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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 September 30, 1998

                                       OR

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

                        Commission File Number 000-19462

                                 ARTISOFT, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


        Delaware                                                86-0446453
----------------------------                              ----------------------
(State or other jurisdiction                                  (IRS employer
     of incorporation)                                    identification number)


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

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

                                    Yes [X]  No [ ]

    Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (November 6, 1998).

                 Common stock, $.01 par value: 14,708,877 shares

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<PAGE>

                         ARTISOFT INC. AND SUBSIDIARIES
                                     INDEX

                                                                       Page
                                                                       ----
PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements

             Consolidated Balance Sheets-
                September 30, 1998 and June 30, 1998                     3

             Consolidated Statements of Operations-
                Three Months Ended September 30, 1998 and 1997           4

             Consolidated Statements of Cash Flows-
                Three Months Ended September 30, 1998 and 1997           5

             Notes to Consolidated Financial Statements                6-8

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

PART II. OTHER INFORMATION

     Item 1. Legal Proceedings                                          21

     Item 2. Changes in Securities                                      21

     Item 3. Defaults Upon Senior Securities                            21

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

     Item 5. Other Information                                          21

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

SIGNATURES                                                              22

EXHIBITS

       11  Computation of Net Income Per Share                          23

       27  Financial Data Schedule                                      24

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

                                                        September 30,   June 30,
ASSETS                                                     1998           1998
                                                           ----           ----
                                                        (unaudited)
Current assets:
  Cash and cash equivalents                              $ 17,558      $ 18,514
  Receivables:
       Trade accounts, net                                  2,083         2,813
       Other receivables                                      140           279
  Inventories                                                 897           917
  Prepaid expenses                                            270           283
                                                         --------      --------
      Total current assets                                 20,948        22,806
                                                         --------      --------

Property and equipment                                      5,473         5,333
  Less accumulated depreciation and amortization           (4,319)       (4,198)
                                                         --------      --------
      Net property and equipment                            1,154         1,135
                                                         --------      --------
Other assets                                                1,468         1,567
                                                         --------      --------
                                                         $ 23,570      $ 25,508
                                                         ========      ========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                       $    984      $  1,598
  Accrued liabilities                                       1,765         1,670
  Accrued restructuring costs                                 610         1,536
  Current portion of capital lease obligations                456           464
                                                         --------      --------
      Total current liabilities                             3,815         5,268
                                                         --------      --------
Capital lease obligations,
 net of current portion                                       136           289

Commitments and contingencies                                  --            --

Shareholders' equity:
  Preferred stock, $1.00  par value. Authorized
    11,433,600 shares; none issued                             --            --
  Common stock, $.01 par value.  Authorized
    50,000,000 shares; issued 27,980,602 shares
    at September 30, 1998 and June 30, 1998                   279           279
  Additional paid-in capital                               96,486        96,486
  Accumulated deficit                                      (7,362)       (7,030)
  Less treasury stock, at cost, 13,320,500 shares
    at September 30, 1998 and June 30, 1998               (69,784)      (69,784)
                                                         --------      --------
      Total shareholders' equity                           19,619        19,951
                                                         --------      --------
                                                         $ 23,570      $ 25,508
                                                         ========      ========

          See accompanying notes to consolidated financial statements.

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


                                                            Three Months Ended
                                                               September 30,
                                                            1998          1997
                                                            ----          ----
                                                               (unaudited)

Net sales                                                $  5,094      $  6,725
Cost of sales                                               1,356         1,454
                                                         --------      --------

      Gross profit                                          3,738         5,271
                                                         --------      --------

Operating expenses:
  Sales and marketing                                       2,130         2,698
  Product development                                       1,242         1,791
  General and administrative                                  879           794
  Restructuring costs                                          --          (137)
                                                         --------      --------
      Total operating expenses                              4,251         5,146
                                                         --------      --------

Income (loss) from operations                                (513)          125

Other income, net                                             181           113
                                                         --------      --------

      Net income (loss)                                  $   (332)     $    238
                                                         ========      ========

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

Weighted average common shares outstanding                 14,660        14,555
                                                         --------      --------


          See accompanying notes to consolidated financial statements.

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

                                                             Three Months Ended
                                                               September 30,
                                                              1998       1997
                                                              ----       ----
                                                                (unaudited)
Cash flows from operating activities:
  Net income (loss)                                        $   (332)   $    238
  Adjustments to reconcile net income (loss) to net
   cash (used in) provided by operating activities:
    Depreciation and amortization                               342         499
    Gain from disposition of property, net                       --          12
    Change in accounts receivable and inventory allowances     (203)     (1,982)
  Changes in assets and liabilities:
    Receivables:
       Trade accounts                                           872       2,776
       Other receivables                                        139          62
    Inventories                                                  81         447
    Prepaid expenses                                             13         144
    Accounts payable and accrued liabilities                   (519)       (964)
    Accrued restructuring costs                                (926)     (2,411)
    Other assets                                                (43)         --
                                                           --------    --------
      Net cash used in operating activities                    (576)     (1,179)
                                                           --------    --------
Cash flows from investing activities:
  Proceeds from sale of property and equipment                    3          26
  Purchases of property and equipment                          (222)        (61)
                                                           --------    --------
      Net cash used in investing activities                    (219)        (35)
                                                           --------    --------
Cash flows from financing activities:
  Principal payments on capital lease obligations              (161)       (122)
                                                           --------    --------
      Net cash used in financing activities                    (161)       (122)
                                                           --------    --------

Net decrease in cash and cash equivalents                      (956)     (1,336)
Cash and cash equivalents at beginning of period             18,514      14,673
                                                           --------    --------
Cash and cash equivalents at end of period                 $ 17,558    $ 13,337
                                                           ========    ========

          See accompanying notes to consolidated financial statements.

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

(1) BASIS OF PRESENTATION

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

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared  by the  Company  in  accordance  with  generally  accepted  accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management,  the accompanying 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 1998 Annual Report on
Form 10-K.  The results of operations  for the three months ended  September 30,
1998 are not  necessarily  indicative of the results to be expected for the full
year.

(2)  COMPUTATION  OF  NET  INCOME  (LOSS)  PER  COMMON  AND  COMMON   EQUIVALENT
     SHARE-BASIC AND DILUTED

     Net income (loss) per common  share-basic and diluted is computed using the
weighted average number of common shares and dilutive common  equivalent  shares
outstanding during the period.

     Basic  earnings per share is computed by dividing  income  attributable  to
common  shareholders by the weighted average number of common shares outstanding
for the period.  Diluted earnings per share reflects the potential dilution that
could  occur  if  securities  or other  contracts  to issue  common  stock  were
exercised or converted into common stock that then shared in the earnings of the
Company.  In  calculating  net loss per common  share for the three month period
ended September 30, 1998,  4,132 common stock  equivalent  shares  consisting of
stock  options  have been  excluded  because  their  inclusion  would  have been
anti-dilutive.

(3) SEGMENTATION OF FINANCIAL RESULTS

     The  financial  results for the three months ended  September  30, 1998 are
summarized below by product group (in thousands):

                                    Communications Software   Computer Telephony
                                         Product Group           Product Group
                                         -------------           -------------

              Net sales                     $3,737                 $ 1,357
              Gross profit                  $2,901                 $   837
              Gross profit margin               78%                     62%
              Operating income (loss)       $1,048                 $(1,561)
              Net income (loss)             $1,229                 $(1,561)
              Capital expenditures          $    5                 $   217
              Depreciation and
              amortization expense          $  259                 $    83

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

                                       6
<PAGE>
(4) RESTRUCTURING COST

     The accrued  restructuring costs in the accompanying  consolidated  balance
sheets  at  September  30,  1998  include  the costs  of:  involuntary  employee
termination benefits for certain Communications Software Group employees,  costs
to close the Company's  United Kingdom and Iselin,  New Jersey sales and support
offices and related costs  associated with the  restructuring  actions  effected
during the fiscal  year ended June 30,  1998.  Other costs  associated  with the
restructuring include costs of office and other lease terminations and legal and
other professional fees.

     The accrued  restructuring  costs at September 30, 1998 principally consist
of the following (in thousands):
                                     Employee        Office     Total Accrued
                                   Termination      Closure     Restructuring
                                     Benefits        Costs         Costs
                                     --------        -----         -----

Balances at June 30, 1998            $   650        $   886       $ 1,536

Cash paid for employee
 termination benefits                   (595)            --          (595)

Cash paid for office                      --           (331)         (331)
 closure costs                       -------        -------       -------

Balances at September 30, 1998       $    55        $   555       $   610
                                     =======        =======       =======

(5) INVENTORIES

     Inventories  at  September  30,  1998  and  June 30,  1998  consist  of the
following (in thousands):
                                          September 30,        June 30,
                                             1998               1998
                                             ----               ----

         Raw materials                      $   839            $   938
         Work-in-process                        102                109
         Finished goods                         230                205
                                                               -------
                                              1,171              1,252
         Inventory allowances                  (274)              (335)
                                            -------            -------
                                            $   897            $   917
                                            =======            =======

(6) PROPERTY AND EQUIPMENT

     Property and  equipment at September  30, 1998 and June 30, 1998 consist of
the following (in thousands):
                                          September 30,         June 30,
                                              1998               1998
                                              ----               ----
         Furniture and fixtures             $     6            $     6
         Computers and other equipment        5,375              5,259
         Leasehold improvements                  92                 68
                                            -------            -------
                                              5,473              5,333
         Accumulated depreciation and
         amortization                        (4,319)            (4,198)
                                            -------            -------
                                            $ 1,154            $ 1,135
                                            =======            =======

                                        7
<PAGE>
(7) OTHER ASSETS

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

                                               September 30,     June 30,
                                                   1998           1998
                                                   ----           ----
         Trademarks and patents, net of
           accumulated amortization of
           $76 and $70                            $   48          $   55
         Purchased technology, net of
          accumulated amortization of
         $1,451 and $1,323                        1,260           1,387
         Recoverable deposits and other             160             125
                                                 ------          ------
                                                 $1,468          $1,567
                                                 ======          ======
(8) ACCRUED LIABILITIES

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

                                                September 30,    June 30,
                                                    1998          1998
                                                    ----          ----
         Compensation and benefits                $  440         $  799
         Payroll, sales and property taxes           408             88
         Marketing                                   364            349
         Royalties                                   398            227
         Other                                       155            207
                                                  ------         ------
                                                  $1,765         $1,670
                                                  ======         ======

                                        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, 1998
were $5.1  million,  a decrease  of 24% from net sales of $6.7  million  for the
corresponding  quarter of fiscal 1998.  The decrease in net sales as compared to
the  corresponding  quarter in fiscal 1998 was  principally  due to a decline in
sales of certain of the Company's  Communication Software Group products.  Lower
sales of the Company's  LANtastic  network  operating  system (NOS) products and
CoSession Remote products  (especially in international  markets) were the major
contributors to the overall decline in net sales.  These declines were offset to
a minor extent by increased sales of the Company's Computer Telephony products.

     The Company  distributes  its products in both the U.S.  and  international
markets.  U.S.  sales  decreased  18% to $4.2 million (82% of net sales) for the
quarter ended September 30, 1998, from $5.1 million (76% of net sales),  for the
same quarter a year ago. The decrease in aggregate U.S. net sales is principally
the result of a decline in sell through of the Company's  LANtastic NOS products
in U.S.  distribution  and retail channels  partially  offset,  by increased net
sales of the Company's Computer Telephony products.

     International  sales  decreased 44% to $.9 million (18% of net sales),  for
the quarter ended September 30, 1998, from $1.6 million (24% of net sales),  for
the same  quarter a year ago. The  decrease in  international  net sales for the
quarter ended  September 30, 1998,  as compared to the  corresponding  period in
fiscal  1998,  primarily  resulted  from a  decline  in  worldwide  sales of the
Company's  LANtastic NOS products as well as a decline in net sales of CoSession
Remote in certain international markets (especially Japan). Also contributing to
the  decline in  international  sales was the  closure of the  Company's  United
Kingdom  sales and  support  office  and the  attendant  disruption  to  certain
customer relationships.

     GROSS PROFIT.  The Company's gross profit was $3.7 million and $5.3 million
for the quarters ended September 30, 1998 and 1997, respectively (73% and 78% of
net sales, respectively).  The net decrease in aggregate dollars of gross profit
for the quarter  ended  September  30,  1998,  as compared to the  corresponding
period in fiscal 1998, was primarily the result of the decline in net sales. The
decrease in gross profit margin percentage was due to higher software  licensing
costs incurred on certain of the Company's Communication Software Group products
and increased  sales as a percentage  of total net sales of the Company's  lower
margin  computer  telephony  hardware.  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 $2.1 million and
$2.7 million for the quarters  ended  September 30, 1998 and 1997,  respectively
(41% and 40% of net sales,  respectively).  The decrease in sales and  marketing
expenses  in  aggregate  dollars  for the quarter  ended  September  30, 1998 as
compared to the corresponding  quarter in fiscal 1998, is principally due to the
cost efficiencies  achieved  following the termination of certain  Communication
Software  Group sales,  marketing and support  personnel and the  elimination of
costs associated with the Company's  Communications  Software Group Japanese and
UK sales and support offices during the quarter ended June 30, 1998.

     PRODUCT  DEVELOPMENT.  Product  development  expenses were $1.2 million and
$1.8 million for the quarters ended  September 30, 1998 and 1997,  respectively,
(24% and 27% of net sales,  respectively).  The decrease in product  development
expenses  in both  aggregate  dollars and as a  percentage  of net sales for the
quarter ended  September 30, 1998, as compared to the  corresponding  quarter in
fiscal 1998, is principally attributable to certain restructuring actions taken

                                       9
<PAGE>
during  the  quarter  ended  June 30,  1998 which  reduced  product  development
staffing levels in the Company's  Communications Software Group. The decrease in
product development expenses in the Company's  Communications Software Group was
partially  offset by increased  product  development  expenses in the  Company's
Computer Telephony Products Group.

     GENERAL AND  ADMINISTRATIVE.  General and administrative  expenses were $.9
million and $.8  million for the  quarters  ended  September  30, 1998 and 1997,
respectively (18% and 12% of net sales, respectively). The increase in aggregate
dollars for general and administrative  expenses for the quarter ended September
30,  1998,  as  compared  to  the  corresponding  quarter  in  fiscal  1998,  is
principally  attributable  to  increased  occupancy  costs  associated  with the
Company's relocation of its corporate  headquarters to Cambridge,  Massachusetts
and  increased  costs  associated  with the  addition of certain  administrative
personnel.  The increase in general and administrative  expenses as a percentage
of net sales for the  quarter  ended  September  30,  1998,  as  compared to the
corresponding  quarter  in fiscal  1998,  is  principally  the result of the 24%
reduction in net sales between the two periods.

     OTHER INCOME,  NET. For the quarter ended September 30, 1998, other income,
net, increased to $181,000, from $113,000 in the corresponding quarter of fiscal
1998. The increase for the quarter ended September 30, 1998 resulted principally
from  the  receipt  of  increased  interest  income  on the  Company's  cash and
investment balances. The Company's cash balances increased from $13.3 million at
September 30, 1997 to $17.6 million at September 30, 1998.

FUTURE RESULTS

     The Company is  currently  focusing  the  majority of its  resources on its
computer  telephony  products.  The Company  will  continue  to make  additional
investments in sales,  marketing and  development  in order to build  awareness,
market and channels for its computer telephony products.

     The  Company   intends  to  continue  to  increase  its   investments   and
expenditures in sales,  marketing and development of computer telephony products
including  TeleVantage.  There can be no assurance that the Company will be able
to market or sell such  products  successfully  or at  particular  levels within
particular  time-frames.  Accordingly,  the  Company  could  experience  a  slow
increase in computer  telephony  revenues as it attempts to build a distribution
channel and  reseller  programs  that may build  market  awareness  for computer
telephony  products.  A  slow  increase  in  the  Company's  computer  telephony
revenues,  particularly  if  combined  with  future  revenue  declines  from the
Company's  networking  and  communications  software  products,  could cause the
Company to experience losses.

     The Company's  future  results of operations  involve a number of risks and
uncertainties.  Among the  factors  that could  cause  future  results to differ
materially from historical  results are the following:  business  conditions and
general  economy;  competitive  pressures,  acceptance of new products and price
pressures; availability of third-party compatible products at reasonable prices;
risk of  nonpayment  of  accounts or notes  receivable;  risks  associated  with
foreign operations  (especially those in Japan and other Asian countries);  risk
of product  line or  inventory  obsolescence  due to shifts in  technologies  or
market demand; timing of software introductions and litigation.

LIQUIDITY AND CAPITAL RESOURCES

     The Company had cash and cash equivalents of $17.6 million at September 30,
1998,  compared to $18.5 million at June 30, 1998, and working  capital of $17.1
million at September 30, 1998  compared to $17.5  million at June 30, 1998.  The
decrease in cash and cash  equivalents  was  principally  the result of employee
termination benefit payments to certain Communications  Software Group employees
and payments  associated with the closure of the Company's  United Kingdom sales
and support office. The payments are a result of the Company's restructuring

                                       10
<PAGE>
actions effected during the quarter ended June 30, 1998. The decrease in working
capital is principally result of the  aforementioned  cash decrease along with a
decrease in accounts receivable balances.

     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 June 1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income" (SFAS No. 130). SFAS No. 130 establishes  requirements for disclosure of
comprehensive  income and becomes  effective for the Company for the year ending
June 30, 1999.  Comprehensive  income  includes  such items as foreign  currency
translation adjustments and unrealized holding gains and losses on available for
sale securities that are currently being presented by the Company as a component
of  shareholders'  equity.  The adoption of this  pronouncement  will not have a
material impact on the Company's financial results.

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

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

RISK FACTORS

GENERAL

     COMPETITION.  The  software and computer  telephony  industries  are highly
competitive and are  characterized by rapidly  changing  technology and evolving
industry  standards.  The Company competes with other software companies many of
which have substantially greater financial, technological, production, sales and
marketing and other  resources,  as well as greater name  recognition and larger
customer bases, than the Company. As a result,  these competitors may be able to
respond more quickly and effectively to new or emerging technologies and changes
in customer  requirements  or to devote  greater  resources to the  development,
promotion, sales and support of their products than the Company.  Competition in
the software industry is likely to intensify as current competitors expand their
product lines, more features are included in operating systems (e.g., Windows NT
5.0), new applications are developed,  and as new companies enter the markets or
segments in which the Company currently competes. The software industry is also

                                       11
<PAGE>
characterized  by a high degree of  consolidation  which favors  companies  with
greater resources than those of the Company.  Consequently,  the Company expects
its  products  to  experience  increased   competition  which  could  result  in
significant price reductions, loss of market share and lack of acceptance of new
products,  any of which could have a material  adverse  effect on the  Company's
business,  financial  condition  and results of  operations.  The  Company's new
product  introductions  can be  subject  to severe  price and other  competitive
pressures.  While  the  Company  endeavors  to  introduce  its  products  to the
marketplace  in a  timely  manner  there  can be no  assurances  that due to the
greater  financial  resources of the Company's  competitors  that these products
will  be  successful  or even  accepted.  There  can be no  assurance  that  the
Company's  products  will be able to compete  successfully  with other  products
offered presently or in the future by other vendors.

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

     RETURNS AND PRICE PROTECTION. The Company is exposed to the risk of product
returns and rotations from its distributors and other volume  purchasers,  which
are estimated and recorded by the Company as a reduction in sales.  Although the
Company attempts to monitor and if necessary  adjust its channel  inventories to
be consistent with current levels of sell through,  localized  overstocking  may
occur with  certain  products  due to rapidly  evolving  market  conditions.  In
addition,  the risk of product  returns and rotations may increase if the demand
for its  existing  products  should  rapidly  decline due to  regional  economic
troubles  or  increased  competition.  Although  the  Company  believes  that it
provides adequate allowances for product returns and rotations,  there can be no
assurance  that  actual  product  returns  and  rotations  will not  exceed  the
Company's  allowances.  Any product  returns and rotations in excess of recorded
allowances  could result in a material adverse effect on net sales and operating
results.  As the Company  introduces more new products,  the  predictability and
timing of sales to end users and the  management  of returns  to the  Company of
unsold products by distributors and volume  purchasers  becomes more complex and
could result in material fluctuations in quarterly sales and operating results.

     The  Company is also  occasionally  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  due  to  uncontrollable  competitive  pressures.
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  maintains  allowances  against the effects of such price
protections,  and believes that it has provided  adequate  allowances  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.

     FACTORS  AFFECTING  PRICING.  Substantially all of the Company's revenue in
each fiscal  quarter  results from orders booked in that quarter.  A significant
percentage of the Company's  bookings and sales to distributors and other volume
purchasers  historically  have occurred during the last month of the quarter and
are  concentrated  in the  latter  half of that  month.  Orders  placed by major
customers are typically based upon customers'  recent  historical and forecasted
sales  levels for Company  products  and  inventory  levels of Company  products
desired to be  maintained  by those major  customers  at the time of the orders.
Moreover,  orders may also be based upon financial  practices by major customers
designed  to  increase  the  return on  investment  or yield on the sales of the
Company's  products to value  added  resellers  ("VAR's")  or  end-users.  Major

                                       12
<PAGE>
distribution  customers  occasionally  receive market development funds from the
Company for purchasing Company products and from time to time extended terms, in
accordance with industry practice, depending upon competitive conditions. The
Company  currently  does not offer  any cash  rebates  to its U.S.  distribution
partners.  Changes in purchasing  patterns by one or more of the Company's major
customers,  changes in customer policies  pertaining to desired inventory levels
of Company products, negotiations of market development funds and changes in the
Company's  ability to anticipate  in advance the product mix of customer  orders
could result in material fluctuations in quarterly operating results.

     PRODUCT CONCENTRATION.  The Company has in the past derived, and may in the
future  derive,  a significant  portion of its revenues from a relatively  small
number of  products.  Declines in the  revenues  from these  software  products,
whether as a result of  competition,  technological  change,  price pressures or
other factors,  would have a material adverse effect on the Company's  business,
results of  operations  and  financial  condition.  Further,  life cycles of the
Company's products are difficult to estimate due in part to the recent emergence
of certain of the  Company's  products,  the effect of new  products  or product
enhancements,  technological  changes  in the  software  industry  in which  the
Company  operates and future  competition.  There can be no  assurance  that the
Company will be  successful  in  maintaining  market  acceptance  of its current
products or any new products or product enhancements.

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

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

                                       13
<PAGE>
     DUPLICATION OF SOFTWARE.  The Company duplicates nearly all of its software
at its  Tucson,  Arizona  facility.  The  Company  believes  that  its  internal
duplication  capability is economically  advantageous  because it eliminates the
profit margin required by outside duplication sources and enables a high degree
of scheduling and other control. This concentration of production does, however,
expose the Company to the risk that  production  could be  disrupted  by natural
disaster  or other  events,  such as the  presence  of a virus in the  Company's
duplicators.  The Company  believes  that it could  retain  outside  duplication
alternatives  quickly, but there is no assurance that it could do so or, if such
arrangements  could be made, that duplication  could take place in an economical
or timely manner.

     PRE-LOAD  SOFTWARE   MARKET;CD  ROM'S.  The  Company  primarily  sells  its
communications  software  in a form that  includes a disk or disks and a manual.
Currently,  the Company has the capability to produce its products in-house only
on 3 1/2 -inch  diskettes.  As the sizes of software  programs  grow,  CD-ROM is
becoming a more prominent medium. Some of the Company's 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. The Company does not currently
have the capability to produce  CD-ROMs and the cost to develop such  production
capability may be prohibitive. The Company currently contracts CD-ROM production
to specialized CD-ROM  facilities.  In the likely event that growth continues in
the pre-load and CD-ROM usage mediums, more of the Company's relationships would
involve  product  pre-loads and CD-ROM  production  and the Company's  business,
results of operations and financial condition could be adversely affected.

     INTELLECTUAL  PROPERTY RIGHTS.  The Company's success is dependent upon its
software  code  base,  its  programming  methodologies  and  other  intellectual
properties. To protect its proprietary technology,  the Company relies primarily
on a combination of trade secret laws and  nondisclosure,  confidentiality,  and
other agreements and procedures,  as well as copyright and trademark laws. These
laws and actions may afford only limited  protection.  There can be no assurance
that the steps taken by the Company  will be adequate to deter  misappropriation
of its  proprietary  information,  or to prevent the successful  assertion of an
adverse claim to software  utilized by the Company,  or that the Company will be
able to  detect  unauthorized  use and  take  effective  steps  to  enforce  its
intellectual   property  rights.   The  Company  owns  United  States  trademark
registrations  for  certain of its  trademarks.  In  addition,  the  Company has
applied for  trademark  protection  on a number of its recently  introduced  new
technologies.  Certain of the Company's trademark applications are still pending
and no assurances can be made that the trademark  applications  will be accepted
by the U.S.  Trademark  and Patent  Office.  A rejection of one or more of these
trademark  applications  could have a material  adverse  affect on the Company's
ability to  successfully  sell and market  these new  products.  In selling  its
products,  the Company  relies  primarily on "shrink wrap" licenses that are not
signed by  licensees  and,  therefore,  may be  unenforceable  under the laws of
certain  jurisdictions.  In addition,  the laws of some foreign countries 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 such claims have been, are now and in the
future maybe asserted against the Company. The failure of the Company to protect
its  proprietary  property,  or the  infringement  of the Company's  proprietary
property on the rights of others,  could have a material  adverse  effect on the
Company's business, results of operations and financial condition.

     From time to time,  the Company has received and may in the future  receive
communications  from third parties  asserting that the Company's  trade names or
that  features,  content,  or trademarks  of certain of the  Company's  products
infringe upon  intellectual  property rights held by such third parties.  As the
number of trademarks, patents, copyrights and other intellectual property rights
in the Company's  industry  increases,  and as the coverage of these patents and
rights and the  functionality  of products in the market  further  overlap,  the
Company believes that products based on its technology may  increasingly  become
the subject of  infringement  claims.  Such claims  could  materially  adversely

                                       14
<PAGE>
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  Company  could  be  forced  to incur
substantial  expense and  diversion of management  attention,  and may encounter
market confusion and reluctance of customers to purchase the Company's  software
products. Such litigation,  if determined adversely to the Company, could have a
material  adverse  effect on its business,  results of operations  and financial
condition.

     DEPENDENCE UPON KEY PERSONNEL.  The Company's future performance depends in
significant part upon key technical and senior management personnel. The Company
is dependent on its ability to identify,  hire, train,  retain and motivate high
quality  personnel,  especially highly skilled engineers involved in the ongoing
research  and  development   required  to  develop  and  enhance  the  Company's
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.

     FLUCTUATIONS  IN  QUARTERLY  OPERATING  RESULTS.  The  Company's  operating
results  have in the past  fluctuated,  and may in the  future  fluctuate,  from
quarter  to  quarter,  as a result of a number  of  factors  including,  but not
limited to,  changes in pricing  policies or price  reductions by the Company or
its  competitors;  variations  in the  Company's  sales  channels  or the mix of
product sales; the timing of new product  announcements and introductions by the
Company or its competitors; the availability and cost of supplies; the financial
stability  of major  customers;  market  acceptance  of new products and product
enhancements;  the  Company's  ability  to  develop,  introduce  and  market new
products,  applications  and  product  enhancements;  the  Company's  ability to
control costs;  possible  delays in the shipment of new products;  the Company's
success in expanding  its sales and  marketing  programs;  deferrals of customer
orders in  anticipation  of new  products,  product  enhancements  or  operating
systems;  changes in Company strategy;  personnel changes;  and general economic
factors.  The Company's  software  products are generally  shipped as orders are
received and  accordingly,  the Company has  historically  operated  with little
backlog.  As a result,  sales in any quarter are  dependent  primarily on orders
booked and shipped in that  quarter and are not  predictable  with any degree of
certainty.  In addition, the Company's expense levels are based, in part, on its
expectations as to future  revenues.  If revenue levels are below  expectations,
operating results are likely to be adversely affected.  The Company's net income
may be  disproportionately  affected by a reduction in revenues because of fixed
costs related to generating its revenues. Quarterly results in the future may be
influenced by these or other factors and, accordingly,  there may be significant
variations in the Company's quarterly operating results.  Further, the Company's
historical   operating   results  are  not  necessarily   indicative  of  future
performance for any particular period.  Due to all of the foregoing factors,  it
is possible that in some future quarter the Company's  operating  results may be
below the  expectations of public market analysts and investors.  In such event,
the price of the  Company's  Common Stock 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

                                       15
<PAGE>
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.

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

COMPUTER TELEPHONY

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

     The Company believes that the principal  competitive  factors affecting the
computer  telephony  markets it serves  include  vendor and product  reputation,
product  architecture,  functionality  and features,  scalability,  ease of use,
quality of product and support,  performance,  price, brand name recognition and
effectiveness of sales and marketing efforts. There can be no assurance that the
Company can maintain and grow its market position  against current and potential
competitors,  especially those with significantly greater financial,  marketing,
service, support,  technical and other competitive resources. Any failure by the
Company to  maintain  and grow its  competitive  position  could have a material
adverse effect upon the Company's  revenues from its computer  telephony product
line

     The Company  released its newest  telephony  product,  TeleVantage  2.0, in
August 1998.  TeleVantage is a phone system  designed for small and medium sized
businesses  and  branch  offices.  The  Company  believes  this  product  offers
functionality  superior to that of a traditional standalone PBX. However, due to
the complexity of this software and the mission  critical systems it is designed
to operate,  there can be no assurances  that the software will be  successfully
marketed or sold. Additionally, there can be no assurances that competitors with
substantially  greater  financial  resources  than that of the Company  will not
develop their own personal  computer ("PC") based PBX solution and  subsequently
adversely affect the Company's ability to introduce, launch, market, or sell its
PC based PBX solution, TeleVantage.
                                       16
<PAGE>
     The Company  believes its principal  competitors in the PC-based PBX market
are product offerings from Altigen,  Netphone and Picazzo.  These privately held
concerns have differing funding sources than those of the Company, which may put
the Company at a competitive disadvantage.

     COMPUTER  TELEPHONY  CUSTOMERS  AND  MARKET  ACCEPTANCE.   The  Company  is
currently and will continue to invest significant  resources in the development,
marketing  and  selling  of new  computer  telephony  products.  There can be no
assurance  that the Company will achieve  market  acceptance of these  products.
Additionally,  these new computer telephony products are principally targeted at
small to medium size  businesses.  The Company's  existing  network of qualified
VAR's  has  historically  sold  the  Company's   networking  and  communications
products.  Therefore the Company anticipates the need to recruit and train a new
network of qualified VAR's to sell its computer telephony products. There can be
no assurance that the Company will be successful in establishing a critical mass
of qualified  computer  telephony  resellers.  The Company's  success in selling
these  products  will likely be  influenced by its ability to attract and inform
qualified VAR's and  interconnects  on the features and  functionality  of these
emerging technologies.

     The Company's computer telephony products compete in a relatively  immature
industry with as yet unproven  technologies.  There can be no assurance that the
current  technological  innovations in the computer  telephony  industry will be
widely adopted by small to medium size  businesses or that  telephony  standards
will  evolve  in a  manner  that  is  advantageous  to the  Company's  telephony
products.

COMMUNICATIONS AND NETWORKING SOFTWARE

     NETWORKING AND COMMUNICATIONS  SOFTWARE CUSTOMERS.  The Company relies on a
network of distributors and VAR's for a significant portion of both its domestic
and international  networking and communications  software product revenues.  In
addition,  a majority of the sales of CoSession  Remote,  the  Company's  remote
communications  software  product,  are to PC original  equipment  manufacturers
("OEM's").  Generally,  there  are no  minimum  purchase  requirements  for  the
Company's  distributors,  OEMs and many of the Company's  distributors and VAR's
sell competitive  products.  There can be no assurance that these customers will
give priority to the marketing of the Company's  products  compared to competing
products or alternative  solutions or that such customers will continue to offer
the  Company's  products.  In the  event  of the  termination  of the  Company's
relationship with one or more major distributors, the Company would have to find
suitable alternative channels of distribution.  The absence of such alternatives
could  have a  material  adverse  affect on the  Company's  business,  financial
condition and results of operation.  Certain of the Company's OEM  relationships
require  the  scheduled  delivery of product  revisions  and new  products.  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 OEM channel.
The Company's OEM revenue  streams are dependent upon the  maintenance of one or
more key OEM  relationships.  The termination of any one of these  relationships
may have a material adverse affect on the Company's current and future revenues.

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

     Management believes that the inclusion of networking capabilities (printer,
file and  application  sharing) in Microsoft's  Windows 95/98  operating  system
(released in August 1995 and June 1998,  respectively) has had and will continue
to have a significant detrimental impact on sales of the Company's LANtastic NOS
products.  Windows 95/98 is pre-loaded on virtually all Pentium  processor-based
personal computers currently sold worldwide.  The impact of Windows 95/98 on the
Company's  business has been  compounded  by the  dominance  and  visibility  of
Microsoft in the PC  marketplace  and the rapid  upgrade by small  businesses to
Pentium PC's. In August 1996, Microsoft released Windows NT 4.0, a client-server

                                       17
<PAGE>
network  version of the  Windows  operating  system.  Management  believes  that
Windows NT 4.0,  which,  like Windows 95/98,  includes  peer-to-peer  networking
capabilities  in the workstation  version,  and is pre-loaded on certain Pentium
PC's, has provided  additional  significant  direct competition to the LANtastic
NOS both as a peer-to-peer and  client-server  networking  solution.  Management
believes that  Microsoft will release  Windows NT 5.0 in early 1999.  Microsoft,
because of its  dominant  position  in the PC  operating  systems  and  business
applications  markets,   frequently  offers  value-added  functionality  to  its
products in the form of enhancements to its Windows operating systems, which are
pre-loaded  on new PC's or by offering free products for download from its World
Wide Web site.  The  Company  believes  that  Windows NT 5.0,  Microsoft's  next
version of its Windows NT Server may  include  both modem  sharing and  internet
sharing  capabilities.  The  inclusion  of modem  sharing and  internet  sharing
capabilities in Windows NT could result in substantially  increased  competition
for the Company's ModemShare and i.Share products which could have a significant
impact on the Company's sales and operating results.

     Finally, the movement of the networking industry towards 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.

     REMOTE COMMUNICATIONS  SOFTWARE. The principal distribution channel for the
Company's  remote computing  product,  CoSession Remote 32 version 8, is through
OEM arrangements with PC manufacturers. In December 1997, the Company released a
32-bit version of the product to support the Windows 95 and Windows NT operating
systems.  As the Company's major  competitors also offer 32-bit remote computing
products, it is critical, for the continuance of the OEM relationships, that the
Company  successfully  market the  32-bit  product  and meet major OEM  customer
e-commerce and other promotional requirements. The Company's ability to grow its
remote  computing  software  revenues  will  likely  depend  on its  success  in
leveraging  existing OEM relationships to develop new sources of revenue such as
e-commerce.  The loss of one or more of these  OEM  relationships  could  have a
significant impact on the Company's net sales and operating results.

     The Company  currently is in negotiations with a company which it obtains a
licensed product.  The failure to extend the licensing  arrangement could have a
material adverse impact on the Company's future operating results.

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

YEAR 2000

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

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

     In recognition of the Year 2000 issue, the Company in September 1997, began
a  comprehensive  review  of  all  information  technology  and  non-information
technology systems used by the Company,  computer hardware and software products
sold by the Company,  and computer hardware and software products and components
and other  equipment  supplied  to the  Company by third  parties.  Such  review
includes testing and analysis of Company products and inquiries of third parties
supplying  information   technology  and  non  information  technology  systems,
computer hardware and software  products and components,  and other equipment to
the Company.
                                       18
<PAGE>
     The Company  has  divided  its Year 2000 review into two phases.  The first
addresses  the  Company's  core  information  technology  systems  and  products
currently sold by the Company.  The second phase addresses non-core  information
technology systems, non-information technology systems, and products, components
and  equipment  supplied to the Company from third  parties.  In  addition,  the
Company will implement  required Year 2000 upgrades and replacements  during the
second phase. The Company substantially  completed the first phase of its review
in September  1998.  The Company  believes it will  complete the second phase by
March 1999.

     In the first phase of its Year 2000  review,  the Company  tested  software
products  currently  manufactured and shipped by the Company,  and believes that
such products are Year 2000  compliant.  Certain of the Company's  products that
were discontinued prior to fiscal 1998 are not Year 2000 compliant.  The Company
has notified its distributors, resellers and end users of this non-compliance to
the extent possible and has authorized returns and replacement of these products
where  possible.  The  Company  believes  the cost of these  returns  or product
replacements to be immaterial,  and that the Company's  reserves are adequate to
cover such returns and  replacements.  The Company also made  inquiries of third
parties  supplying the Company with computer  hardware and software products and
components  currently  sold by the Company,  and received  assurances  that such
products  and  components  are  Year  2000  compliant.   With  respect  to  core
information  technology,  the Company made inquires of third  parties  supplying
computer hardware and software  operating  systems to the Company,  and received
assurances that,  except as discussed below,  such hardware and software systems
are Year 2000 compliant.

     As a result of its review to date, the Company has determined  that certain
of its internal  financial  software  systems are  inadequate  for the Company's
future business needs and need to be replaced because of various considerations,
including Year 2000  non-compliance.  In certain cases the timing of replacement
systems is being accelerated  because of Year 2000 issues,  although the Company
believes  replacement would have been necessary in the near future regardless of
such issues. The Company initiated a comprehensive  search to replace these Year
2000  non-compliant  systems.  The Company has selected a  replacement  software
package and is currently  in the process of  migrating  to the new package.  The
expected  implementation  date is April 1, 1999.  The  Company  expects to spend
approximately  $300,000 to purchase and implement the new software.  These costs
will be capitalized over the life of the purchased software package. The Company
does not expect the amounts to be expensed over the life of the software package
to have a material  effect on its financial  position or results of  operations.
The Company does not believe that any specific  information  technology projects
have been deferred as a result of Year 2000 issues.

     The Company has not developed a "worst case"  scenario with respect to Year
2000  issues,  but instead has focused its  resources on  identifying  material,
remediable problems and reducing uncertainties generally,  through the Year 2000
review described above.

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

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

                                       19
<PAGE>
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995

     This Form 10-Q may contain  forward-looking  statements  that involve risks
and  uncertainties,  including,  but not limited  to, the impact of  competitive
products and pricing,  product demand and market  acceptance risks, the presence
of  competitors  with  greater  financial  resources,  product  development  and
commercialization   risks,   costs   associated   with   the   integration   and
administration  of  acquired  operations,  capacity  and supply  constraints  or
difficulties, the results of financing efforts, Year 2000 issues and other risks
detailed from time to time in the Company's  Securities and Exchange  Commission
filings.  The Company  filed its 1998 Form 10-K on September  25,  1998.  Please
refer  to  this  document  for a  more  detailed  discussion  of the  risks  and
uncertainties associated with the Company's future operations.


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

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 2. CHANGES IN SECURITIES

     None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

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

     None

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

          No. 11 - Computation of Net Income (loss) Per Share

          No. 27 - Financial Data Schedule for Form 10-Q dated November 13, 1998

     (c) Reports on Form 8-K

          The  Company  filed a  report  on Form  8-K  dated  August  27,  1998,
          announcing the resignation of Bank One Arizona as the Company's rights
          agent  effective July 1, 1998 and the  appointment of Harris Trust and
          Savings Bank as successor  rights agent.  The Company also amended its
          December  1994  Preferred  Shares  Rights  Agreement  to increase  the
          percentage  of common stock that an  individual or group of affiliated
          individuals  could own before  triggering  the  provisions of the 1994
          Preferred Shares Rights Agreement from 15% to 25%.

          The  Company  filed a report on Form 8-K  dated  September  18,  1998,
          announcing  the  appointment of Sheldon M. Schenkler as vice president
          and chief  financial  officer and the promotion of Scott Moule to vice
          president and general manager of the Communications  Software Group in
          Tucson,  Arizona. The Company also announced its plans to relocate its
          corporate headquarters to Cambridge, Massachusetts.

          The  Company  filed a  report  on Form  8-K  dated  October  6,  1998,
          announcing  the  resignation  of Jerry E.  Goldress as chairman of the
          board of  directors  and the  appointment  of  Michael  P.  Downey  as
          chairman of the board of  directors.  The Company also  announced  the
          promotion of T. Paul Thomas to chief executive  officer and president.
          The Company  also  announced  the  appointment  of Frank Girard to the
          board of directors.
                                       21
<PAGE>

                                   SIGNATURES

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

                                          ARTISOFT, INC.



Date: November 6, 1998              By /s/ T. Paul Thomas
                                      ------------------------------------------
                                      T. Paul Thomas
                                      President and Chief Executive Officer



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


                                       22