affiliated with
Special Situations Funds. On November 14, 2001, at the second closing under the
Purchase Agreement, the Company issued and sold an aggregate of 1,240,000 shares
of Series B Convertible Preferred Stock and warrants to purchase up to 1,240,000
shares of Common Stock to entities affiliated with Special Situations Funds and
entities affiliated with Gruber & McBaine Capital Management, LLC. The
Certificate of Designation setting forth the rights, preferences and powers of
the Series B Convertible Preferred Stock was filed by the Company with the
Secretary of State of the State of Delaware and became effective on dated August
8, 2001.

     In general, shares of the Series B Convertible Preferred Stock vote on an
as-converted basis with the shares of Common Stock as the same class. The
holders of the Series B Convertible Preferred Stock, voting as a separate class,
also have the right to elect two members of the Company's board of directors. In
addition, the vote of the holders of at least a majority of the outstanding
shares of Series B Convertible Preferred Stock will generally be required for
the Company to effect certain transactions, including, without limitation, (i)
issuing additional shares of Series B Convertible Preferred Stock or stock with
rights, preferences or privileges senior to or on a parity with the Series B
Convertible Preferred Stock; (ii) amending the Company's certificate of
incorporation or by-laws or recapitalizing or reclassifying the Company's
securities so as to adversely affect or diminish the rights, preferences or
privileges of the Series B Convertible Preferred Stock; (iii) increasing the
size of the Company's board of directors to greater than nine members; (iv)
effecting certain redemptions and repurchases of the Company's capital stock;
and (v) effecting certain dividend payments on any shares of the Company's
capital stock.

     Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of shares of Series B Convertible Preferred Stock will
be entitled to be paid out of the Company's assets available for distribution
prior to any distribution to the holders of Common Stock an amount equal to
$2.50 per share (as adjusted for stock splits, stock dividends and similar
events). A merger, consolidation, change of control or sale of all or
substantially all of the Company's assets will be deemed to be a liquidation of
the Company.

     The Company may not pay any dividends or distributions on shares of Common
Stock, other than dividends payable solely in shares of Common Stock, unless the
holders of shares of Series B Convertible Preferred Stock first receive, or

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simultaneously receive, a dividend or distribution on each outstanding share of
Series B Convertible Preferred Stock equal to the product of (i) the per share
dividend or distribution to be paid for the Common Stock, multiplied by (ii) the
number of shares of Common Stock into which the Series B Preferred Stock is then
convertible.

     The holders of the Series B Convertible Preferred Stock have the right, at
any time and at their option, to convert each share of Series B Convertible
Preferred Stock into a number of shares of Common Stock determined by dividing
the then-applicable per share liquidation preference of the Series B Convertible
Preferred Stock by the then-applicable per share conversion price of the Series
B Convertible Preferred Stock. Initially, the conversion price is $2.50. The
conversion price is subject to adjustment in the case of any stock dividend,
stock split, combination, capital reorganization, reclassification, merger or
consolidation by the Company. With limited exceptions, the conversion price is
also subject to adjustment in the case of an issuance of shares of Common Stock,
or securities exercisable for or convertible into Common Stock, at a per share
price less than the conversion price then in effect. In the event that this
occurs, the conversion price will be reduced to equal the per share price of the
issued securities. In the event that the closing bid price of a share of Common
Stock as traded on the Nasdaq National Market exceeds $5.00, subject to
adjustment, for thirty consecutive trading days and all of the shares of common
stock issuable upon conversion of the Series B Convertible Preferred Stock are
registered pursuant to an effective registration statement, the Company, upon
ten days written notice to the holders of the Series B Convertible Preferred
Stock, shall have the right to effect the automatic conversion of the Series B
Convertible Preferred Stock, without any action by the holders thereof, into a
number of shares of Common Stock calculated pursuant to the terms of the Series
B Convertible Preferred Stock.

     Initially, the per share exercise price of the warrants is $3.75. The
number of shares issuable upon exercise and the per share exercise price of the
warrants are subject to adjustment in the case of any stock dividend, stock
split, combination, capital reorganization, reclassification or merger or
consolidation. Subject to limited exceptions, the per share exercise price of
the warrants is also subject to adjustment in the case of an issuance of shares
of Common Stock or securities exercisable for or convertible into Common Stock,
at a per share price less than the per share exercise price of the warrants then
in effect. In the event of such an issuance, the per share exercise price of the
warrants will be reduced to equal the per share price of such lower issuance. In
addition, the warrants may be exercised by means of a "net exercise" feature
under which the Company does not receive any cash, but rather, the number of
shares issued upon exercise is net of the number of shares withheld by the
Company in lieu of payment of the exercise price. This net exercise right is
generally limited to times when the Company is not in compliance with its
obligations relating to the registration of the shares of Common Stock
underlying the warrants for resale under the Company's registration rights
agreement with the warrant holders. The Company may, at its option, demand that
the Warrants be exercised, in the event the closing per share bid price of the
Common Stock as traded on the Nasdaq National Market exceeds $7.50 for 30
consecutive trading days and all of the shares of Common Stock underlying the
warrants are registered for resale pursuant to an effective registration
statement. The warrants will expire on September 30, 2006.

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ITEM 3. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On November 8, 2001, the Company held its 2001 Annual Meeting of
Stockholders. At the meeting, the votes cast for each matter presented to the
Company's stockholders were as follows:

1. Election of two directors to serve for the ensuing three years.

                                           For                     Withheld
                                           ---                     --------
     (i)   Michael P. Downey            14,118,309                 681,067

     (ii)  Francis E. Girard.           14,295,463                 503,913

2. Authorization of the issuance and sale pursuant to a Purchase Agreement dated
August 8, 2001 of (i) an aggregate of up to 1,240,000 shares of the Company's
Series B Preferred Stock, $1.00 par value per share (the "Series B Preferred"),
at a per share price of $2.50 which shares will initially be convertible into
shares of the Company's Common Stock. $0.01 par value per share (the "Common
Stock"), at a rate of one share of Common Stock for each share of Series B
Preferred and (ii) warrants to purchase an aggregate of up to 1,240,000 of
Common Stock at an initial per share exercise price of 3.75.

     For               Against            Abstain            Broker Non-Votes
     ---               -------            -------            ----------------
  4,559,112            809,221             47,740               9,383,303

3. Ratification of the selection of KPMG LLP as the Company's independent
accountants for the current fiscal year.

     For               Against            Abstain            Broker Non-Votes
     ---               -------            -------            ----------------
 14,729,136             39,543             30,697                       0

ITEM 4. -- EXHIBITS AND REPORTS ON FORM 8-K

     a.   Exhibits

     The Exhibits filed as part of this Quarterly Report on Form 10-Q are listed
on the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference. Documents listed on such Exhibit Index, except
for documents identified by footnotes, are being filed as exhibits herewith.
Documents identified by footnotes are not being filed herewith and, pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, reference is made to such
documents as previously filed as exhibits filed with the Securities and Exchange
Commission. Artisoft's file number under the Securities Exchange Act of 1934 is
000-19462.

     b.   Reports on Form 8-K

     On November 15, 2001, Artisoft filed a Current Report on Form 8-K dated
November 14, 2001 for the purpose of filing under Item 5 (Other Events) with the
Securities and Exchange Commission as an exhibit thereto Artisoft's press
release dated November 15, 2001 announcing that on November 14, 2001, Artisoft
completed the second phase of the $7 million preferred stock and warrant
financing announced by Artisoft on August 8, 2001.

     On January 24, 2002, Artisoft filed a Current Report on Form 8-K dated
January 24, 2002 for the purpose of filing under Item 5 (Other Events) with the
Securities and Exchange Commission as an exhibit thereto Artisoft's press
release dated January 24, 2002, announcing certain financial results for the
second quarter of the fiscal year 2002, ended December 31, 2001.

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                                   SIGNATURES

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


                                       ARTISOFT, INC.


Date:  February 14, 2002               By /s/ Steven G. Manson
                                          --------------------------------------
                                          Steven G. Manson
                                          President and Chief Executive Officer


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

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